- Lean Startup: 4 Primary Principles to Boost Production - August 13, 2015
Increase Your Startup’s Chance for Success with Lean Startup Principles
To get ahead in the startup world you need to think fast and test often. Nine out of ten startups fail and a major deciding factor in these outcomes is product market fit. Lean startup methodology is a proven way for entrepreneurs to test assumptions throughout the product development process. Building (and maintaining) momentum is a major component of young company success and lean startup principles are a proven fuel for perpetual motion. These philosophies and methodologies are not relegated to early stage companies as they can be implemented by larger corporations as well. There are several layers of lean startup principles to peel and discuss, but for today, we will start with the basics.
Eric Reis, entrepreneur and author of the New York Times bestseller “The Lean Startup”, created the lean startup concept around 2008 and is credited for coining the term. He based his philosophies largely on Lean Thinking, the lean manufacturing processes of the Toyota Production System in the 1950’s. Lean Thinking has helped healthcare, construction and several other industries flourish in the past 60 years and the startup boom of the late 2000’s was primed for its own adaptation.
I sat down with our own Product Manager, Alex Hsu, to get his insight on the topic and we came up with four main points to cover. In fact, Lean Startup is what drives our product development strategy at Persio we are speaking from experience. Please enjoy the following central themes for lean startup principles and methodology:
The Startup Way
In addition to his publications, Reis has delivered various speeches at industry conferences and events. During the inaugural Lean Startup Conference in 2013, to which he is a co-founder*, Reis opened the event and spoke about the four main components to Lean: “That’s the paradox of lean startup. (That) We combine the short-term action of rapid experimentation and MVP’s (minimum viable product) with the long-term vision to put a dent in the universe. And so The Startup Way is an analogous pyramid, and it simply goes like this:
As people try to implement Lean Startup, if they only focus on one of those four levels they will certainly fail.”
Placing emphasis on employees and culture instead of profits and margins is a key lean startup principle. Reis is a huge advocate of rapid experimentation, which we will cover next, but The Startup Way is founded on the treatment and development of personnel.
The Lean Startup Cycle
Next we have Reis’ rapid experimentation chart, or Lean Startup Cycle. Startups don’t have the luxuries of time or bottomless funding. In order to make maximum progress in the shortest amount of time, they need to experiment quickly and often. With everything.
Here is a breakdown of each step of the cycle from Alex Hsu:
Building products or services always starts with an idea. In lean startup, an idea is a hypothesis that attempts to solve a problem. Each hypothesis contains a set of assumptions that need to be validated.
There are various ways to design and build a method to validate a hypothesis. This could, although not always, be implemented as part of the Minimum Viable Product (MVP) strategy.
Defining and measuring based on success criteria is a critical concept. The method could be quantitative through the use of split test, funnel analysis, cohort test, etc… or qualitative such as in-person interviews. Success criteria must be obvious to anyone involved. This could be as simple as setting a threshold in a quantitative test, or a number of ‘yes’ or ‘no’ questions in qualitative test.
The outcome of any successful test should prove or disprove the original hypothesis. If a hypothesis is proven false, the team or organization can choose to persist or pivot from the original idea. As a best practice, ideas that are core to the vision should go through a few validation cycles prior to pivoting.
A key concept with lean startup is that failure, or disproving the original hypothesis, is an acceptable and somewhat desirable outcome. New insights often surface as a result of disproving a hypothesis that could lead to a better product or market fit. Hence the term “validated learning”.
*Repeat Cycle as Needed”
The results of your cycle testing will naturally be compounded by velocity. The faster you run through a cycle, the faster you can learn the results and start a new cycle. Let’s say you have 100 days to test. If your company can squeeze in 3 more cycles than your competition, you will obviously know more about your product and have a higher chance to succeed. Lean Startup Cycles are very important to early-stage companies and should quickly become standard operating procedure.
“Pivoting” is a recognizable term for most business folk. However, pivoting in the startup world has sink-or-swim significance. A pivot refers to a company recognizing the need to take their product in a new direction. A survival instinct. For most, failure is a main component of making a pivot. If an original hypothesis has been proven wrong, they must make a pivot in order to survive. Larger and more complex pivot ideas can be split up into cycles to optimize turnaround.
You might be surprised at how many wildly successful tech startups have pivoted in their lifetime. Apple, Microsoft, Facebook, Twitter, PayPal, GroupOn, Instagram and YouTube have all made at least one pivot on their path to success and they aren’t the only ones. Click the following link to see the 15 greatest tech pivots ever.
The Business Model Canvas
Last but not least is The Business Model Canvas. The Canvas consists of 9 basic segments thatrelate to any business, shown in the diagram at left. All of the particular details of each segment will be described to create a holistic view and allow a company to summarize each hypothesis This is the ideal way to invent, discuss, challenge and pivot each business model in one image.
Here are the 9 segments and the details for each:
- Key Partners: Who are our most essential partners and suppliers?
- Key Activities: What activities do our value propositions, distribution channels, customer relationships and revenue streams require?
- Key Resources: What resources do our value propositions, distribution channels, customer relationships and revenue streams require?
- Value Propositions: What value do we deliver, what problems are we solving and what needs are we satisfying?
- Customer Relationships: what type of relationships do our customers expect, what relationships have we established, how are they integrated and how much do they cost?
- Channels: What channel(s) will reach our customer segment, how are the channels integrated, which one works best, and which is most cost-efficient?
- Customer Segments: Who are we creating value for and who are our most important customers?
- Cost Structure: What are the most important costs in our business model, which key resources and activities are most expensive?
- Revenue Streams: What are our customers willing to pay, what are they currently paying, how are they currently paying, how would they prefer to pay, how much does each stream contribute to overall revenues?
Lean startup principles and methodology are a complex but viable resource for any early-stage company. We understand this is a lot to take in, so to end the article appropriately, we will leave you with a reminder from Eric Reis on what lean startup methodology is all about:
“The foundational principle of all Lean is respect for people. Let’s not forget that our goal here is not products and money and the artifacts of our work, but rather, to support and make good use of the time, passion, creativity and intellect of our people.”
*As mentioned above, Eric Reis is a co-founder of Lean Startup Co. (LSCo) along with Heather McGough and Melissa Moore. Their 3rd Annual Lean Startup Conference is taking place November 16-19 in San Francisco for those interested.