A start up is an experiment with no certainty of what will happen.
- What is the business model?
- Is there a proof of concept or minimum viable product?
- Do you have a prototype or a commercialisation plan?
- Is there a market for your product or solution?
- Do you have enough seed funding needed to get through the early stage? 35
Take a look at this video to overview of five lean starts up principles by Eric Ries.
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What should be done to find out the answers to all these questions?
It is best to start up lean at least until you find your feet. The next section will cover how to begin a lean start up and some of the benefits.
A lean start up can be defined as an organised approach to starting a business that relies on validated learning and testing, with constant version releases to shorten development cycles, measuring the process whilst gaining valuable real customer feedback.
Also known as the Fail Fast methodology – if you must fail, it is better to fail in the first 3 months than put in 3 years of time, money and effort to build a product, protect the IP and then find that nobody wants it.37
- Your lean start up begins with your POC or MVP.
- You find one or two initial paying customers with a problem that your product can solve.
- This gives you enough funding to develop the product and solve their problems.
- Now that you have a product demonstration take it to an angel investor to reach the next steps, gain more customers and start generating revenue.
- This is where you go to a VC for growth funding, and then you have a choice to get past the lean start up phase.
Proof of concept (POC) is evidence obtained from a pilot project, which is executed to demonstrate that a product idea, business plan, or project plan is feasible. 38
A minimum viable product (MVP) is a product version with just enough features to be usable by early customers who can then provide feedback for future product development. 39
An angel investor is an individual who provides capital for a businesses start up (where risks of the start-ups failing are relatively high and when most investors are not prepared to back them), usually in exchange for convertible debt or ownership equity. 40
Venture capital (VC) is a form of private equity financing provided by venture capital firms or funds to start ups that have been deemed to have high growth potential. 41
The Lean Start up – a book by Eric Ries
This methodology was first proposed by Eric Ries in 2008 in his book The Lean Start Up, based on his personal experiences.
The lean start up methodology is important for new and established companies. It helps entrepreneurs eliminate delays by making better and faster business decisions. 35
The aim is first to figure out whether your product should be built, whilst minimising the effort, resources and time needed.
This is done by building a minimum viable product (MVP) to be used by a handful of customers, taking their feedback, and learning from the experience to make the necessary changes and improvements.
More MVPs means more tests, more data and more validation. This cycle of Build – Measure – Learn continuously improves the product/service.
Build-Measure-Learn can be followed in anything – a customer service idea, website offers, new features added to product, and so on. The goal here is to get MVPs tested and collect the data in a manner that's fast and easy. 35
This is why Eric Ries advocates this methodology. Each cycle of MVPs, testing and Real Customer Feedback brings your start up or business closer to the final product or solution that can be commercialised and marketed effectively.
Eric Ries has defined the four start up principles:
- Entrepreneurship is management – Anyone who creates a new product without knowing how it will pan out is an entrepreneur and the venture is called a start up. An entrepreneur will learn how to take the venture from concept to MVP to a funded start up and commercialisation. You can avoid mistakes by checking the data and determining the next steps.
- Validated learning – "Each test of an idea is a single iteration in a larger process of many iterations whereby something is learnt and then applied to succeeding tests. The term coined in the lean start up scene, but it can be applied universally." – Eric Ries. You can identify the risks involved and make changes accordingly for a successful launch with validation.
- Innovation accounting – Entrepreneurs must measure growth, set milestones and learn to prioritise. These analyses will allow you to maintain accountability and maximise the outcome.
- Build-measure-learn loop – This feedback loop is the foundation of the lean start up model. First, transform an idea into a product or service, collect and measure any relevant metrics, and finally decide whether to Pivot Or Preserve it.
- Pivot – Making a change in the product or service and testing how it functions.
- Preserve – If you have positive feedback on the original MVP, you should continue using the same business process, and product or service. 35
There are many misconceptions about the Lean Start up theory.
- Lean start up is only used for internet companies.
- Lean start ups are cheap and small.
- Pivot means changing business model or product completely.
But they are not at all true. Start up applies to all micro and small businesses in any industry and field. Lean means a smaller team with less spending. The pivot is determined by the clear collection of data or customer feedback and learning derived from it. It is about speed of learning and changes made accordingly. 35
Examples of lean start ups
Started when an email list experiment evolved into a venture-funded start up community with thousands of users. The email list was transformed into a website by collecting positive feedback. Today that MVP has evolved into a booming online community with more than $7 million in funding.
Dropbox used lean start up principles to take its easy file sharing service from 100,000 registered users to over 4,000,000 in just 15 months.
World's largest 3D avatar social app with 50 million users. IMVU tests out new product features before development. IMVU makes $40+ million in annual revenue.
Exam preparation and research in a social capacity (e.g. SAT, LSAT). Grockit uses agile development to create product quickly and follows this even now. On any given day, Grockit's online learning platform hosts 1,000 cross-national border communications and supports users across 150 countries. 35
Advantages of lean methodology:
- Eliminates waste
- Minimises inventory
- Designed for rapid pivots in your product development
- Creates a culture of constant improvement.
Brief Pointers:
- Product/service market fit matters.
- Test everything, whether you think you know it or not.
- More real customer feedback means more data and more successful product/service outcomes.
- Maximise validated learning.
- The goal in the end is to create a measurable result in a proficient, minimum and lean way. 35
Creating a business plan can be very time-consuming. Here is a template for a lean business plan so that you can focus on your priorities as efficiently as possible. You should fill out the template in the numbered order. 42
Lean Canvas
Choose one of the following scenarios and create the following materials:
Scenario 1
Select a business (idea) you want to work on. This can be any type of business idea you like, e.g. design business, creative agency, SaaS business etc. This is an opportunity for you to complete this course with an actual business idea that you can launch and grow.
Scenario 2
Create a fictitious business idea which would be something you personally would not turn into a business. This can be any idea you prefer and it would still allow you to get all the learnings from this course that you can implement in your own business or another business at a later stage.
Research and write down the following for your selected scenario:
- Who? Identify your target market
- What? Describe what you are offering to the market
- When? Decide when you want to launch
- Where? Look at where you are selling your services/products
- Why? Explain why you want to start this business
Having a clear idea about the business you want to focus on, complete the LEAN Canvas for this business covering all 9 building blocks of the LEAN Canvas.
Choose a partner from your forum and send them your content.
