How To Start A Business: The Lean Start-Up Approach

In recent years, there’s been a movement among entrepreneurs called the lean start-up. Let’s take a look at this approach, and how it differs from the better known, tried-and-true methods for launching a business.

The Lean Start-Up Philosophy

Eric Ries is one of the pioneers of the lean start-up methodology, and he articulates the idea as follows: The lean start-up methodology is that every start-up is a grand experiment that attempts to answer a question. The question is not “Can this product be built?”, but instead the questions are “Should this product be built?”, and “Can we build a sustainable business around this set of products and services?”

This experiment, he says, is more than just theoretical inquiry. It’s a first product. If it’s successful, it allows the manager to get started with his or her campaign, in listing early adopters, adding employees to each further experiment or iteration, and eventually, starting to build a product.

This is a transcript from the video series Critical Business Skills for Success. Watch it now, on Wondrium.

There’s an important distinction between the lean start-up approach and what happens to many entrepreneurs. Many entrepreneurs have a great technological solution or a product in mind. But a great technology or a great product concept does not a business make. You need a business model. You need to know what customer actually needs and what does the customer need out of that product? You can’t fall in love with your idea. You have to adapt, and that adaptation can be difficult for many entrepreneurs.

Ries articulates this notion of a minimum viable product or an MVP. He says the MVP is that version of a new product or service which allows a team to collect the maximum amount of validated learning with the least effort. Begin to figure out what problem needs to be solved. What pain point is there that the customer is experiencing? It’s not your idea for a great new technology, but what does the customer need based on the frustrations they’re experiencing with current products and services? Ries argues that is when we then develop an MVP. The notion is to begin to learn as soon as possible, adapt or pivot, and then shift your idea based on the learning that takes place.

Begin Learning As Soon As Possible

It’s crucial here you get to that learning and planning process as soon as possible.

It’s crucial here you get to that learning and planning process as soon as possible. Don’t spend years belaboring to write the 100-page business plan before you execute. Getting an initial concept, prototype, and product out into customers’ hands and collecting feedback is valuable. It’s a risk spending all your time building spreadsheets that project revenues and expenses for something that’s going to be hard to estimate and to understand in advance. Get the plan out there and collect real user feedback to build on. Let’s get our MVP into the customers’ hands as soon as possible.

Testing the Hypothesis

You need to assess and understand what are you trying to accomplish with your MVP. Ries argument is you’re trying to test certain hypotheses. What does that mean to test our hypotheses? He says there are certain kinds of propositions you want to collect information about or articulate before you put the prototype in the hands of customers. You have hypotheses about what the customer needs, what they define as quality, and what they’re willing to pay for. You test those hypotheses and begin to collect data to see if this may be a great product. But can we command a price sufficient to cover our expenses? That’s a different question. You may have a great technology, but no one’s willing to pay enough for you to be able to sell it at a profit.

Learn more: Launching a Lean Start-Up

Comfortable With Good Enough

Now getting this prototype into people’s hands means getting comfortable with good enough. What does good enough mean? Well, you can’t hold the prototype forever trying to perfect it. You have to be able to get it into people’s hands early even if it’s imperfect. It’s got to be good enough, not perfect. To know what’s good enough is a difficult test for an entrepreneur. Many entrepreneurs don’t want to release their baby before it’s perfect.

Every couple who has a new baby fears having their baby called ugly the first time the child is seen. But in business, great entrepreneurs are willing to allow others to call their baby ugly. They’re willing to put out a product that isn’t perfect and let people say what’s not perfect about it. They quickly adapt and do not fall in love with their idea.

The problem with many entrepreneurs is they don’t want to listen to criticism. Even if they put out that prototype, they’re hell-bent on getting their idea to market. They’ve worked hard and they’re so passionate about their idea, they don’t want to listen to feedback. But it’s not enough to just get the prototype out there. You also have to be willing to listen, understand that it’s not perfect, and take the criticism, as harsh as it may be. It’s difficult to do.

Not every entrepreneur is willing to do that. David Kelley, the founder of the leading product design firm, IDEO, has a wonderful phrase he’s instilled at his firm to drive their innovation process. He talks about the notion of failing often to succeed sooner. This concept is crucial in the context of entrepreneurship. You have to be willing to put something out there that is a “failure”, that may be trashed by customers, and receive a lot of negative feedback. You have to be OK with that, pick yourself up, take the feedback, and adapt.

Successful Pivots

Successful companies pivoted after they started out with one direction and one strategy, adapted based on customer feedback, got their MVP out there in the market, and saw what users wanted. Feedback showed how customers reacted, what they liked and disliked, and in response, the company generated improvements. Here are three firms that moved significantly from their roots in the early stages of the strategy-creation and adaptation process.

Yelp started as an automated system for e-mailing recommendation requests to friends. It’s become an online review system for restaurants and local businesses. If people are in a city they’re not familiar with, they quickly turn to Yelp to find nearby restaurants or other local businesses to discover what others are saying about those businesses before they go give them their dollars.

Learn more: Matching Supply and Demand

How about Twitter? Twitter, of course, is a very successful social media platform today. They didn’t start that way. They began as a podcasting start-up in their initial incarnation, but they adapted.

Finally, Starbucks is a very successful company. But they didn’t start with the strategy that we see today. They started off selling coffee beans and espresso machines. The company that began in Seattle is now a multinational corporation that sells brewed coffee and coffee drinks of various kinds. They evolved.

Here’s the interesting question: Are lean start-ups more possible today than in the past? Could it be that it’s easier to build an MVP to test and prototype today than it was years ago? There’s an argument to be made that it is more feasible today. The cost of computer-processing power has come down dramatically. Open-source software is available that you can get to help launch your business. Cloud computing has changed the entire nature of computing in many companies. To add to that, access to capital and talent has fundamentally shifted.

When I attended Harvard Business School as an MBA student in the early 1990s, most graduates went off to investment banking or management consulting. Very few people went directly from business school to the start-up community. Today, you see many people going to business school and looking to directly launch a new venture. They don’t want to work for a large corporation; they want to be their own boss; they have a great idea and they’d like to try it. The start-up model takes advantage of this mindset to recruit young talent that wants to work in a new company.

A direct approach, real-time feedback that gives insight into customers’ wants and needs, and an adaptive mindset to the market make it more feasible in many ways to launch a lean start-up today than in the past.

Common Questions About the Lean Start-Up Approach

A lean startup is a business model that minimizes waste by taking a disciplined approach to planning, starting small and limiting costs at the beginning to allow room for failure, and to test out new ideas. That way if an idea doesn’t work out, it’s not a huge loss.

If you are planning to start a lean business, you need to be flexible and willing to adapt your plan to circumstances as often as necessary. You’ll also need to form a prototype of your ideal customer and create a product or service that addresses this customer’s most pressing issues.

The goal of a lean startup is to prioritize customer satisfaction above all else and deliver a product or service that benefits society.

The critical first step for a lean startup business is having a product or service that satisfies the customer’s needs.

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