The Definition and Origins of the Lean Startup
The Lean Startup model takes its name from the Toyota manufacturing revolution as lead by Taiichi Ohno and Shigeo Shingo.
- Drawing on the knowledge and creativity of individual employees
- Shrinking batch sizes
- Utilizing just-in-time production and inventory control
- Accelerating cycle times
This approach highlighted the difference between value-generating behavior, and waste – principles which the Lean Startup method carries across to the context of entrepreneurship.
Right Process == Success Startup
The Lean Startup model
- Fast cycle times
- Focusing on what the customer wants (without asking them first)
- Using scientific approaches to make decisions
Thus, the Lean Startup business model is a novel approach to the development and innovation of new products which focuses on speedy iteration, customer insight, creative vision and sizable ambition, simultaneously.
Validated Learning – a Novel Approach to Data
This approach to learning is more accurate, concise and quicker than traditional modes of market forecasting or corporate planning.
To first understand what validated learning means, we need to highlight which of our efforts are creating value, and which are creating waste. For example, rather than continually trying to update and improve a product, we should work out whether customers are interested in our product at all. Anything that isn’t providing value to the customer is waste.
Ship out a version of the product as quickly as possible to obtain real data.
Validated learning is the process of drawing conclusions from this data, based on actual customer behavior – not on the feedback customers may provide via a survey or interview about what they may hypothetically like about a product that they have not yet interacted with.
Essentially, don’t trust customers to know what they want ahead of time. Instead, trust the way they behave with a tangible version of the product and use this data to inform decisions going forward.
Freedom to Experiment is Essential
Get the customers to interact with a product as quickly as possible as it is the results of this experimentation that determine the direction of the product.
Zappos followed this process to determine customers willingness to buy shoes:
- Approached local shoe stores and took photos.
- Posted pictures online to see if customers would buy them.
- If they did, return to the store, buy the pair of shoes at full price, and send them on to the customer.
Zappos started small and employed the quickest way possible to test their hypothesis that there was a demand for online shoes.
Validated learning and fast experimentation are integral to the lean startup business method.
- Release the first iteration very soon.
- Collect real world data as much as possible and kown what is and is not working in reality,
- Never ever assume this will work in the future only real data.
- All data only available "outside the building" i.e. in the real world.
The Lean Startup Depends on Minimum Viable Products
- Simply the quickest and most effortless way to zip through the Build-Measure-Learn feedback loop.
- They facilitate the process of validated learning as quickly as possible.
- A product is built and tested in the real world, then its successes and failures are measured, and then, from the measurable data, validated learning can inform the next stage in the product’s development.
- Don't add so many features, any feature that doesn’t contribute to what you need to learn should be removed.
- Don't worry about quality. Get the MVP to market as quickly as possible as it is a vital step towards building a high quality product.
- Getting negative feedback for MVPs are common, but this data is still valuable for validated learning and the Build-Measure-Learn feedback loop. So, prepare employees for such results and instead encourage commitment to iteration, innovation, and to to see such setbacks as part of the process.
Lean Startups Must Measure Their Successes and Failures Optimally
Innovation accounting and actionable metrics Startups success can't be measured by interacting with a few customers and seeing if their overall numbers increase.
Innovation accounting allows startups to objectively prove that they are using validated learning to foster a sustainable business.
- Implement an MVP to gain real data on the current status of the company. An MVP helps integrate real baseline customer data into a startup’s growth model, even if the customers don’t value the MVP at present.
- Every initiative that a startup undertakes should be foucused on improving just one of its growth drivers. Ex: startup might choose the activation rate of new customers as a driver for growth.
- Decision to pivot or persevere. If the drivers of the business model are not improving it needs to pivot.
Actionable metrics are further way to improve the way Lean Startups measure their outcomes. They are Actionable, Accessible and Auditable.
- Actionable - It must indicate a clear line of cause and effect without any mistakes.
- Accessible - Reports needs to be as simple and widely accessible as possible to ensure that the entire team is on board.
- Auditable - The reports should be true facts. Ex: data must be reliant on the real behavior of or interactions with the customers.
Pivot or Persevere
One of the biggest blocks to creative potential is the poorly-made choice to perservere with a failing startup approach. However, a well-considered pivot in a new direction can help entrepreneurs move along the path to a sustainable, successful business.
Fail fast, pivot sooner.
Reason many delay pivoting:
- Vanity metrics encourage entrepreneurs to draw conclusions from the data that match their wishes rather than reality; this, in turn, means that they do not believe that change is necessary.
- Unclear hypotheses which, by their obfuscate nature, make it impossible to experience complete failure, again disguise the fact that a radical change may indeed be necessary.
- Many afraid of pivoting. Acknowledging failure can be disastrous for team morale, the fear of their new business idea, not getting a chance to really prove itself post-pivot is great.
Lean startup model approaches pivoting as a structured form of change. It's what makes companies who implement the method so robust as, if they need to pivot, they have all the tools (think validated learning, freedom to experiment, MVPs, innovation account and accountable metrics)
Think Big, Think Smaller Batch Sizes
Working with small batch sizes is far more efficient than producing mass batches of a particular product. With small batches, quality problems can be identified and rectified much sooner The Lean Startup method focuses on formulating a hypothesis and getting an MVP on the market, using the smallest batch size possible, within the quickest time frame
Start Your Engines, Now We’re Talking Sustainable Growth
Sustainable growth = new customers come from the actions of past customers.
