In 2011, bestselling author Eric Ries popularised the concept of the lean startup, inspiring entrepreneurs everywhere to get their businesses up and running on minimal resources. His proposed methodology taught business owners to disavow wasteful industry practises and focus on delivering market-specific solutions through iterative product testing.
The man who initially conceived of the principle of the lean startup was an American entrepreneur named Steve Blank. He developed it as a response to his experience working in Silicon Valley, where he saw that many company founders were being advised based on the principle that startups were just smaller versions of larger companies. He felt entrepreneurs were mistaken to believe they could run a small startup the same way that Steve Jobs ran Apple. He knew from experience that startups had fundamentally different needs than larger, well-established companies.
Fellow entrepreneur Ries was inspired by Blank’s writings on the subject, to write and publish his book named “The Lean Startup”. His message was positively received by the business community. Even older companies like General Electric started to take notice and embed this methodology within their business processes.
It’s now been more than a decade since we were first introduced to the lean startup concept and the pandemic has triggered unprecedented global economic and social upheaval. On top of this, the effects of the ongoing climate crisis are becoming more real every day. This perfect storm of calamities has created an environment where the lean startup has never been more relevant. The following article discusses the key principles of the lean startup methodology and how they can be applied by entrepreneurs trying to survive and thrive in today’s rapidly changing world.
The majority of startups fail, and 35% of those failures are because there was no market need for their products or services. Entrepreneurs often work on their products for months or even years, perfecting their development, only for them to flop when finally released to the public. Why does this happen?
Sometimes, startup owners make assumptions about what the market wants. For instance, you may have a vision you believe in and vigorously pursue it, but don’t perform enough robust market research. The end result is a product that nobody actually buys and a lot of wasted time and resources.
If you’re running a lean startup, the focus is on the market, rather than the product. Before time and money are spent on developing a product, the startup embarks on rigorous market research in the form of “validated learning”. This method is supposed to ensure that if a product fails, it will fail fast and cheaply, instead of slowly and expensively.
The concept of a lean startup is based on five key principles:
You don’t have to rent an office space to be an entrepreneur. You can work from anywhere including your dining table or the basement. Without significant costs incurred by rent overheads, you can keep your business lean.
Management is a key principle of entrepreneurship, and like any business, a startup needs to be managed effectively to succeed. This means, understanding when to take risks in addition to carefully managing funds and resources, manufacturing processes, and product development.
Through rapid experimentation and testing, a lean startup should seek to understand the needs of the respective market and adapt accordingly with speed. Before a product even reaches the market, the lean startup should have already researched whether or not there is a need for the said product, which will require time and money to develop.
Every business keeps track of its finances and productivity but innovation accounting also monitors problem-solving, project goals, and work prioritisation. This allows you to measure the progress of innovation.
Ries popularised the concept of the minimum viable product (MVP). As an entrepreneur, you might have a vision of a fantastic all-encompassing product, which meets the every need of your target customer. But you don’t yet know if this product is even going to sell. Instead of going all-in from the beginning, create a small piece of the idea, that includes the highest value to the customer, and release it quickly to evaluate its reception.
Although Ries’ concept of the lean startup was hailed as something new, similar principles have already existed in the business world for some time. Rapid learning and iterative testing are emphasised by business philosophies and frameworks such as Agile and Scrum, so what makes the lean startup innovative?
Well, both ideologies approach project management in a way that promotes flexible thinking and quick product development, but the lean method stresses the importance of market-fit. Agile teams may work hard to constantly develop a dying product, without addressing whether the market actually needs or wants it.
By contrast, lean startups are required to gauge the market before releasing anything as previously mentioned. And even when it comes down to production, the goal should be to create an MVP and measure its success, before developing it any further.
The past two years could be summed up in one word — uncertainty. Very few people foresaw the impact that COVID-19 would have on the global economy, and the resulting lockdowns and quarantine measures have created cash flow problems that have impacted both large and small businesses. While the unstable environment can be viewed as undesirable for starting a new business venture, the opposite may actually be true.
