A recent study from Allmand Law found that 90% of startup businesses ultimately fail. People who stand behind the lean startup model believe that statistic happens because startups aren’t providing what customers really want. Also, they believe it’s not a lack of product development that causes failure, but rather a shortage of customers.
What Makes the Lean Startup Model Different?
Pioneered by Eric Ries, the lean startup model emphasizes efficient allocation of resources. Ries asserts that many startups get off the ground by beginning to build an idea that’s perceived to be desired by the general public. If that idea or service doesn’t gain traction, perhaps it’s because the people behind the startup never took the time to poll prospective customers and get their thoughts. Ries also notes that because many startup businesses feel pressured to do things under extremely uncertain conditions, they dive right in and feel content to proceed without any sort of managerial process.
The lean startup method uses a different tactic because it avoids chaos by using tools geared to test a product’s vision on a continual basis. Instead of progressing through product development phases without getting feedback from potential customers, companies working via the lean startup model get that insight during every part of development.
The Build-Measure-Learn Feedback Loop
One of the main principles of the lean startup method is called the Build-Measure-Learn Feedback Loop. The first phase is to determine the problem that needs to be solved through a product launch and then focus on developing a minimum viable product (MVP). Once the MVP is finished, the learning process can begin. During this part of the process, a startup also utilizes an investigative development technique called the “Five Whys Method,” which poses questions about examining and solving problems. Eventually, it should be clear whether the company is currently aligned with the business model, or needs to make a fundamental change.
Validation Through Experiments
In the lean startup method, the learning process is scientifically validated through a series of experiments that test each component of the business’s vision. Ries says it results in a company that knows its customers extremely thoroughly, due to constant experimentation for both product marketing and features. By collecting data about the earliest customers, startups should be able to use it to make an educated guess about the size of the market for a particular product. This could make it easier to secure venture capital money or go through periods of rapid growth moving forward.
Holding People Accountable
Finally, Ries believes entrepreneurs need to be held accountable through milestones and work priorities. By using the MVP, Ries says startup companies can gauge where they stand at any given time. He states that “disruptive innovation” is part of any startup, but by periodically testing fundamental business hypotheses and making decisions based upon results, Ries believes it’s possible for startup entrepreneurs to objectively prove their efforts will one day turn into a sustainable operation, even in the early stages. This is because when a strategy is found to be flawed and in need of major alterations, the process starts all over again, but goes more smoothly than before, since entrepreneurs have a better idea of what works and what doesn’t.
In closing, it’s important to remember that in this case, the word “lean” does not refer to saving money, but rather to agility and speed that comes from streamlining the method of discovery and making changes before the process gets too far along. However, if done correctly, the method could save startups money, too, because it relies on feedback from the very customers who might cause a product or service to either become profitable or fail.
Stacy Hilliard is a writer that believes in small businesses. At Northeastern University you can get the knowledge needed to be a successful business owner. Check out the online programs offered there.