Lean startup is a strategy for creating new businesses that are based on the idea that business owners must research, experiment, test, and iterate as they create products. 

Beginning in the early 2000s, the idea of a lean startup developed into a methodology by 2010. Entrepreneurs Steve Blank and Eric Ries from Silicon Valley created it, and early adopters like Sharethrough co-founder and CTO Rob Fan promoted it. 

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What Does it mean to be a Lean Startup

Lean startup principles, according to proponents of the concept, ensure that large and small scale business owners and entrepreneurs create goods that customers genuinely desire rather than attempting to construct businesses based on unproven ideas.

Because the lean startup method is intended to reduce the time and money invested in product concepts before entrepreneurs have to test and verify their potential value, proponents frequently refer to this mindset as “fail fast, fail cheap.”

Methodology of Lean Startup 

Lean startup ideas gained popularity thanks to several publications. The Lean Startup, written by Ries in 2011, is the most well-known. 

Ries was inspired by Toyota’s agile manufacturing methodology, known as lean manufacturing because Ries had taken a customer development course that Blank had given in the early 2000s after Blank had invested in his startup. 

The ability to adapt fast is valued in lean manufacturing, also known as lean production. Ries referred to his strategy as “lean startup.” The Startup Owner’s Manual was published in 2012 by Bob Dorf and Blank.

What is the first critical question for lean startups?

The first critical question a lean startup philosophy poses is “Should this product be built?”, and “Can we build a sustainable business around this set of products and services?” and not “Can this product be built?”. 

These first critical questions are more than just theoretical inquiry but more of experiments which result in a first product.

How do you Lean a Startup?

Following the lean startup methodology, you can lean a startup by:

  1. Thinking and finding a business idea to address a need in the market space.
  2. Go ahead to create a practical and effective business plan.
  3. Pitch the plan to either a venture capitalists or an angel investors to get funding for the business 
  4. Launch the business after getting the funding and start selling your products or services.

5 Principles of Lean Startups

  1. There are entrepreneurs everywhere 
  2. Entrepreneurship is management
  3. Validated learning
  4. Innovation accounting
  5. Build-Measure-Learn

Eric Ries, who has written extensively about it in a book and on his website, asserts that there are 5 major principles for developing lean startups: 

1. There are entrepreneurs everywhere 

Startups and entrepreneurs come in a wide variety. There are numerous chances for business owners to create a prosperous enterprise. 

2. Entrepreneurship is management 

Just like any other company, startups require management. Lean startups, however, come in a specific type. 

A successful lean startup has management that is adaptable and learning-focused. 

3. Validated learning 

Customers are the main focus of lean startups’ products. By figuring out exactly what the target market wants, it can adjust to its needs. They experiment to see what is most effective. 

4. Innovation Accounting 

Lean startups meticulously document their testing and analyses to determine what is most effective. 

Instead of focusing on the volume of new work produced, they measure progress based on how much was learnt about the innovation. 

5. Build-Measure-Learn 

Building the most basic product that accomplishes their goals—also known as the Minimum Viable Product—lean businesses get off to a fast start (MVP). 

This is put through a thorough review process that includes tests and user feedback to gather information on how well users react to the product. If it succeeds, they use an iterative approach to improve it based on the feedback.

Characteristics/Philosophies of Lean Startups

The validated learning approach, which is promoted by the lean startup methodology, encourages;

  1. Business owners engage in this activity loop continuously. This involves exploring and developing hypotheses that are then tested among customers to elicit feedback. Entrepreneurs redesign their products based on user feedback.
  2. Lean startups also support agile development methods that have been adapted from the world of software development. 
  3. A lean startup will create a prototype rapidly, release it to the market to evaluate the product’s viability without wasting resources, and use the information gleaned from early market research to influence the creation of the following stage. This strategy is known as Kaizen in lean production. The strategy is referred to as Agile in programming. 
  4. Additionally, the lean startup technique requires business owners to create a testable minimal viable product or MVP. This promotes business owners to modify their goods in response to customer input, which is yet another essential idea of the “pivoting” process. 

3 Stages of Lean Startup 

The Lean Startup methodology is nothing more than conducting tests continuously to lower risks, using concrete findings to prevent potential setbacks, and interacting with potential consumers continuously to better understand their needs. 

In other words, the Lean Startup process prioritises testing before implementation, tangible facts before assumptions, and possible consumers before the business plan. 

The best thing is that the lean startup strategy accomplishes all of this without completing the final product.

  • Problem/solution fit stage 
  • Product/market fit stage
  • Growth stage 

The product/market fit stage is the most important of the three. It’s because this stage has a significant impact on the methodology and strategy guiding the overall development of the startup.

1. Problem/solution fit stage 

In essence, a startup in this phase tries to determine whether the issue it is attempting to solve is worth fixing. 

By doing this, a startup can save time and money instead of wasting months or even years producing a product that no one will buy. 

Furthermore, as you are surely aware, ideas are generally free, but their implementation can be costly. Therefore, it’s essential to start with clear evidence that the right problem is being treated and that the startup’s general concept is sound. 

