With so much competition and the fast-changing business environment, setting up a startup can be extremely challenging. Many entrepreneurs are unable to decide on how to begin and where to start from as they have so many options but they want to ensure that there is a high probability of success with less risk. However, by adopting a lean startup methodology, there’s a chance to raise the probability of success for a startup. This article explains how lean methodology can improve your startup business.
There’s no guarantee of success in any sort of startup; you can’t be an entrepreneur if you are not willing to take some amount of risk. There can be many setbacks along the way on the entrepreneurial journey. At times, it could even be a fatal setback in the initial stages of the startup.
Most entrepreneurs follow a fixed format of starting a business venture by starting with an idea, writing a business plan, bootstrapping or pitching it to the investors, launching the product or service, and starting marketing or selling activities. They often make the false assumption by following the process that this is the right way to begin and since they have rigorously and sequentially gone through all the steps, the demand will be created automatically and the revenues will start coming in.
Although the above-mentioned process provides many advantages to entrepreneurs, to begin with, a systematic and relatively safe approach, the initial assumptions made by the founders rarely survive in the practical world. The market forces are hard to predict for even the top companies that have been in the business for a decade so how can you expect a new entrepreneur to begin with a set of assumptions that will be close to reality? This is where a lean methodology can provide a better alternative.
What is a lean startup?
Lean startups are conceived with a methodology that allows entrepreneurs to innovate at a fast speed to accommodate for the changes caused by external factors and market forces. It is based on the principle of Build-Measure-Learn (BML) which enables the entrepreneurs to make better utilisation of the available resources efficiently. In this manner, they can devise a scalable and repeatable business model which is less risky.
The concepts of lean startups are derived from lean management practices that were established decades ago. In the 1950s, lean management was started by Japanese companies and since then the approach has evolved drastically. Two names have established their authority in the field of lean startups: Steve Blank and Eric Ries.
Steve Blank has published two of the most popular books in the field of entrepreneurship, “The Startup Owner’s Manual” and “4 Steps to Epiphany”. He was the first one to understand the importance of lean design in startups. He investigated the patterns of successful startups and then provided recommendations for entrepreneurs. Eric Ries was a student of Steve Blank, and he decided to apply those recommendations of using lean design in his startup. His startup became a huge success and then he published his own book “The Lean Startup”.
Many people confuse lean with agile, but they are quite different from each other. They both work on similar sort of principles but agile is a subset of the lean approach. Startups can use agile techniques too but only when they want to go for incremental changes. However, lean provides a roadmap for developing everything at once through a measured approach.
How does a lean startup work?
Lean startups follow a pattern that is different from the traditional way of going about a new business. Eric Ries provided the concept of Lean Startup by innovating a product with an increased emphasis on customer insight and integration of fast iteration in the processes, all at the same time. Lean startups being with thinking big, launching small, and scaling quickly.
Many entrepreneurs have extravagant product ideas but they are unable to execute those ideas and bring them to the market with commercial success. Lean startups emphasize the importance of management. There has to be a focus on being efficient and effective because entrepreneurs usually do not have much time and resources to lose. Planning in advance is essential in eliminating redundancies and delays in processes. Validation plays an essential role in building a lean startup. An entrepreneur can address and identify the key risks that can be faced related to the idea or the product. It can help them in making appropriate adjustments to the idea and the product in advance. They usually do a few experiments at an early stage to test the viability and assess the demonstration of the idea.
The core element of the Lean Startup approach is BML “Build, Measure, and learn”. The main aim of any entrepreneur is to transform the idea into a product (build), assess the customer response (measure), and respond to the necessary changes (learn). Through an innovative approach, entrepreneurs need to find a solution to the problems faced by the customers. Once they build a possible solution then they need to measure if that solution is providing the desired benefits to the customers or not. Finally, they have to be agile and responsive to make modifications in the process if there is a need or continue to do the same with better efficiency.
5 key principles of lean start-ups
The first principle of a lean startup is identifying value. An entrepreneur must come up with a product or service that the consumer will be willing to pay for. For that to happen, they need to add value by looking at the customers’ needs. Customers are faced with several problems that the existing products or services are unable to solve, this is from where the ideas are generated. However, they have to match the vivid idea to a process or an activity that will bring value offering to the customers.
It is followed by value stream mapping. Entrepreneurs have to map the entire workflow of the startup. It includes the interaction of all the people, processes, and activities that are required to deliver the end product to the consumer. This value stream mapping allows entrepreneurs to identify which processes are most critical and which are bringing no value. It’s also easy to measure the efficiency of different processes. Entrepreneurs can see the big picture from the value stream mapping and then they can eliminate the redundancies.
The third principle is creating a continuous workflow. After mastering the value stream, an entrepreneur needs to make sure that workflow remains smooth. This often takes a while for established companies to follow but for a new company if they set the right workflows from the start it is relatively easier to continue. Interruptions and bottlenecks can appear at any time; however, through this vision of the workflow into smaller batches, an entrepreneur can have a mechanism for early detection and can remove the roadblocks quickly.
It is followed by the fourth principle of creating a pull system. The presence of stable workflow guarantees that the team can work efficiently and at a faster pace. However, there has to be a pull system in place to secure stability in the workflow. It means that the workflow will adjust to the demands, if there is a pull from the customer end, the work will be pulled. This helps in optimising the capacity and resources. In an ideal case, then, a start-up will only deliver services/products when there is an actual need. Consider an example of a newly introduced Pizza business. The restaurant won’t make pre-prepared meals for its customers because there is a risk of wasting resources when there is no demand. In that case, the baker will only start making the order when there is an order. A lean startup works quite similarly to that model.
The final principle is continuous improvement. This is often viewed as the most important stage of lean management because the system cannot be static or isolated. Problems can occur at any step and this is why employees at each level have to be involved in improving the process continuously. Entrepreneurs have to be proactive and meet people at all levels and different functions regularly to identify if there is any adjustment required to improve the existing workflow.
Lean startups have gained prominence in recent times, because of the several benefits that it provides to entrepreneurs. The ultimate objective of a lean start-up is to bring the big idea to the customers successfully, by streamlining the product development journey. Uber is considered one of the most prominent examples of a Lean Startup. It used this approach to eliminate the redundancies in the industry and that has completely changed the way people commute. There are many other lean startups that have emerged recently, such as Pebble, Buffer, and Slack. The lean management principles act as a guide for a startup to help in identifying real problems and removing them swiftly. The aim is to constantly evolve and provide incremental value to customers through resource optimisation.
