Definition
The term “Lean Startup” is a method used by startups for launching new businesses and products, which aims at minimizing the risks associated with entrepreneurship. This approach encourages the iteration of small brand features based on continuous feedback, rather than launching a large project fully at once. It emphasizes on customer feedback over intuition and flexible design over rigid planning.
Key Takeaways
- The Lean Startup approach advocates the creation of rapid prototypes that test market assumptions and uses customer feedback to evolve them much faster than traditional business methods. This allows startups to reduce market risks and sidestep the need for large amounts of initial project funding and expensive product launches.
- Lean Startup uses a ‘build-measure-learn’ feedback loop to minimize project development cycles and transform business hypotheses into feasible products. The methodology encourages entrepreneurs to release minimum viable products (MVP) quickly and then pivot or iterate based on customer feedback, which reduces wasted time and resources.
- The Lean Startup principle promotes validated learning through rigorous scientific experimentation. Rather than creating elaborate business plans based on untested hypotheses, entrepreneurs relying on Lean Startup principles test each element of their vision continuously, often altering the direction based on the insights gained and making the process more empirical and customer-centric.
Importance
The finance term “Lean Startup” is important as it emphasizes the significance of rendering a business more efficient and effective, especially for startups.
The principle allows businesses to focus on creating a product that meets market demand using minimal resources.
Lean Startup advocates for strategies like validated learning, iterative product releases, and customer feedback, significantly reducing the risks of starting up a business.
The methodology provides a platform for businesses to develop products or services that are essential to the market, thus reducing wastage of time, resources, and efforts.
By focusing on customer value and continuous improvement, it promotes financial efficiency and viability, which are critical for the success of startups.
Explanation
The Lean Startup is a methodology developed for launching businesses and products to promote efficiency and innovation. Its primary purpose is to establish a sustainable business model that allows businesses to conserve resources by using less of what isn’t needed and more of what is. This method is rooted in the concept of experiential learning, with an emphasis on iterative product releases, customer feedback, and validated learning.
The lean startup approach promotes businesses to understand user needs more importantly than the need to grow and scale. With this strategy, businesses focus on incorporating customer feedback into product development right from the start, a process called customer development. Businesses create a minimum viable product (MVP), an early version of the product, and introduce it to a small group of people.
They then monitor how it performs, evaluate feedback, and adapt their strategy accordingly. Also, this methodology encourages entrepreneurs to “pivot” or make fundamental changes to the product or business based on what they have learned, rather than stubbornly sticking to an initial business plan. Therefore, this approach is used to aid startups in quickly adjusting to changing market conditions and ultimately finding a product-market fit.
Examples of Lean Startup
Dropbox: Dropbox is a prime example of a lean startup. Before building a complete, polished syncing product, Dropbox founders made a Minimum Viable Product (MVP) in the form of a simple video. The video demonstrated the technology and gauged customer interest and acceptance. The strong, positive response from users provided them the validation they needed to proceed with building the full product, thus saving a significant investment that would have otherwise been required to build a full-function product without knowing consumer interest.
Zappos: When Nick Swinmurn got the idea for Zappos, an online shoe retailer, he didn’t immediately invest in inventory. Instead, he took photos of shoes from stores and posted them online. When someone ordered a pair, he would buy the shoes from the store and ship them. Thus, he created a Minimum Viable Product (MVP) without investing heavily in inventory upfront.
Ries, the pioneer of the Lean Startup methodology, uses the example of his own startup, IMVU. Instead of building a complete 3D social networking application before launch, the IMVU team worked on getting a basic version of the product (a Minimum Viable Product) out as soon as possible. They then used customer feedback to refine the product, check the features required by the users, and ensure the product’s feasibility and market demand, thus minimizing wasted effort and increasing the product’s chance of success.
FAQs on Lean Startup
1. What Is a Lean Startup?
A lean startup is a methodology for developing businesses and products that aims to shorten product development cycles and rapidly discover if a proposed business model is viable.
2. Who Developed the Lean Startup Methodology?
The Lean Startup methodology was first proposed by Eric Ries in 2008. He applied the concepts of lean management to the process of innovation to develop a methodology that improves the success rate of new product or service introductions.
3. Why is Lean Startup Methodology Important?
The Lean Startup methodology is important because it promotes the concept of validated learning. It helps entrepreneurs and business owners measure progress, gain valuable feedback, and execute their vision effectively.
4. What are the Core Principles of Lean Startup?
The core principles of Lean Startup approach include: Build-Measure-Learn, Minimum Viable Product (MVP), and validated learning. This approach helps to minimize the time spent building unnecessary features or products, and focus energy on meeting real customer needs.
5. How is Lean Startup Different from Traditional Business Models?
Lean Startup differs from traditional businesses in its emphasis on experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.
Related Entrepreneurship Terms
- Minimum Viable Product (MVP)
- Product-Market Fit
- Pivot
- Bootstrapping
- Validation Experiment
Sources for More Information
- Lean Startup Co.: This website is a treasure of knowledge about Lean Startup. It offers training, events, and more dedicated to the Lean Startup methodology.
- Entrepreneur: Entrepreneur.com provides articles, how-tos, and a community dedicated to help entrepreneurs and business owners start, run, and grow their businesses, and includes a good amount of content on Lean Startup methodology.
- Steve Blank: Steve Blank is one of the key figures in the Lean Startup movement. His personal website is rich with articles and insights about Lean Startups.
- Harvard Business Review: Harvard Business Review is a reputable source of insightful and influential business ideas, and they frequently cover the Lean Startup methodology.
