An MVP contains only the features absolutely essential to convey value. An effective one can have a transformative impact on establishing...
Lean Startup Methodology: The Build-Measure-Learn Model for Business
The lean startup method goes against the received wisdom of the business world. But does it really work?
The tradition dictates that a founder should come up with a business plan, prepare a pitch for the investors, and work hard to realize their vision. In this framework, only the final release can validate their market research and decide on the success of their product.
The lean startup methodology flips this process on its head by focusing on acquiring frequent customer feedback, which dictates and verifies strategies and accommodates radical pivots.
It encourages startups to improve their products and business models by failing fast and embracing their mistakes.
In this article:
What is the Lean Startup Methodology?
Put simply, the lean startup methodology is a business approach that emphasizes iterative design backed by customer feedback.
While the traditional startup business model involves closely following a pre-established vision, a “lean startup” uses a minimum viable product (MVP) to inform development with data collected from early adopters.
Thie process behind this practice is called “Build-Measure-Learn.” It allows startups to create better products and minimize financial risk.
# The origin of the Lean Startup Methodology
The origins of the lean startup methodology can be traced back to the Japanese automotive industry giant Toyota.
Because after the Second World War the Japanese industry faced major problems with resource scarcity, companies sought ways to maximize their productivity. Toyota’s approach emphasized efficiency, process optimization, and continuous improvement of quality.
The core tenets of Toyota’s lean ideology revolved around streamlining processes and continuously improving the organization by identifying and eliminating any redundancies. All of this was guided by a customer-centric approach.
Toyota’s ideas laid the groundwork for the lean startup methodology, a concept developed and popularized by Eric Ries in his 2011 book The Lean Startup. Its core principles started to take shape while Ries worked at a company he co-founded, IMVU.
During that time, Ries encountered numerous challenges and setbacks with running his first business.
He quickly understood that the classic approach of sticking to a detailed business plan, rather than bouncing ideas off the real world, can lead to a massive waste of time and resources.
Instead, Ries drew inspiration from Toyota and developed a strategy that would weather the storms of running a tech startup much better. He focused on iterative development, validated learning, and customer feedback.
Ries’s endeavors in creating a model better suited for the challenges of modern startups culminated in his book, where he documents his findings and formulates them into a recipe for a business success.
Benefits of the Lean Startup Methodology
The Lean Startup methodology has redefined the way we think about business development, providing multiple advantages over traditional business models.
Here, we delve into all of them and shed light on why it’s such a compelling approach for entrepreneurs and startup owners.
#1 Mitigating risk and uncertainty
By its very nature, every startup carries a certain amount of risk and uncertainty. With the build-measure-learn feedback loop, you can minimize these risks by quickly validating or refuting assumptions about your business model.
Instead of launching with a full-fledged product and hoping it will resonate with customers, you start small, test, iterate, and pivot as necessary based on real-world feedback. This approach significantly reduces the risks associated with the venture and adds clarity to your startup journey.
#2 Efficient use of resources
In any startup, resources – be they time, money, or personnel – are generally limited. The Lean Startup methodology advocates for their efficient use by avoiding the development of products or features until they have been validated by actual customer feedback.
This can help prevent the draining of resources on products or features that don’t resonate with the market.
#3 Faster time to market
By focusing on creating an MVP, the Lean Startup methodology helps you launch your product much faster compared to traditional business strategies.
This fast time-to-market allows you to start the learning process sooner and adapt your product based on actual customer feedback, which can also give you a competitive advantage in the fast-paced startup scene.
#4 Fostering innovation
The Lean Startup methodology fosters a culture of innovation. It encourages iterative experimentation and validates learning, which paves the way for unique solutions and creative problem-solving.
In this environment, failure isn’t seen as a disaster but as an opportunity to learn and improve, which can significantly drive innovation in your startup.
#5 Increased customer satisfaction
By focusing on customer feedback and continually iterating your product to better fit market needs, you naturally increase customer satisfaction.
When customers feel heard and see their feedback shaping the product, it not only increases their satisfaction but also their loyalty to your brand.
