The traditional decades-old model for evaluating a new business proposal involved understanding the new product, estimating production costs and demand, and then, developing it and taking it to market. The process usually required the startup team to make a presentation to potential investors. Venture capital firms would look at five-year projections of sales and costs of the product and decide whether the proposal was worth financing.
From project inception to going to market, many months or even years were required.
However, this traditional process has been changing for quite some time now. The lean startup methodology has turned this procedure on its head.
In his seminal article in the Harvard Business Review, serial entrepreneur and Stanford University professor, Steve Blank points out that using lean startup techniques, a business formed on a Friday evening could be “… generating actual revenue by Sunday afternoon.”
What exactly is lean startup?
The term is a misnomer as it does not apply only to startups. Many successful and well-established companies that have been in existence for decades use the lean process to introduce new products to their customers and respective markets.
To get an idea of what exactly lean startup is, one must look at the core principles it embodies:
- Business plans and projections that estimate sales and revenues years into the future have very little chance of being correct. New products should be developed in consultation with the people that you intend to sell them to. The importance of customer feedback in product development cannot be overemphasized. It is no point going into “stealth mode” and creating a product that nobody requires.
- Customers should be consulted at every stage of the product development process. In fact, products should be developed around the requirements that customers have.
- These interactions should lead to “iterations” (small adjustments) or “pivots” (basic changes) in the product. Companies should not be afraid of changing product features or even their entire strategy as they receive feedback from the market.
- Products should be tested as they are developed. A firm should not aim for perfection. Instead, products should be taken to market as soon as possible to gauge customer demand.
How lean startup works
In order to understand how lean startup idea works it is best to look at an example: Blue River Technology started off as a company that intended to supply robotic lawn mowers to commercial customers. Using lean startup principles, they spent the initial weeks talking to 100+ potential customers. They realized that one of their prime targets, golf courses, was simply not interested.
Their interactions convinced them that the product that would fulfil an unmet need was an automated device that would kill weeds without using chemicals. The company’s pivot from lawn mowers was a success.
Blue River Technology’s new tagline? “Equipping every farmer to understand and manage every plant.”
Lean startup and digitalization
In today’s hyper-connected world, it is possible to get instant and continuous feedback from customers. Social networks allow companies to establish links with their clients and dramatically shorten the amount of time they need to get feedback about their products.
Digital methods can play an important role in developing products that are required by customers. Lean startup processes can use information technology to collect and analyze data. This intelligence can then be used to make adjustments in products or even inform business executives or entrepreneurs that they are on the wrong track.
Combining lean methodologies and digital techniques will allow firms to respond faster to customer requirements. Lean startup requires that companies stay in constant touch with their customers so that the products that they develop are in accordance with what the market requires. Organizations using this approach are more likely to be successful. It is more important to fulfill a market need rather than adhere to a business plan formulated months or years ago.