Lean Startups

In 2007 Eric Ries, a West Coast code writer, was named by Business Week as one of the best young entrepreneurs of tech. In 2011 he published his framework for new start-ups in a book entitled The Lean Startup: How Constant Innovation Creates Radically Successful Businesses.

Eric Ries defines a startup as "a human institution designed to deliver a new product or service under conditions of extreme uncertainty". By its very nature a start-up is surrounded by uncertainty and for this reason many fail. Ries believes that failure rates could be minimised by applying a structure to the start-up. This he calls the lean startup. He proposes three stages:

1. Build: this is the first stage in which the idea is turned into a product.

Customers should be central to all new business ideas. Ries reminds us that at every stage of turning the idea into a product the customers' views are vital – even if only one customer.

2. Measure: as the product is developed it is important to see how customers respond.

Start-ups are inevitably experiments. The business idea is based on a hypothesis that someone is interested in the new product. Therefore as frequently as possible tests should be made to see how customers respond. Getting close to the customer and understanding their reactions is critical.

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3. Learn: almost certainly there will need to be some changes required.

In most cases, the original idea will require tweaking in order to meet customers’ needs and to ensure it is financially viable. This means the entrepreneur must be able to pivot, learning from the experiment and ensuring that problems are fixed and value is built into the new product.

As with all things in business this is a circular framework, constantly building on ideas, measuring responses and applying the learnings to make improvements.

The Lean Startup methodology emphasises a more efficient process of product development. It aims to eliminate wasteful practices and increase the likelihood of building a successful and sustainable business. Here are the key principles of the Lean Startup:

Build-Measure-Learn: The core concept of the Lean Startup is the Build-Measure-Learn loop. Instead of spending extensive time on planning and development, start by building a minimum viable product (MVP), measuring its performance, learning from user feedback, and iterating to improve.

Validated Learning: Prioritise learning over traditional metrics like product delivery or revenue. Validate assumptions and hypotheses through real-world testing and customer feedback. Adjust strategies based on insights gained from actual user interactions.

Minimum Viable Product (MVP): Develop the smallest version of a product that allows you to test key assumptions and gather feedback. The MVP helps to minimize resource investment while providing a tangible product for testing and learning.

Continuous Deployment: Embrace continuous deployment and release small, incremental updates frequently. This allows for quicker learning cycles, faster iterations, and the ability to respond rapidly to changing market conditions.

Pivot or Persevere: Be willing to make strategic adjustments based on what you learn. If the data suggests that the initial assumptions were incorrect, consider a pivot (a fundamental change in strategy) or persevere if the results are positive.

Actionable Metrics: Focus on metrics that provide actionable insights rather than vanity metrics. Actionable metrics help teams understand user behavior and guide decision-making to improve the product.

Build a Cohort of Early Adopters: Identify and engage with a cohort of early adopters who are willing to provide feedback on the product. Their insights are valuable in shaping the product and its features.

Innovative Accounting: Apply innovative accounting practices to measure progress in a startup environment. Metrics such as validated learning, actionable metrics, and milestones should be emphasized over traditional financial indicators.

Lean Thinking: Apply lean manufacturing principles to startup practices. Eliminate waste, optimize processes, and focus on delivering value to customers. This involves a continuous cycle of improvement and adaptation.

Continuous Testing and Experimentation: Continuously test and experiment with different aspects of the product, marketing, and business model. This allows for rapid iteration and refinement based on real-world data and user responses.

Customer Development: Prioritise understanding customer needs and problems before developing the final product. Customer development involves engaging with potential users to gain insights that shape the product.

Agile Development: Adopt agile development methodologies to enable flexibility, collaboration, and responsiveness to change. This allows for quick adjustments based on customer feedback and evolving market conditions.

Things to think about:

• Does your organisation think like a small, lean company or like a bureaucratic corporate?

• Who within your organisation is responsible for setting the culture? How lean is their thinking?

• What evidence do you have within your company of lean thinking? How easy would it be to graft this thinking on to other parts of the business?

• What are the options for your company acting as a multitude of small lean companies rather than a bureaucratic corporate?