Put simply, lean start-up is a way of developing a product and growing a business that aims to reduce costs and increase speed and success. Its principles of Minimal Viable Product, A/B testing, pivoting and iterating are now used throughout the business world.
Indeed, a survey of 170 executives working in R&D strategy and new product development found that 82% used some elements of the lean start-up approach1.
So how does lean-start up work, and is it right for your business?
Lean start-up methodology
Eric Ries, a pioneer of lean start-up, states that the fundamental question for businesses should not be ‘can this product be built?’ but rather ‘should this product be built?’. This focus on customer requirements is what makes the approach so powerful.
Minimal Viable Products
Most business ideas are built on assumptions. A Minimal Viable Product (MVP) is designed to test those assumptions. It is the quickest and cheapest way to find out whether you are on the right path.
A simple example might be that of a property developer: rather than build a house and hope someone wants to buy it, they first create a sketch, then plans, then 3D drawings and models before laying the first brick.
Each stage is an MVP that lets them check in with their customers to be sure that the finished home will sell.
So, rather than employing a team of coders to build a new tech product, why not create a video that shows how the product would work and see what interest that gathers?
After all, mocking up a video is a lot cheaper than months of development. That’s what Drew Houston, the founder of Dropbox did. The buzz he created among his target audience gave him the confidence to spend money on actual development.
Another great example of a low-cost MVP is that of Zappos, now a huge online retailer. Founder Nick Swinmurn wanted to test his assumption that people would buy shoes online, but didn’t want to invest in stock.
His MVP was a website that included pictures of shoes he’d taken in a shoe shop. If people bought the shoes on the site he’d rush to the store, buy the shoes in question and send them on. He wasn’t making any money but he was learning a lot with very little risk.
The creation of each MVP is known as the Build phase. The MVP is then exposed to its target audience and data about engagement and use is captured. This is the Measure phase.
Next comes the Learn phase. Look at the hard data your MVP is producing and never ignore numbers that challenge your preconceptions. Proper consideration of the data will tell you which assumptions were right or wrong. This knowledge will then inform the build of the next MVP ¬– and so a product development cycle is established.
By creating an MVP cheaply and quickly it is possible to repeat this cycle of Build-Measure-Learn multiple times, and at speed. The risk of building something that no one wants is massively reduced because you are constantly testing your assumptions.
One effective way to gather data about a product is to make two versions of it and see which is the most successful. The concept can apply right across a business.
For example, create two homepage designs for your website and evenly split arriving traffic between them – then see which produces the best metrics. The guesswork is taken out of decision-making.
Or find out what style of email title prompts the highest open rate by sending one version to 10% of your database, and a different version to another 10%. The email that is most successful is then sent to the remaining 80%.
Time to pivot?
Many start-ups fail because they’ve spent so much time or money on a product that they feel obliged to push on with its development. By testing assumptions and gathering lots of data it should become clear whether a product might not be right for its market. The decision must then be made whether to persevere with the concept or to pivot and look at taking the product (or business) in a different direction.
Tech start-up Aardvark believed there was a market for a social search engine that allowed users to ask questions that would be answered by other users. However their first approach was unsuccessful. In fact it took six rounds of experimentation before they settled on a prototype suitable for further development. A form of pivot was involved in each iteration. The result? Aardvark went on to market success, and was eventually bought by Google.
For lean start-up, pivoting is not a mark of failure. In fact it shows that you are paying attention to the data and being honest with yourself. Pivots could involve relatively minor changes or they could be fundamental. Creating a new set of MVPs may be the best way to test the wisdom of pivoting.
Lean start-up for all
The methodology can be used by large corporations as well as new businesses. Eric Ries has worked with GE to develop FastWorks, a lean-start up programme that helps employees test assumptions and iterate products more quickly. Some 40,000 GE employees have been trained in the methodology and Bloomberg reports that this has led to cost savings of 40% in the development of some products2.
Slavishly following a single business approach is never wise, and this applies to lean start-up methodology. Some products are less suited to the creation of an MVP and some customer groups can be reticent in giving feedback.
However the principles and techniques of lean start-up can be applied to some degree to almost any business and especially to those in their early stages, reducing risk and saving time and money.