Why is Lean Startup so important?
Research indicates that 70-90% of all businesses and startup ideas fail within the first 1-2 years. Enterprises and governments experience similar failure when building new customer facing products or shifting their service models. Understanding the Lean Startup reduces your chance of failure. Some of the benefits of Lean Startup include: seeking customer feedback to direct product decisions before major investments are made. Maintaining a repeatable cycle of: Build-Measure-Learn.
History of Lean Startup
The lean startup methodology was first proposed in 2008 by Eric Ries, using his personal experiences adapting lean manufacturing principles to high-tech startup companies. In September 2011, Eric published his bestselling book, The Lean Startup.
Lean is Not New
- Lean Manufacturing
- Henry Ford
- Car component standards
- Re-design of manufacturing process = eliminates waste
- True Efficiency defined as constant increase of quality, great increase of pay to the workers, repeated reduction in cost to the consumer…
- Sakichi Toyoda (Toyota)
- 1934: Just in Time manufacturing
- “Pull Driven” (from sales) Production Scheduling
- Competing with bigger competitors (based in post-war USA), through quickly “retooling” production lines
- Henry Ford
Where to apply?
- Startup – company that is in the first stage of its operations
- Enterprise – Organisations wanting to innovate like a startup (Lean Enterprise)
- Government – public sector increasing risk appetite for innovation (Lean Government)
- seeking innovative ideas and trialling new technologies and methods
- innovation that aligns with government priorities where investments are likely to achieve positive outcomes.
Bringing innovation to Enterprise and Government by applying Lean Startup concepts
Principles of the lean startup
Entrepreneurs are Everywhere – You don’t have to work in a garage to be in a startup.
Entrepreneurship is Management – A startup is an institution, not just a product, so it requires management, a new kind of management specifically geared to its context.
Validated Learning – Startups exist not to make stuff, make money, or serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically, by running experiments that allow us to test each element of our vision.
Build – Measure – Learn – The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.
Innovation Accounting – To improve entrepreneurial outcomes, and to hold entrepreneurs accountable, we need to focus on the boring stuff: how to measure progress, how to setup milestones, how to prioritize work. This requires a new kind of accounting, specific to startups.
The Lean Startup approach teaches organisations to create order by providing tools to continuously test a vision for a product or service under extreme uncertainty
Work smarter not harder
The question is not “Can this product be built?” Instead, the questions are “Should this product be built?” and “Can we build a sustainable business around this set of products and services?”
This experiment is more than just theoretical inquiry; it is a first product. If it is successful, it allows a manager to get started with his or her campaign: enlisting early adopters, adding employees to each further experiment or iteration, and eventually starting to build a product. By the time that product is ready to be distributed widely, it will already have established customers. It will have solved real problems and offer detailed specifications for what needs to be built.
Develop an MVP
A core component of Lean Startup methodology is the build-measure-learn feedback loop. The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible. Once the MVP is established, a startup can work on tuning the engine. This will involve measurement and learning and must include actionable metrics that can demonstrate cause and effect question.
The startup will also utilize an investigative development method called the “Five Whys”-asking simple questions to study and solve problems along the way. When this process of measuring and learning is done correctly, it will be clear that a company is either moving the drivers of the business model or not. If not, it is a sign that it is time to pivot or make a structural course correction to test a new fundamental hypothesis about the product, strategy and engine of growth.
Progress in manufacturing is measured by the production of high quality goods. The unit of progress for Lean Startups is validated learning-a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty. Once entrepreneurs embrace validated learning, the development process can shrink substantially. When you focus on figuring the right thing to build-the thing customers want and will pay for-you need not spend months waiting for a product beta launch to change the company’s direction. Instead, entrepreneurs can adapt their plans incrementally, inch by inch, minute by minute.
What is MVP?
“that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort”
Examples of MVP
- Landing pages
- Google or Facebook advertising
- Online Validation / Prototyping tools (Axure share, validately.com, invisionapp)
- Upwork (Outsource)
- Building physical prototype
- Lean is Cheap
- Lean is Small
- Lean is a brand new untested concept
- Lean is for technology companies only
- Customer development is just newspeak for feedback
- MVP is half baked beta version
- Pivoting is simply changing your business model or product
- Customer development means creating only what customers want
Pivot (or Persevere)
At some stage need to make decision on next step for MVP
- What is the data telling you?
- You make a decision to either persevere MVP or change
- Almost every major Enterprise has pivoted!
- Paypal (from currency to payment gateway/marketplace)
- Twitter. Originally Odeo pre-itunes podcasts. About to fail. Discovered Twitter. Rest is history…
- Holden. Started making leather saddles. Then progressed to car seats, and then cars.
What can BIGJUMP provide?
Despite being a fan of the book, it is one thing to know the concept… and it is another to be able to apply it. In most cases, we learn more about something through doing, than by listening or reading.
BIGJUMP can assist with the following
- Business Model Canvas / Lean Canvas
- Experiment Board
- Playing Lean – There is now a new way to help your team better apply Lean Startup, through Playing Lean – the board game that teaches the Lean Startup in 90 minutes.
- Sales Hacks
- Profit by Design
- Building MVPs
- Innovation Accounting – Learn when it is time to pivot
Lean Business Strategies Meetup group
Intangible qualities such as the entrepreneur’s passion, grit and determination to succeed. While those can’t be measured, they play a critical role nonetheless.