The Lean Startup approach doesn’t just help you build a product; it helps you build a scalable business model. By continually testing and validating your assumptions about your target market, value proposition, growth strategy, revenue model, and other aspects of your business, you can develop a robust and scalable business model, ready to take on growth and expansion.
#7 Empowerment and agility
Lastly, the Lean Startup methodology empowers organizations with agility. With a keen focus on learning and flexibility, businesses can quickly adapt to changing market conditions, new customer preferences, and emerging technologies.
This agility can be a powerful asset in today’s dynamic and fast-evolving business landscape.
Incorporating Lean Startup principles requires a keen understanding of its potential pitfalls. It’s important to remember that lean isn’t synonymous with cheap. Being lean means being strategic about where to invest resources and time. You need to validate your assumptions with actual market data and be ready to adapt, but remember, moving fast shouldn’t compromise the quality of your product or service. COO, ASPER BROTHERS Let's Talk
Key concepts of Lean Startup
The lean startup methodology is based on making assumptions and verifying them through an iterative process of product development and customer feedback.
Think of the big market disruptors of the past decade. Spotify, Netflix, and Facebook had to assume that customers will be willing to use their innovative solutions. Their assumptions had to be tested and verified. The lean startup process involves a loop of validating hypotheses through customer feedback to tighten product development and maximize the use of time and resources.
Together, Ries calls these steps validated learning. It is the result of the build-measure-learn loop that informs the startup on how to continuously improve its offering through the iterative approach. Validated learning not only leads to better product-market fit, but it also allows startups to reduce the risk of wasting time and money. Ultimately, the lean startup approach fosters innovation, initiative, and a customer-centric culture.
# The Build-Measure-Learn loop
The Build-Measure-Learn loop is the core element of the lean startup methodology.
One of the key goals of the lean method is the cyclical, iterative nature of the process based on customer feedback rather than adhering to a detailed business plan.
By focusing on improvement through validated learning, startups that employ the lean method can make products that are better suited to customer needs.
Let’s dissect the Build-Measure-Learn loop and delve into each of its three steps.
The first step of the loop is to build, which refers to the concept of a minimum viable product (MVP). As the name suggests, the MVP is the stripped-down, bare-minimum version of your product. The purpose of the MVP is to bring the product to market as quickly as its essential features can provide tangible value to your customers. You can read more on MVP development in our dedicated MVP for startups guide.
On one hand, the goal of the build stage is to showcase the essence of what your startup has to offer. On the other, it lays the groundwork for gathering feedback from your users. The MVP is crucial in understanding how the users behave and which aspects of the product are intuitive, easy to understand, and meet the needs of the user.
The second stage of the Build-Measure-Learn loop is the measuring step. The lean startup approach dictates that after the startup has released their MVP, it should focus on collecting data provided by the customers. The aim is to measure how effective the product is, how users interact with it, and how the market responds.
To get there, you have to define and establish key metrics and performance indicators that align with your hypothesis. Those might include:
- User engagement;
- Conversion rates;
- Sales revenue;
- Net profit margin;
- Customer satisfaction.
This data is collected based on user interactions, website analytics, surveys, interviews, or any other data-collecting tool.
Finally, there comes the culmination, the moment everyone’s been waiting for. It’s time to analyze the gathered data, draw conclusions, and take course for the future. By identifying strengths, weaknesses, opportunities, and areas of improvement, you can learn how to improve your product.
During the last leg of the loop, the data gathered during the measure phase is used to gain insight and validate previous assumptions.
The outcome of this stage comes in the form of a tangible plan for future development.
Usually, the learning phase can be broken down into another three distinct steps. First, data is meticulously analyzed to identify any patterns, trends, correlations, or outliers. This way, the startup can understand customer behavior, market reaction, and performance of the product.
Second, these conclusions are used to validate assumptions, compare hypotheses, and verify the initial market research.
Finally, based on the insights gained from data, the startup enters the planning phase. This is the last part of the build-measure-learn loop that occurs just before the next iteration is built. This is the moment when you assign priorities to issues and decide which changes to implement in the next iteration and which to focus on further down the line. Maybe you are now ready for your final release?
# Pivot or Persevere
Gathering and analyzing data through the Build-Measure-Learn loop is important not only to improve the product, but it can also provide important insight into the business model and business strategy that the startup should implement.
