What Is Lean Startup?
Let me explain what a lean startup is. It's a method you use to start a new company or launch a new product for an existing one. This approach pushes you to develop products that consumers have already shown they want, so there's a ready market when you launch. That's different from building something and just hoping people will buy it.
Gauging Consumer Interest
When you apply lean startup principles, you can measure how interested consumers are in your product and figure out what refinements it needs. This is called validated learning, and it helps you avoid wasting resources on creation and development. If an idea is going to fail, it fails quickly and cheaply under this method, not slowly and at high cost—that's why we call it 'fail-fast.'
This method comes from Eric Ries, an American entrepreneur who founded and leads the Long-Term Stock Exchange (LTSE). He details it all in his book, The Lean Startup, which has been translated into 30 languages.
Important Note
Remember, lean startup puts consumers in the driver's seat—they dictate what products get offered, not the other way around where markets push products onto them.
Lean Startup vs. Traditional Businesses
The lean startup stands apart from traditional business models, especially in hiring. You hire people who can learn fast, adapt, and work quickly, rather than those with loads of experience and set skills. Also, the financial metrics differ: instead of income statements, balance sheets, and cash flows, you track customer acquisition cost, lifetime customer value, churn rate, and how viral your product might go.
Requirements for Lean Startup
In lean startup, experimentation beats detailed planning every time. Those five-year plans full of guesses? They're a waste. Customer reactions are what matter most.
You don't build full business plans; instead, you create a model based on hypotheses and test them fast. You don't need perfect data to move forward—just enough. If customers don't respond as you hoped, you adjust quickly to cut losses and get back to what they actually want. Expect failure; it's the norm here.
As an entrepreneur, you test those hypotheses by talking to potential customers, buyers, and partners about features, pricing, distribution, and acquisition. Use that info to make small iterations or big pivots to fix issues. This might mean shifting your target customer or tweaking the product for the current one.
Start by identifying a problem to solve, then build a minimum viable product—the smallest version you can introduce for feedback. This is quicker and cheaper than a full product, and it lowers the high failure risk startups face. Lean startup sees a startup as an organization hunting for a scalable business model, not one locked into executing a fixed plan.
Example of Lean Startup
Take a healthy meal delivery service aimed at busy, single 20-somethings in cities. They might discover a stronger market among 30-something affluent new moms in the suburbs. So, you change the delivery times and food types for optimal nutrition for those moms, maybe adding options for partners and other kids in the family.
This method isn't just for new startups. Big companies like General Electric, Qualcomm, and Intuit use it too. GE applied it to create a new battery for cell phone companies in areas with unreliable electricity.
Key Takeaways
- Lean startup develops products or companies based on what the market explicitly wants.
- It relies on validated learning to check consumer interest.
- The focus is on customer metrics like churn rate, lifetime value, and popularity.
- Experimentation trumps sticking to a strict plan.
- You release early, small versions of products to gauge reactions.
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