The traditional business model doesn’t work for everyone. When Eric Ries developed the lean startup methodology, he knew this and aimed to create an alternative, experiment-based approach to entrepreneurship and product development. Using five startup principles, the lean startup approach allows entrepreneurs to rapidly develop products and build sustainable startup models. If you’re looking for an unorthodox approach to startups and product development, you’re in the right place.
Recommended: Learn more about startups by reading our What Is a Startup? article.
The Lean Startup
Launching a startup has traditionally followed the same model: come up with an idea, develop a business plan, find investors, and perfect your product before putting it on the market. However, with a large number of startups failing, it’s safe to say there is room for improvement in this traditional startup model. Enter the lean startup, a methodology created by Eric Ries that involves a more experimental and non-traditional approach to entrepreneurship.
Lean Startup Definition
An unconventional approach to entrepreneurship and product development, the lean startup is a methodology that uses a cyclical approach to develop products and test the viability of business models. The five principles of lean startup methodology give entrepreneurs pillars of support to rapidly develop their product through validated learning and, in turn, create a sustainable startup model.
Lean Startup Methodology: Principles
The methodology of lean startups is supported by five foundational principles that adapt the traditional startup model to help entrepreneurs build sustainable, repeatable business models.
Entrepreneurs Are Everywhere
One of the most important principles to remember as an entrepreneur is you don’t need to fit a mold in order to be a successful lean startup entrepreneur. Entrepreneurs come from all backgrounds, from all walks of life, and all over the world to build companies that become wildly successful. The key is using your unique outlook and skill set to innovate an industry and challenge the status quo.
Entrepreneurship Is Management
While your focus as an entrepreneur is most likely to develop and distribute your product, you need to simultaneously juggle managing your company. Knowing when to pivot, adapt, and retool your business model or product is essential to building a sustainable startup and keeping your investors happy. This principle is largely based on accommodating the parties that hold you accountable (such as your investors) to ensure they are comfortable with the trajectory of their investment while also navigating the constant changes required during the startup stage.
One of the hallmarks of startup companies is learning how to create a repeatable, successful startup model. Validated learning takes this concept and focuses intently on customer validation rather than focusing solely on revenue. Understanding the amount customers are spending, the return on investment per customer, and how to create sustainable growth can all be calculated scientifically using the validated learning principle.
A startup-specific accounting technique, the innovation accounting principle changes the way startups plan and manage their business’s finances. Setting up milestones, measuring progress, and establishing priority projects to keep your startup moving toward completing its goals.
Sometimes good enough really is just that — the product in its most basic form works and is fit to ship. This is where build-measure-learn begins. The concept is to start without the expectation of getting it right the first time so you can measure the success and learn how to create a better product. The build-measure-learn principle is dependent on your ability to absorb feedback and adapt your business to create a straight path to success.
Build-Measure-Learn Feedback Loop
The build-measure-learn principle is cyclical. As an entrepreneur, you never stop learning or reevaluating your startup to produce the best product and encourage business growth. The build-measure-learn feedback loop is a system that takes a less-than-perfect product and, with the use of customer feedback, gives entrepreneurs the tools to pivot their startup to meet their customer’s needs.
Minimum Viable Product
Think of your minimum viable product (MVP) as the first draft of your product. It won’t be perfect and will almost always need adjustments. MVPs are the starting point of the build-measure-learn feedback loop that puts your product to the test by offering a “good enough” product to consumers and absorbs the feedback you receive to perfect your product.
Once you have substantial, valuable feedback from your customers, it’s time to pivot your business and upgrade your product to meet customer needs. This is where effective management comes into play. Pivoting your startup’s trajectory can be stress-inducing, especially for investors. Your job as the founder of your startup is to adapt and reimagine your startup’s product or model in order to accommodate customer feedback while maintaining a stable company.
Lean Startup Examples
Some extremely successful startups and companies use lean startup methodology to develop new products or pivot their business model to create the most viable startup possible. Here are a couple of example companies that you never knew used lean startup methodology to become successful:
The wildly successful content-storage startup Dropbox didn’t go through the traditional product development process. Instead, founder Drew Houston started his company with an MVP that, through validated learning, he was able to fine-tune the platform and parlay the startup into one of the most successful companies in Silicon Valley.
General Electric (GE) hasn’t always implemented lean startup strategies in their manufacturing. However, with a push to bring manufacturing back to the US, GE has begun using the rapid product development strategies of lean startup methodology to create better products. In turn, the company has seen improvements in the reception of new products as well as a competitive edge.
Slack, the office communication startup, didn’t start as a communication app at all. Initially, they were a game called Glitch that the founders knew wasn’t scalable. So, they pivoted the business and developed a product based on their own company’s communication style, resulting in Slack. Today, Slack is used by 2 million active daily users.
When founder Nick Swinmurn started Zappos in 1999, it was an experiment. Unsure of whether consumers would be interested in purchasing shoes online, he took to the streets — finding local shoe stores that allowed him to take photos of their shoes and attempt to sell them online. Using the build-measure-learn feedback loop, Zappos developed a wildly successful startup model.
Lean Startup Summary
The lean startup methodology is an alternative to traditional product research and development that encourages entrepreneurs to experiment with less-than-perfect products and use validated learning to improve rapidly. Using these techniques, entrepreneurs are able to develop more consumer-friendly products and build a sustainable startup model.
Lean Startup FAQ
What does lean startup mean?
The lean startup is a methodology that uses an unconventional, cyclical approach to develop products and test the viability of business models. The five principles of lean startup methodology give entrepreneurs pillars of support to rapidly develop their product through validated learning and, in turn, create a sustainable startup model.
Who developed the lean startup methodology?
Lean startup methodology was developed in 2008 by Eric Ries, an American entrepreneur, who wanted to give entrepreneurs and high profile companies a better strategy for developing their products.
What are the basic principles of lean startup?
The five principles of lean startup methodology are: entrepreneurs are everywhere, entrepreneurship is management, validated learning, innovative accounting, and build-measure-learn.
Who uses lean startup?
The lean startup methodology has been used by hugely successful startups such as Slack and Dropbox. However, it is also a huge methodology for existing businesses and large corporations, such as General Electric, that use the principles of lean startups to develop stronger, more appealing products.
What is the difference between the lean startup method and a traditional business model?
Rather than the traditional business model that entails developing a business plan, finding investors, and moving through the standard product development process, lean startup methodology focuses on experimentation. This means that lean startups put products on the market to rapidly learn how to improve them instead of putting the product through long periods of testing.
What is a minimum viable product (MVP)?
A minimum viable product (MVP) is a product that is “good enough," meaning it isn’t the end goal but it is usable. This is the first step in the build-measure-learn feedback loop. From this point, entrepreneurs absorb customer feedback and adapt their product to meet demand and create a more sustainable startup model.
What is a business model canvas?
Business model canvas is a visual chart by Alexander Osterwalder used to develop new business models or assess existing ones. In its essence, it is a lean startup template that helps entrepreneurs manage their customers, finances, value proposition, and infrastructure.
What is a lean canvas?
A lean canvas is an adaption of the business model canvas, created by Ash Maurya. This one-page actionable template was created in tandem with the lean startup methodology and allows you to plan your business efficiently by focusing on problems, solutions, key metrics, and competitive advantages.