In the lean startup methodology, failure is accounted for. Not all ideas can be successful and it is your response to them that ultimately matters. By continuously assessing the viability of the business model and ideas in the context of the market, your startup can make a decision to either pivot or persevere.
Pivots refer to major changes in the business strategy and direction of the company.
While such a decision should not be taken lightly, sometimes the market dynamics dictate that the startup should make a change to its current strategy.
In contrast, perseverance is advisable when metrics indicate that the startup should commit to its current direction. However, this does not mean that you should just double down on whatever you’re doing. While perhaps no major shifts in the long-term strategy are required, both the structure and processes in the company, as well as the product itself, should be constantly iterated and improved to increase the value offer and the efficiency of the company as a whole.
# Innovation Accounting
Conventional financial metrics we’ve mentioned in the “measure” section have been at the forefront of assessing business performance since forever. However, in the case of companies that are inherently innovative and disruptive, these traditional metrics often fail to capture the true progress and potential of the venture, especially in its early stages. And this is where Innovation Accounting comes into play.
Innovation Accounting is a method of evaluating progress when all the metrics typically used in an established company (like revenues and profits) are effectively zero.
This unique method is about putting a value on the learning and progress that startups make, even when traditional financial indicators are still in the red.
Unlike traditional accounting, Innovation Accounting isn’t just about balancing the books or ensuring that the venture is profitable. It’s about setting up a process that allows startups to establish relevant metrics, test their assumptions, make data-driven decisions, and tell a story about how the venture is unfolding, with tangible, measurable evidence.
Always remember, in the face of innovation, your ability to learn, adapt, and evolve can become your most valuable asset. Therefore, it’s about time that we shift our focus from ‘accounting’ the profits to ‘accounting’ the learnings – and that’s what Innovation Accounting stands for.
Setting the stage for your Lean Startup
Applying the Lean Startup methodology to your business can be transformative, but it may also seem daunting without a concrete plan. Let’s break down the implementation process into tangible steps that guide you towards building your product in iterations and fostering a lean culture in your organization.
#1 Understand the Lean Startup Principles
Dive into the Lean Startup literature, including Eric Ries’ book, his blog posts, and case studies (some of which you can find below).
Encourage your team to learn about it as well. Everyone involved in the process, from marketing to sales to customer service, should have a basic understanding of the methodology. Lean Startup is a cultural shift; commitment from all levels of the organization is necessary.
#2 Identify key assumptions
Identify the key assumptions about your product, market, and business model that need to be true for your startup to succeed. These assumptions are essentially hypotheses that you will need to test.
Define your value proposition – the unique value that your product provides to customers that sets you apart from competitors. This proposition should align with your problem and solution hypotheses and resonate with your customer personas.
Identify the key assumptions in your business model. This might include assumptions about your revenue model, cost structure, distribution channels, customer relationships, and key activities, resources, and partners. These assumptions, like your problem and solution hypotheses, will need to be validated or refuted through your Lean Startup journey.
#3 Conduct initial market research
Before diving into building an MVP, conduct preliminary market research to gain a baseline understanding of the market, competition, and customer needs and behaviors. This research can help refine your hypotheses and provide a benchmark against which you can measure your MVP’s success.
Identify the audience segment that faces the problem you aim to solve. Who are they? What are their characteristics? The more clearly you define your target market, the better you can tailor your solution to them.
You can even go a step further and develop detailed customer personas, representing the different user types within your target audience. Personas can provide in-depth insights into your customers’ needs, behaviors, and pain points, helping you to design your MVP in a way that resonates with them.
#4 Formulate your Key Performance Indicators (KPIs)
Establish the KPIs that will indicate if your MVP is moving in the right direction. These could be metrics related to customer acquisition, engagement, revenue, virality, or retention. These KPIs should tie back to your hypotheses and business model assumptions and provide actionable insights.
#5 Foster a lean culture
The Lean Startup is more than just a set of practices; it’s a culture. Encourage a mindset of continuous learning, embrace failure as an opportunity to learn, and cultivate a customer-focused approach within your team.
Common misconceptions and pitfalls
Although the lean startup methodology is undoubtedly a very successful and innovative approach to business, it is not a one-size-fits-all solution.