In essence, you must have clear responses to the following three questions: 

  • Is there a technical solution to the issue? 
  • Whether your customers actually need the product or service you’re building? 
  • Are the clients willing to pay for the service or item you’re developing? 

Only when the answer to all three questions is affirmative should the startup proceed with developing the Minimum Viable Product. 

2. Product/market fit stage 

The second stage of a startup’s development essentially involves testing the dependability and marketability of its product or solution. 

To put it plainly, the startup must test various business models before settling on one that works for it. 

Additionally, the startup must regularly acquire recurring clients using that business strategy. 

Simply put, the lean startup method aids in identifying the main features of a product that customers are willing to pay for and that addresses their primary issue. 

3. Growth stage 

Growth is the third stage of a lean startup, during which time the company concentrates largely on broadening the scope of its business model. 

The typical method for achieving this goal of expanding breadth is to combine marketing, sales, and channel selection. 

Remember that choosing the appropriate marketing and sales channels is essential for speedy growth because they systematically gather client feedback at each level.

Note: These stages of lean startups can also be called lean startup cycle 3 words.

Advantages and Disadvantages of Lean Startup 

Advantages Disadvantages 
Helps business owners build a lasting foundation based on its principles. As a one man book, there can be  possibility of negativity as performance cannot account for innovation.
Lean startup helps new ventures launch products that customers actually want.Can have bad effects from using its methodology and can have serious consequences. Because it has restrictions, guidelines, and approvals.
Helps ventures transform ideas into products far more quickly and cheaply than traditional methods.The concept itself might not work with big ideas.
It is making startups less riskyThe lean system can take you away from your passion. Brings lack of clear business dedication and ownership.
Has stated guidelines and principles that work for different startups.The book keeps dishing out steps and might make you never to know when to stop
Lean startup methodology is unique and comes with a set of approval.Starting it up to lean

3 Examples of Lean Startups Currently in Action

What examples of companies currently use lean startups? They are:

  1. Dropbox
  2. General Electric 
  3. Zappos.

Traditional Startup methods versus Lean Startup methods 

Lean startup concepts go against widely accepted notions of how business owners should approach starting a new business. 

It was once believed that business owners should create a multiyear business plan before using it to borrow money to finance product development efforts.

According to the traditional view, entrepreneurs should create their products in “stealth mode,” keeping their product concepts a secret from everyone but the startup employees and investors. 

According to the lean startup technique, entrepreneurs should look for a viable business model before testing their concepts. Then, as they advance with their ideas, they use feedback from prospective clients to make changes. 

How do you write a Lean Startup business plan?

To write or create a lean startup business plan, follow the methods below:

  1. Define your business goals and aims first.
  2. Choose to write on your problem and solution and how you intend to solve it.
  3. Write, expand, define and identify your target market and the competition to encounter 
  4. Show how you will market your business products and services
  5. Evaluate your finances and how you intend to save up cost
  6. Reinstate and establish milestones for the success of your business and what is so hard about starting the business.
  7. Find out the major resources you need to grow and other resources.
  8. Request for feedback.

Note: You can also put in startup exits for investors.

Lean Startups Book on Amazon

To get the Lean startup paperback or ebook via Amazon, click here.

Who Wrote the Lean Startup

Lean startup was written by Eric Ries, an American entrepreneur, and a blogger. He is also the author of the modern entrepreneurial management book titled ‘The Startup Way’.

Conclusion 

The lean startup model is now being taught in business schools, and established businesses and huge corporations are incorporating its principles into their innovation programmes. 

In a May 2013 article for the Harvard Business Review titled “Why the Lean Start-Up Changes Everything,” Blank stated that as the lean startup methodology practices grow and spread, “they’re turning the conventional wisdom about entrepreneurship on its head. 

New ventures of all kinds are trying to improve their chances of success by following its principles of failing fast and continually learning. And contrary to the methodology’s name, in the long term, some of its biggest payoffs may be gained from learning from failure.

Key Takeaways

  • Lean startup is a strategy for creating new businesses that are based on the idea that business owners must research, experiment, test, and iterate as they create products. 
  • The 5 Principles of Lean Startups are
  1. There are entrepreneurs everywhere 
  2. Entrepreneurship is management
  3. Validated learning
  4. Innovation accounting
  5. Build-Measure-Learn
  • The three stages of Lean Startup are
    • Problem/solution fit stage 
    • Product/market fit stage
    • Growth stage.
Author

Hi, I am Chidimma, the Chief Editor of StartupSpot. I hold a bachelor's degree in Business Education (with a major in Accounting) from the Nnamdi Azikiwe University Awka, Anambra State, Nigeria and online certifications in Digital Marketing by SEMRUSH Academy. Startupspot was therefore born (in 2021) out of my passion to reach startups, small businesses and a greater audience to educate them about startups, the challenges facing startups and how to manage their finances. I also wish to educate people (especially women) to attain financial independence. I hope you find the contents useful, and should you need further help, I hope you ‌reach me.