Lean start-up is a phrase that’s been around for a few years now in entrepreneurial and business circles, but is it just a new buzzword for an old concept or is it something new that your business can benefit from?
A Microcosmic Example
It was a cloudless 98-degree August day when 8-year-old Debbie Ann set up her lemonade stand on the corner.
With a supply of 5-ounce plastic tumblers and an old cooler full of melting ice cubes underneath a small folding table, she served cup after cup of instant lemonade for $0.25 each.
Roughly half of the people who pulled over for a drink said something to her about iced tea.
The following Sunday, the banner on the table read “Lemonade or Iced Tea 25¢.” That day, she sold twice as much tea as lemonade. More than half of her customers mentioned they’d gladly pay more for a bigger glass.
The Sunday after, Debbie Ann was on the corner again, this time with 20-ounce tumblers. The banner now read, “Big Iced Tea $1.00.” She could barely keep up with the traffic. Before the day was half-over, her mother had to go buy more ice and cups.
On the next street over, 12-year-old David was working on his “Be Cool Hat,” a baseball cap lined with blue ice packets that you put in the freezer overnight and wear on hot days to keep you cool.
He’d worked on the hat for several years, making the packets thinner and smaller, optimizing the comfort and cooling range. No one, except his family, knew about it. He managed to convince his rich uncle to fund a production run of the hats, which he had manufactured in China.
David also used some of the money to run ads in the local newspaper and got a couple of sales. He took the hats to the local flea market and sold one or two. There was very little interest. People said it was too heavy and uncomfortable. He discovered that the general audience for baseball caps was actually pretty small. He even refunded one of his sales when the customer complained that the hat gave him a headache.
David sank years of his life and a couple thousand dollars of someone else’s money into what he realized too late was a failed product.
David approached his start-up the way many entrepreneurs have: going forward with what they believe is a good idea and developing it in “stealth mode,” without feedback from potential customers or even ascertaining if their idea is attractive to any audience. They invest money in production and promotion, but the product, when finally launched, fails to gain traction.
On the other hand, Debbie Ann approached her business as a lean start-up would: taking her idea of “cold drink on a hot day” directly to the streets. In doing so, she found customers and listened to them. From their feedback, she was able to pivot slightly in her product offering. By continuing to listen to them, she was able to deliver exactly what they wanted and found success.
Lean Start-Up Methodology
Entrepreneur and author Eric Reis proposed the lean start-up philosophy in 2008. He had been involved in two start-ups that ultimately failed.
In both cases, he realized that the main reason was a failure to accurately understand their customers’ needs and wants. Both start-ups began “working forward from the technology instead of working backward from the business results you’re trying to achieve,” Reis said in the Xconomy.com blog.
Like any entrepreneurial endeavor, the lean start-up begins with a product idea. Rather than formulating a business plan to obtain funding so that you can begin building a team, developing and launching your product (as conventional start-ups have been doing since time immemorial), the lean start-up puts a “minimum valuable product” (MVP) into the hands of customers, known as “early adopters,” in order to obtain as much feedback as possible.
This feedback is called “validated learning” and its purpose is to find out as early and with as little effort and funding, if you’re producing a product or service that people actually want. That’s the “results you’re trying to achieve” that Reis referred to. It’s validated because it comes directly from customers rather than from anyone’s assumptions.
Lean start-up methodology is scientific in that it begins with a hypothesis about a product or service that a particular audience wants and then, by putting an MVP out there, proceeds to discover if that hypothesis is correct … or not.
By listening to early adopter feedback, the lean start-up can optimize its offering to be more of what’s needed and wanted. However, when the hypothesis proves to be weak, a lean start-up may still collect feedback and discover a new need or want. In such a scenario, the lean start-up may decide to “pivot” from their initial hypothesis to a new one, and provide an MVP that conforms to that newly-discovered need.
This entire cycle is summed up in the lean start-up concept, “Build-Measure-Learn,” which emphasizes the speed of developing a MVP, measuring customer response to the MVP, and learning from the “experiment” whether to proceed with the product or pivot to something else.
There are indications that the lean start-up methodology has been adapted for use by large, thriving businesses to pilot new initiatives and even by offices of the U.S. Government, such as Data.gov and the Department of Health and Human Services, as Reis describes in his blog, Startup Lessons Learned.
Not Everyone Agrees
Despite the seemingly sensible approach of a lean start-up, it has its critics, some of whom insist that not all early adopters have an interest in helping improve a product, but just wanted a finished product to begin with. (This is particularly true of software products.)
Yet, even Reis does not insist that lean start-up methodology should be swallowed whole, but should be the subject of validated learning by the user, in much the same way early adopters give feedback on an MVP.
The entire process and how to implement it is described in Reis’ book, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.