Lean Startup

A lean startup is a slimline developing method, which helps people to use as little capital as possible to quickly and effectively build companies and launch products that the market really needs. 

The concept of “lean” comes from Toyota, and it describes an approach focused on maximizing the added value in the company’s processes by reducing waste. This approach is dedicated to companies that know exactly what is valuable for the client.

The lean startup method is used in order to introduce a new product on behalf of a certain company or to develop a new company. The main idea behind the lean startup method is creating products that customers would certainly want to purchase. Thus, those who are using the lean startup method already have the demand for their product before the product even launches. Building a startup is also an exercise in institution building, consequently, it necessarily involves management.

The lean startup methodology is based on a rinse-and-repeat type of cycle, where entrepreneurs need to build a product, measure customers’ reactions, learn if the initial idea has been validated or it needs to be adapted.  

Gaging consumer interest

Product developers can use lean startup principles to measure consumer interest in the product. Such a process is referred to as validated learning, and it can be used to avoid unnecessary use of materials and resources in product development. The term “fail-fast” is also widely used among product developers. It implies that through lean startup, if it is highly likely that a certain idea is going to fail, it will fall cheaply and rather quickly.

The developer of the method is Eric Ries, an American multi successful entrepreneur, blogger, and the founder of the Long-Term Stock Exchange (LTSE). Eric Ries also created a lean startup movement to help startups allocate resources more effectively. 

Lean startup vs. traditional businesses 

The lean startup method is different compared to the traditional business model. Unlike traditional business, where workers are hired based on their abilities and the experience they have, the lean startup method hires those who are easily adaptable and work fast. Also, while the traditional business model focuses on their balance sheets and income statements, the lean startup method makes developers focus on lifetime consumer value, acquisition cost and on thinking about how to make their product even more viral. 

Lean startup requirements

Experimentation is far more valuable than thorough planning. Five year business plans are considered to be a waste of time, and customer reaction is more important than anything else. 

Lean startups are based on hypotheses that are promptly tested.  Instead of business plans, lean startups use a business model based on hypotheses that are tested rapidly. In lean startups there simply has to be enough data in order to proceed. Startups can rapidly adjust to begin developing the product again and limit its losses if customers don't have a reaction that was initially desired by developers.

Business owners are following this method in order to test the hypothesis they have by engaging with future customers. Gauging the customer's reaction to the pricing, distribution and features of the product allows them to make sure that customers are waiting for the product to launch. Using the information about their reactions, entrepreneurs make either small (iterations) or large (pivots) adjustments in order to correct any possible concerns. Sometimes, testing the hypothesis results in changing either the product or the target customer. 

Simply put, this method has two main steps:

1. Identifying the problem that needs solving
2. Developing the smallest amount of product in order to see the customers’ reaction and feedback on the product.

3 basic principles of a lean startup

In his book “The Lean Startup” Eric Ries proposes 3 stages of a lean startup that can help startups build an adaptive culture to thrive in a rapidly changing world. 

There are a total of three stages of lean startup, they include:

1. Validating assumptions. Defining the most fundamental assumptions about the idea, putting it out there and seeing if the assumptions were right. 
2. Customer development. Customer development starts with defining who the customers of the future product are and whether or not this product will be able to satisfy them. It also helps to determine whether the customers that the entrepreneur thinks are going to be the target market are in the entrepreneur's target market. 
3. Minimum viable product (MVP). After the entrepreneur validates his/her most basic assumptions and makes sure customers are willing and waiting for the product’s launch, it’s time to put it in the real world. A minimum viable product should be the most simple form of the entrepreneur’s idea. The purpose of this is to actually validate whether or not this business idea will work in the real world and to enable the entrepreneur to learn about the opportunities and risks in building it. 

Example of lean startup

An online language learning platform that is targeting primarily kids, and teenagers might learn that it can make a better market among young people and the adult population. In this case, companies might change their learning programs to better suit other age groups’ needs.