Why You Need to Use the Lean Approach for Your Startup
Before the lean approach to startups gained traction, almost every entrepreneur followed the same method when launching a startup. They would start by writing a detailed business plan, which presented to investors. They would then form a team by hiring employees to cover all the different roles at the company. Finally, they would work on developing their first product or service. After all this hard work and investment, around 90 percent of startups would fail.
This huge fail rate has led to the realization that there must be a better way of doing things. In the early 2010s, the lean startup methodology began offering a different approach.
The Lean Startup Methodology
The lean startup approach is all about reducing risks and improving your chances of success. Central to the business model are experimentation, customer feedback, and simplicity. For instance, a minimum viable product is part of the lean startup methodology, as is pivoting — changing direction when what you initially set out to do fails.
However, at the core of the methodology is the idea that the traditional business plan is flawed. This is because entrepreneurs write business plans before they do anything else: a business plan comes before product development and even before talking with target customers about their wants and needs. Plus, business plans make projections for several years in the future — and forecasts often turn out to be completely different to reality.
The main problem, though, is that the primary purpose of a business plan is to receive money from investors, not to ensure a successful venture. Using a conventional business plan treats a startup as if it were going to operate like a large corporation, which could not be further from the truth.
What Are the Three Steps for Creating a Lean Startup?
If a lean startup is all about dismissing the traditional business plan, what do you need to do? The process to launch a lean startup involves just three steps.
Step 1: Business Model Development
First, instead of creating a lean startup business plan, you develop a lean business model canvas. This consists of a number of hypotheses that express how the startup will create value. These hypotheses are untested, but — since they are based on your knowledge of the market — there are good odds they will prove reasonably accurate.
A business model canvas for lean startups should include the following elements:
- Unique value propositions — Your original approach to solving customers’ problems.
- Resources — What you’ll require to meet your unique value propositions.
- Partners and suppliers — Who will provide you with the necessary resources.
- Key activities — What activities you, your partners, and your suppliers will carry out.
- Cost structure — What expenses your business model will incur and how you’ll strive to reduce these costs.
- Customer segments — Who your customers are, including which segment is the most important.
- Customer relationships — The type of relationship you’ll have with each customer segment, including how you’ll form and maintain relationships and how much this will cost.
- Distribution channels — The channels you’ll use to reach potential customers and what each will cost.
- Revenue streams — How your startup will maintain a positive cash flow and turn a profit. Consider how much each product or service will contribute and how your customers would prefer to pay you.
Step 2: Customer Development
The next step is customer development. This is where you test your hypotheses with your target audience using your first minimum viable product. You’ll find out where your assumptions were right, how you could make improvements, and where you need to pivot — all by listening to customer feedback and looking at the data.
Then, you’ll need to implement the necessary changes to your minimum viable product and test again. Keep repeating the process until you’ve arrived at a product you can take to market.
Aspects to test at this stage include:
- Product features
- Price point
- Strategies to acquire customers
Step 3: Agile Development
The final step in launching a startup is agile development. You may be familiar with the agile concept from things like agile coaching. Although the agile concept started out in IT, it is now relevant in all industries.
With the traditional startup approach, you spend around a year on product development. Agile development, however, takes place over just a few weeks. In addition, rather than product development occurring all at once, this stage happens in conjunction with customer development. Once you’ve received feedback from your target customers, you implement the new ideas.
Lean Startup Benefits
In addition to the obvious benefits over the conventional way of launching a startup, the lean approach puts startups at an advantage over large corporations.
1. A Better Understanding of Customer Needs
The lean startup methodology means you’re talking directly to customers from the very beginning of your venture. You can make this a permanent part of your business model by implementing feedback loops. This removes all the guesswork and allows you to create solutions that resonate with customers. In contrast, large corporations often need to rely on intuition to a significant extent.
2. The Capability to Pivot with Changing Markets
A new need in the market can arise at any time. Large corporations often struggle to take advantage of these changes, whereas lean startups are built around the concept that it may be necessary to pivot at any moment.
To take full advantage of this potential, it makes sense to choose a niche where products are undergoing a constant evolution or where customer preferences change often. An industry ripe for innovation is also ideal.
3. Be As Specific As You Like
Unlike big companies, you don’t need to pursue a market with a large target audience or to diversify your offerings to turn a profit. In fact, being specific has the advantage that you’ll be able to learn everything there is to know about your customers and speak to them directly.
4. Access Markets That Are Unprofitable to Large Businesses
Some niches are off the table completely to large companies because the customer base is so small. These provide excellent opportunities for your startup, especially if it looks likely that the market could grow in the future and could scale with your business.
5. Minimize Marketing
When you combine all the above with a great product, your offerings will speak for themselves. This will allow you to all but eliminate marketing, which brings costs down even further. Free trials or beta versions of your products that only have a price tag later as well as social-sharing features built into your products will help you achieve this.
Plus, qualified leads should require minimal nurturing to convert to customers. This allows you to run a much more cost-effective business than your largest competitors.
How to Run a Lean Startup
Once you’ve launched your lean startup, you’ll need to continue following the lean methodology to run your business. This is where the hard work sets in, as it’s necessary to make the right decisions to ensure your startup is a success. There are several things you can do to stay on the right track.
1. Set Clear Goals
Everyone involved in your startup needs to understand what you’re trying to achieve. Your internal team may be small (it could even be just you), but everyone who is supporting you in your venture — for instance, your suppliers and freelancers — needs to be on the same page.
2. Accept You May Be Wrong
The lean startup model fails if you refuse to acknowledge that a hypothesis is incorrect. Never keep trying to make something work if your assumptions are wrong — adapt by pivoting quickly.
3. Never Rely on Intuition
Traditional startup models are often based on pure conjecture. Lean startups should be the opposite: make all your decisions in accordance with data and your findings with target customers.
4. Find Reasons
Rather than just looking for answers, try to find out the reason why — for instance, why a particular problem or behavior is occurring. The 5 whys technique is ideal for this.
5. Keep Developing Your Acquisition Channels
One of the most difficult aspects of running a startup is developing scalable acquisition channels. If you make this your focus early on, you’ll see far better results.
6. Think About the Future
Always be looking forward to what tomorrow will bring. When deciding what action to take, think about how a choice will impact you later, not just what you’ll achieve now.
Finding Support for Your Lean Startup
As the lean startup methodology is all about fast responses, low costs, and being nimble, outsourcing talent rather than hiring a team is key. This has led to more entrepreneurs contracting virtual assistants.
Although the lean startup approach is becoming more popular, it is still far from mainstream. At MYVA360, our virtual assistants for entrepreneurs are familiar with the lean startup methodology and can provide you with the exact services you need for a successful venture. We even offer flexible packages to suit your needs in the moment, allowing you to scale the support you receive to your business growth.
Don’t forget to check out a resource we have just for entrepreneurs: the Top 10 Reasons Why Startups Fail infographic. Download it for free now.