- Word of mouth - result of customers feeling incredibly positive
- As a side effect of product usage - ex: paypal, UPI, WhatsApp invite friend to message/transfer money
- Through funded advertising - should b e paid from revenue.
- Through repeat purchases or use - ex: Netflix, Notion, etc
Sustainable growth >>>> Engines of growth
- Sticky - This engine focuses on attracting and retaining customers for the long-term. If the acquisition rate is higher than the churn rate, the company will grow. The key to sustainable growth within this engine is to target existing customers and encourage them to continue using the product.
- viral - offshoot of customers simply being exposed to a product from existing customers, without the existing customers necessarily raving about it. Further, in this particular model, monetary exchange is not a driver for growth. What’s important is that the customers are using the product, and virally spreading it.
- paid - Either to decrease the costs of acquiring new customers, or to increase the revenue from each acquired customer. Here the focus is on the customer lifetime value (LTV) which takes how much a customer will pay for a product over the product’s lifespan, and deducts from it the product’s variable costs. The remaining revenue is then invested in growth via buying advertising.
Instead of focusing on many engine of growth, focus just one specialize in it.
Success is not delivering a feature; success is learning how to solve the customer's problem
Adapt by Asking “Why” More Effectively
A Lean Startup is defined by being adaptive. It must be able to adjust its performance and operations to match its current context. It is vital for teams to find their optimal working pace as when a startup goes too fast, vital validated learning experiences are completely overlooked.
The concept of the "Five Whys" to work more adaptively. This is to get a better picutre of the why a certain process failed and to avoid jumping too quick.
Ex: machine in the production line has stopeed functionin
- Why did the machine stop? (Answer: Because it was overloaded)
- Why was it overloaded? (Answer: Because it wasn’t lubricated effectively)
- Why wasn’t it lubricated properly? (Answer: Because the lubrication pump isn’t working optimally)
- Why is it not working optimally? (Answer: Because it’s internal shaft mechanism is worn out)
- Why is the shaft worn out? (Answer: Because we don’t have a system in place in which a member of staff regularly checks the lubrication pumps shafts)
This will help us to narrow down the problem from big issue and find the root cause of the failure. It's now easier to solve the issue and prevent such a large system failure from happening in the future.
Two rules of Lean Startup:
- Be tolerant of all mistakes the first time.
- Never allow the same mistake to be made twice.
How to Incubate Innovation in a Sandbox
A traditional understanding of the way companies develop over time suggests that once they reach a certain size, they begin to lose the ability to innovate and grow – but this is a false belief.
As long as companies prepared to adopt to a more flexible management philoshopy, innovation can fuel the direction of big, established businesses.
To foster innovation, they required theses structural attribues:
- Scarce but secure resources - Startups need significantly less capital than established businesses.Still, that capital must be safe from any form of tampering as startups are incredibly sensitive to any changes made to the budget midcourse.
- Independent development authority - Startup teams require full autonomy to think creatively and to develop and market new products.
- A personal stake in the outcome – Entrepreneurs should have a personal stake in the success of their products.
When a company reaches a certain size; however, innovation can be seen to be threatening as it requires a shift in operations and established managerial systems which demand a great deal of effort.
Therefore, in more established companies, an “innovation sandbox” should be created which will contain any impact of the experimentation and innovation within it, but in which the members of the startup team have full freedom.
For an innovation sandbox to be truly effective, it must adhere to the following rules:
- Any team can create an experiment that only affects the sandboxed parts of the product or service.
- The same team must see the experiment through from start to finish.
- No experiment can run longer than the specified amount of time.
- No experiment can affect more than the specified number of customers.
- Every experiment has to be evaluated by 5-10 actionable metrics.
- Each sandbox team must use the same metrics to evaluate success.
- Any team leading an experiment must monitor the metrics and customer interactions while the test is in progress and put an immediate end to it if something catastrophic happens.
Further, by consistently using the same metrics, the team cultivates a solid literacy concerning these metrics for the company as a whole. What’s more, the innovation sandbox embodies the Lean Startup method in that it promotes rapid iteration, small batches, quick outcomes and constant validated learning.
While implementing novel, dynamic approaches such as the innovation sandbox may cause a few teething problems; it can feel worse before it starts to feel better. The key is to preserve until a more innovative approach becomes the new normal.
The Future is Bright, the Future is Lean
At its heart, the Lean Startup method believes that waste is nearly always preventable once its real underlying cause has come to light. The age-old, flawed adage that employees should simply work harder to increase overall productivity is precisely part of the problem as it finds us often pouring all of our efforts into all of the wrong things. Instead, Reis invites us to imagine an organization in which each employee adopts the Lean Startup business method. He suggests that such a company would be a place in which:
- All assumptions would have to be explicitly stated and tested thanks to an authentic desire to get to the underlying truth of a project’s vision.
- Speed and quality would be approached as dual entities, working collaboratively to increase value for the customer. For example, a team will race to get an MVP out as quickly as possible, but won’t abandon it immediately, forgoing the validated learning process. Likewise, they won’t spend a considerable quantity of time building what they perceive to be a high-quality product, without having tested basic iterations of it on the market first.
- Failures and setbacks would be approached as opportunities for learning, not as excuses to blame.
- Speed would be fostered by forgoing any unnecessary work that does not directly result in learning.
Above all, however, Reis states that with the Lean Startup method, organizations can finally stop wasting so much time and start bravely testing their hypotheses out there in the real world at speed and with smart, validated learning processes in place which ultimately, help pave the way to success.