Indeed, there are some pitfalls to watch out for. The lean startup approach can be easily misunderstood, derailing, rather than boosting, a startup’s progress.
Below, we delve into these misconceptions and pitfalls to provide a nuanced understanding of what the Lean Startup is and what it isn’t.
#1 Lean means cheap
The term “Lean Startup” is often misconstrued to mean doing things cheaply.
While it’s true that Lean Startup emphasizes the efficient use of resources, it doesn’t advocate for skimping on quality or necessary investments. The principle is to avoid wasteful practices and optimize resource utilization rather than pursuing the cheapest path.
As a startup owner, you should be wary of sacrificing quality or cutting necessary costs in the name of “leanness.”
#2 The MVP is a low-quality product
The Minimum Viable Product is central to the Lean Startup methodology. However, it is often misunderstood as a rudimentary or low-quality version of the final product. This isn’t the case.
An MVP is the simplest version of the product that delivers value to customers and allows you to start the learning process. It should be good enough to solve a problem for users and entice early adopters. MVP isn’t about releasing an unfinished or low-quality product; instead, it is about learning and validating your assumptions.
#3 Failure is the goal
While the Lean Startup methodology promotes a “fail fast” approach to validate hypotheses and iterate product designs, it doesn’t mean that failure is the end goal.
The aim is to learn quickly from failures and to pivot or adjust strategies based on these learnings. The celebration is not the failure itself but the valuable insights and growth opportunities that can emerge from it.
#1 Not defining appropriate metrics
In the Lean Startup approach, defining the right metrics is crucial for understanding progress and making data-driven decisions. However, many startups fall into the trap of “vanity metrics” – numbers that look good on paper but do not provide actionable insights or correlate to the startup’s goals.
For instance, tracking the total number of app downloads without considering user engagement or retention may paint a misleading picture of success.
#2 Sticking to the plan despite evidence
The Lean Startup methodology emphasizes agility and the ability to pivot based on validated learning. However, sometimes startup owners become too attached to their original vision or strategy, ignoring negative feedback or signs that suggest a need for change.
Remember, the Lean Startup methodology encourages you to pivot when the evidence suggests that your current path won’t lead to the expected results.
#3 Underestimating the importance of vision
Though the Lean Startup methodology revolves around tactical processes like building MVPs, measuring, and learning, it doesn’t mean that vision is any less important.
On the contrary, maintaining a clear and compelling vision is crucial to guide the learning and discovery process. The danger lies in becoming so caught up in the iterative process that you lose sight of your startup’s overarching vision.
Case studies of successful lean startups
While the Lean Startup methodology has a broad theoretical appeal, its real test lies in practical application.
Several successful companies have embraced this approach and yielded impressive results. Let’s examine some of these case studies, focusing on the company’s background, its initial challenge, how it implemented Lean Startup principles, and the outcomes it achieved.
Company Background: Dropbox, founded by Drew Houston and Arash Ferdowsi in 2007, is a file hosting service that offers cloud storage, file synchronization, personal cloud, and client software.
Initial Challenge: The concept of cloud storage was relatively new and unproven when Dropbox was founded. The challenge was to ascertain whether customers would use such a service before investing significant resources into developing a fully featured product.
Lean Startup Implementation: Dropbox started with a simple MVP – a video demonstrating how the software would work. It showcased the product’s core features and asked people to sign up if they were interested. The goal was to test the market’s interest in the product without having to build it first.
Outcome: The MVP was a resounding success, with the video generating enormous interest and tens of thousands of sign-ups overnight. Dropbox then used this validation to attract investors and build a full-featured version of the product. Today, Dropbox is a multi-billion dollar company with millions of users worldwide.
Company Background: Airbnb, founded by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk in 2008, is an online marketplace for lodging, primarily homestays for vacation rentals and tourism activities.
Initial Challenge: Airbnb initially struggled with slow growth and low traction. One major issue was that the listings did not look appealing – the images were often poor quality, which deterred potential customers.
Lean Startup Implementation: The founders hypothesized that professional photos would increase user engagement and bookings. To test this, they went to New York, rented a camera, and took professional photos of the listed properties. After updating the listings with these photos, they saw a significant increase in user engagement and bookings.
