Building a new startup business is no small undertaking, trust me I have been through it on more than one occasion and the risk of getting it wrong is all to high. Ways to minimise these risks and create a viable business can be achieved using the right methodology. One such system is the Lean startup method and recently I have had a tone of request to explain how to create a lean startup business. In this article I hope to set out some of the key principles and explain exactly what it is.
Conventionally when starting a new business, two things can happen, it can work out or it can fail. Essentially it has always been either a hit or miss scenario. Starting up has always required a predictable process of writing a business plan, presenting the plan to investors, creating a team, introducing a product to the market, and then hitting the ground hard making as many sales as you can.
Normally in this process, somewhere along the line, a fatal setback hits you really hard. According to Shikhar Ghosh from Harvard Business School, 75% of all startups tend to fail showing that chances of failure are very high indeed. I have heard the number quoted much higher at 90% or a 9 out of 10 failure ratio which I take as a rule of thumb and is commonly accepted in Silicon Valley.
Motivated by this problem, a new business ideology has emerged that seeks to reverse these worrying statistics. The system aims to make the process of starting up less risky. The methodology is referred to as the “Lean Startup” which acknowledges that most new bushiness and startups usually fail. But the most welcoming part is that they also note, that these failures can very much be prevented.
What is this methodology about?
The term lean startup is a trademark brought forward by Eric Ries, it comprises a combination of customer development, swift methodologies in software development and lean business practices. The methodology fundamentally implies efficient utilization of resources and elimination of waste; it’s also important to note that cashflow also one of the resources covered.
In the lean startup, the optimal utilization of time, which is the scarcest resource, is key. Time is more valuable than even money, while money has the possibility of fluctuating up or down, time moves in only one direction, down. According to this method, startups that are able to succeed are those that are able to maximally utilize the time-cycle before they run out of resources. The importance of time in this methodology is given great emphasis.
How the lean start up functions
Lean startup method teaches those who want to start a business to know how to progress, when to make changes, when to be patient, and when to go into full throttle and move the business forward. According to Ries most business startups begin with an inspiration of a product they assume people want. They then embark on making the product for months or years without letting the would-be customers know about it, and then finally when they do release or launch the product or service it fails. The reason lies on the fact that they failed to speak to prospective customers to get their insights about the product.
With the lean startup process, the companies are helped to create success by providing instruments to continuously test an idea. Many companies lack tailored management mechanisms and hence embark on creating a new product under extremely uncertain conditions. With lean startup approach the idea is to progressively test the situations, failing fast and failing cheap. It also focuses on setting up a process in regard to a product development.
The methodology favors prior experimentation as opposed to elaborate planning, customer input and feedback over intuition together with careful small initial designs as opposed to the conventional big upfront design and build. The methodology also has very viable concepts namely “pivoting” and the “minimum viable product” or MVP which have been very successful.
How to create a lean startup
When creating a lean startup there are some common attributes that are vital to ensure success of the process. These attributes include; having an utterly clear objective, giving the process your full concentration, ensure there are no distractions and interruptions, have a sense of challenge, and always have clear and prompt feedback on objective-geared progress.
In a lean startup one of the most important factors to consider is time. Time has multiple pulls, in customer development, there exists a pull for activities inside the building against those outside the building, and this according to Steve Blank, who is recognized for developing the Customer Development methodology, which launched the Lean Startup movement, requires a cross-functional development team that should include the founders.
However, according to Eric Ries the ideal situation requires two teams to ensure both sides are catered for, a problem and a solution team. The problem team should focus on customer development, while the solution team should deal with product development.
As the founder you ought to be in both the problem and solution teams as this is where a real tug -of -war exists. For technical founders it good to know the problems of scheduling tend to be more pronounced as time utilization differs when moving from product to customer development .
When using the lean startup you should aim to work smarter and not harder. The methodology is based on the idea that each start up is a unique grand experiment that seeks to answer specific questions. Some of the questions the startup should strive to answer are “Should this product even be made?” and “Can a sustainable enterprise be build around these products and services?” The experiment should not only serve as the inquiry but also as the first product.
When the first product succeeds it will provide you with an opportunity to commence the campaign of enlisting initial adopters and increasing the employees. When the product is finally ready for launching and widespread distribution, it will already have customers who are recognized; this will greatly solve problems and provide guided information on the exact specifications of what is to be produced.
When you have established the lean startup you also need create a Minimum Viable Product (MVP). This forms part of the build-measure-learn feedback loop which helps in learning from feedback. The process of learning should then take place as fast as possible. When arranging the activities ensure they are in a way which allows flow. Flow is important in a startup as it helps to have the job done while eliminating instances of wastage.
The lean startup is a new methodology that a business can use to startup with, the process ensures a business reduces the risk of failing by altering some of the traditional factors that contributed to failure.
When thinking of how to create a lean startup it’s good to understand the methodology before embarking on the process. The lean startup places great emphasis on prudent utilization of resources including time which is the most valuable resource, learning fast and making the necessary changes also factors in the success of the system and your business.
By using the lean startup method, your chances of failure are reduced, while chances of your business succeeding are highly increased.