A Lean Startup is based on a thinking approach that is characterized by effective product development. The approach is an increasingly popular method used by many founders to structure the development phase of their startups.
The method established by Eric Ries runs through the entire company and affects all processes. The term can be replaced with something like “slim” or “slender”. And that is exactly what the approach stands for: slim and elegant solutions.
Fundamental to lean startups is the lean management approach. The approach is applied to the process of founding a company to perfect the efficiency of a launch. By allocating different resources the startup’s productivity and thus its chances of survival are increased.
The waste of resources should thus be avoided and the product development optimized. The goal of every Lean Startup is therefore to realize a launch with as little capital and time as possible. All these efforts work towards the ultimate mission of establishing a successful company.
Although the method is of course adapted to each startup individually, it offers a universal, scientific approach to founding and managing startups. Lean Startup works like a map that tells you exactly when to turn and when to persevere.
Startups remain far more likely to fail than they are to build a successful business. Up to 9 out of 10 startups fail in the first 3 years alone. One of the main reasons for these high numbers is a lack of product-market fit.
A product-market fit is the question of fate of every startup. That means the startup has to find the product that fits exactly its chosen market.
In addition, achieving a product-market fit represents a milestone in the company. As it marks the transition from the search phase to the growth phase.
Because startups are based on highly innovative business ideas that have hardly been tested, there is a high chance that the market has no demand for this product. The lack of knowledge and the non-existing data with which the success of the respective innovation and the associated market could be read off mean a high degree of uncertainty for the founders. Classic startups in retail or hospitality avoid this risk because their business ideas have already been validated thousands of times.
Startups, therefore, take a higher risk from the outset due to their lack of knowledge about market needs. Additionally, they have to cope with high time pressure to meet their goal of exponential growth. In return, startup founders are also rewarded much higher than a restaurant owner in case of success.
The Lean approach now tries to adapt the product to the market and customer needs to enable higher chances of success. By avoiding a long planning phase and optimizing the product in several cycles based on customer feedback, the founder is enabled to develop a product with few resources but still a product-market fit.
“Using the Lean Startup approach, companies can create order not chaos by providing tools to test a vision continuously.” (Eric Ries)
So instead of wasting valuable time on strategy planning, the approach relies on a mix of learning-by-doing and trial-and-error. Through the product development process, it becomes apparent what works and what needs to be adapted to meet customer needs.
Basically, Lean Startup assumes that every company, every product is based on a set of assumptions. Assumptions and hypotheses about the target audience, customer needs, the market, competitors et cetera. These assumptions need to be captured as accurately as possible in a Business Model Canvas in order to have a guide for testing. The method is about validating or rejecting these hypotheses as quickly and efficiently as possible.
This gives the startup quick certainty as to whether it is on the right track or the product may need to be adjusted. This makes it virtually impossible to spend tens of thousands of dollars on product development, only to realize that no one is interested. That’s why lean startups can avoid financial bottlenecks by acting flexibly and adapting products quickly based on external influencing factors.
So the Lean approach does not answer whether the product can be built, but whether it makes sense to build it. Furthermore, the method does not focus on the company, but on the product. Lean Startup has as its goal to build the organization around a product. Thus, they align all operations according to the innovation process.
For the Lean method to work, these assumptions need to be tested as early as possible and also re-examined throughout the development process.
Assumptions logically cannot be tested on their own. To gain certainty, they must be tested. The classic choice for this, especially in the early stages, is observations or interviews with people from the desired target group. This can already reveal a lot about the problems, wishes, and needs of the target group.
The only problem is that the test subjects are not part of a natural situation or are not seriously interested in your solution. But there is an alternative:
MVPs, or Minimum Viable Products, are the smallest possible and minimal solution that is still functional enough to be used by customers. This minimum viable iteration allows a product to be developed quickly and cost-effectively while still meeting customer needs.
The key difference from other testing is that the product comes into contact with actual customers, with a serious buying interest. They are not test subjects influenced by external variables, but early adopters who love your product and in the best case recommend it to others.
This makes MVPs the perfect tool to enforce the Lean Method. Just like the Lean Startup method, they avoid a long planning phase and start as soon as possible with the actual development based on the predefined assumptions. Once the MVP has been launched and the first customers are using it, this feedback can be used to optimize the Lean Startup.
At the same time, by varying the price at which the product is offered, the target group’s willingness to pay can be tested.
Then comes the final step of the Lean process, which is also called the Build-Measure-Learn process. First, the minimal version of the product was developed, then the feedback received from it is measured. And finally, the feedback is analyzed. This final step also uses the Business Model Canvas to determine which assumptions proved true and which proved false.
In other words, the collected feedback data from customers is interpreted to understand the extent to which the product already meets market needs. In addition, the data yields learnings about which aspects still need to be improved for the next cycles.
After all, development is far from complete. In order for the MVP to mature into a fully optimized product, the Build-Measure-Learn process is constantly repeated.
However, you should only really verify or falsify assumptions if a sufficient amount of data supports it. Premature decisions based on small amounts of data and assumptions contradict the Lean Method. This is because product adjustments are made that do not necessarily meet customer needs. In addition, you can define new hypotheses to gain further insight afterward.
In the most radical case, even the first market test can lead to the realization that there is no product-market fit at all. And the product idea would be better discarded. But even in this case, you can consider yourself lucky to have followed the Lean approach.
After all, you only used minimal resources to reach this conclusion. If you had opted for the immediate, full development of the product, you would have realized much later that there was no interest in your product and would have already consumed far more resources.
Do you have a good business idea, but uncertainty about its success makes you doubt it? The Lean Startup method shows you a low-resource and a way that has been validated many times to get certainty.
Lean Startups create space for innovation and disruption. The method allows building a startup based on facts rather than loose assumptions. Through cycles of learning, changing, and improving, risks can be avoided and promising products can be developed.
The key to success is developing a powerful MVP. Once you’ve mastered this step, there’s nothing standing in the way of scaling your business quickly.