Outcome: The test confirmed the hypothesis that high-quality photos were crucial for user engagement. Airbnb went on to hire professional photographers to take photos of listed properties worldwide, significantly increasing their user engagement and helping them become the global leader in vacation rentals. Today, Airbnb is valued at tens of billions of dollars.
# Ries’ IMVU
Company Background: IMVU, co-founded by Eric Ries in 2004, is an online metaverse and social networking site where users can create 3D avatars, meet people, chat, and play games.
Initial Challenge: Initially, IMVU spent six months building a product without any customer feedback, but when they launched, they found that customers weren’t interested in their product.
Lean Startup Implementation: To rectify this, Ries and his team embraced the Lean Startup principles, beginning with developing an MVP. They started releasing early versions of the product and using customer feedback to guide their development process. They also instituted a system of continuous deployment to accelerate the feedback loop.
Outcome: This new approach led to rapid improvements in their product and a better understanding of their customers. IMVU became profitable, growing to millions of users, and Ries’ experience led him to develop the Lean Startup methodology itself.
Company Background: Buffer, founded by Joel Gascoigne and Leo Widrich in 2010, is a software application for the web and mobile designed to manage accounts in social networks by providing the means for a user to schedule posts to Twitter, Facebook, and Linkedin.
Initial Challenge: Buffer was launched with a primary question – “Would users find value in a better way to schedule social media posts?” Instead of investing a significant amount of resources to build a complete product, the founders decided to validate their idea first.
Lean Startup Implementation: Buffer’s MVP was a simple landing page describing the proposed product and asking visitors to sign up if they were interested. This MVP allowed them to test the market’s response before developing the product.
Outcome: The MVP garnered significant interest, and many people signed up, validating the need for the product. This led to the development of the full product, which now boasts millions of users. Today, Buffer is a fully remote team spread across the globe, continuously using Lean Startup principles to test new features and initiatives.
Company Background: Zappos, launched by Nick Swinmurn in 1999, is an online shoe and clothing retailer.
Initial Challenge: In the early days of e-commerce, the idea of selling shoes online was unproven. Swinmurn needed to validate the demand before investing heavily in inventory and a complex web platform.
Lean Startup Implementation: To test his hypothesis, Swinmurn launched an MVP site with pictures of shoes from local stores. When customers placed an order, he would go to the store, purchase the shoes, and send them to the customer.
Outcome: The MVP was successful in validating the demand for buying shoes online. The insights gained from this initial MVP allowed Swinmurn to build Zappos into a multi-billion dollar business, which was later acquired by Amazon.
Company Background: Groupon, founded by Andrew Mason in 2008, is a global e-commerce marketplace connecting subscribers with local merchants by offering activities, travel, goods, and services.
Initial Challenge: Mason initially wanted to create a platform for collective action and philanthropy. However, the idea didn’t get traction. He decided to pivot and test a new concept: offering deals to groups of people if they collectively bought together.
Lean Startup Implementation: Groupon’s first MVP was a basic website with WordPress, offering a daily deal to its users. This MVP, though far from the ultimate vision for the product, allowed the team to gauge customer interest in the new concept.
Outcome: The MVP saw an overwhelming response, validating the new direction for the product. Groupon has since grown into a global brand and has spurred a whole industry of deal-of-the-day websites.
Conclusion: The future of Lean Startup
The lean startup methodology is one of the most innovative business approaches available to startups.
Although the ever-changing business landscape holds many challenges, the instantaneous nature of new technologies will further streamline and enhance the lean startup model, making customer feedback even easier to access.
In addition, the Lean Startup business model promotes sustainability, which is becoming increasingly important due to growing social awareness.
Now more than ever, customer-friendly practices and ethical dilemmas surrounding privacy, data security, algorithmic biases, and the social impact of technology cannot be avoided, and the lean startup methodology is geared towards addressing them much better than any business model has before.
While the lean startup methodology is not a universal solution, it should feature prominently in the startup owner’s manual. Whether you are just developing your ideas or you already manage an existing venture, you should consider applying some of the lean startup ideas to your business model.
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