According to Ries himself, periods of economic downturns are the best time to start a new business. The most obvious benefit of a lean startup is that it doesn’t require massive investment. When the economy is down the drain, it means that input costs are also low, and this crisis creates new opportunities. One clear example of this is the rapid growth of medical equipment manufacturers, travel testing labs and other COVID-19 related niche markets. The need didn’t exist before, and companies had to rapidly develop solutions for problems that weren’t present just two years ago.
Here are some ways that the lean methodology can help startups survive the current climate.
Lean startups and remote working go hand in hand. Want to save money by foregoing an office space? Perfect! Everyone else is working from home anyway. Your business won’t have to worry about suddenly adjusting to remote working if you’ve been doing it from the start.
The lean business method emphasises flexible thinking so that you can easily adapt to a changing market. Some big companies such as Arcadia Group, Debenhams and Victoria’s Secret struggled to stay afloat during the pandemic because they were unable to adjust to these changes.
The pandemic upended most people’s lives in some way and caused many to reassess their priorities. This has created a climate of dissatisfaction as people want change. Reminiscent of the 1960s, when social dissatisfaction triggered a counter-culture revolution, the younger generation of the 2020s also want to see change. They have an open mind and they’re ready to consider products and services that may not have been commercially viable before.
Widespread Internet access may have got the ball rolling, but the remote working revolution has made it even easier to hire talent from across the world. Pair this with the fact that there is an unprecedented number of workers abandoning steady jobs in favour of more meaningful pursuits, there are far more highly skilled individuals willing to consider taking the risk of joining a lean startup.
The climate crisis is finally making a dent in the public consciousness and the market wants sustainable solutions. With its focus on cutting back on waste and the use of minimal resources, lean startups are in the perfect position to meet the growing demand for businesses that embody environmentally-conscious principles.
Older companies have been using “lean” methods to guide their manufacturing processes for years. Japanese car manufacturer Toyota has been striving to incorporate lean principles into the company’s production line for decades. They base their method on the core Japanese philosophies of “jidoka” (loosely translated as “automation with a human touch”) and “kaizen” (continuous improvement). They also promote the principle of “Just-in-Time”, which means that they only make what they need, when they need it, in the amount required.
Fashion brand Nike, also base their business model on similar lean practises, and they have managed to increase their productivity in 2020 while cutting back on waste.
But what about successful startups that have used the lean methodology? Here are a few examples:
The founder of file-hosting platform Dropbox started with an idea that he wasn’t sure people would actually buy. Market testing new software is difficult without fully developing it, so he came up with a solution. He created a video that demonstrated how Dropbox could be used and shared this with potential consumers online. Viewer comments allowed him to easily measure customer interest and tweak the product to meet their needs.
The story of Slack perfectly encapsulates the meaning of “pivot”. Starting as a messaging app used internally by a gaming startup, it was not originally intended to be an MVP. The game they had been developing, named Glitch, proved to be a flop and had to be abandoned as a project after only a year. However, they quickly realised that their internal instant messaging app might be something other companies would want to use. As such, the business pivoted towards marketing and developing the app. Today Slack is a multi-billion dollar company that was recently acquired by Salesforce and has over 10 million daily active users.
Airbnb was launched before the lean startup concept was popularised, so it’s sometimes considered as more of an “accidental lean startup”. Founders Brian Chesky and Joe Gebbia birthed the company while struggling to pay their rent.
They decided to lodge three guests in their home on air mattresses for $80 a night, including breakfast. This MVP was the start of a multi-billion dollar company now used all over the world. They encountered several pitfalls along the way, due to a lack of funding and investors, but they were able to operate on a lean model until their idea finally got off the ground.
In 2016, some commentators argued that lean startups were dead due to the increasing complexity and advances in technology, which required more investment and infrastructure. However, 2020 was the start of a different era and the lean startup is experiencing a revival in a huge way.
We now have widely available cloud computing and storage solutions, which tackle the need to start from the bottom, specifically when it comes to tech startups. Pair that with the rapidly changing markets and the growing demand for businesses to become sustainable and it’s no wonder why “lean” is the new future of business.