Lean Startup

Article byKosha Mehta
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Lean Startup Meaning

The term “lean startup” refers to a business or product creation approach that emphasizes listening to and responding to customer feedback. Information about customers is crucial to the lean startup approach, and its principles may be used in product and market development.

Lean Startup

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Lean startup develops a product or firm based on market needs. The concept emphasizes consumer insights for product design and development. A “lean startup” refers to a method for developing new companies predicated on the idea that company owners should study, experiment, test, and iterate to create successful goods.

Key Takeaways

  • Steve Blank and Eric Ries coined the term “lean startup” in the early 2000s.
  • It is based on five principles: Entrepreneurs are everywhere, Entrepreneurship is management, Validated Learning,  Innovation Accounting, BUILD-MEASURE-LEARN.
  • Lean startup strategies emphasize consumer insights for product design and market development. It refers to a business or product creation approach that emphasizes listening to and responding to customer feedback.
  • It can be used for product and market development by considering feedback from potential customers.

Lean Startup Explained

The term “lean startup” was coined in the early 2000s, and the notion eventually developed into a technique around 2010. Entrepreneurs from Silicon Valley named Steve Blank and Eric Ries were responsible for its creation, and early adopters helped spread the word about it. Eric Ries even wrote a hugely successful lean startup book, which helped propagate the concept.

Conventional wisdom advises startups to develop their products in a “stealth mode,” which means they should keep their product ideas a secret from anyone other than their employees and investors.

The lean startup approach encourages prospective company owners to launch their companies by evaluating potential business models and testing their concepts. Then, after having feedback from prospective clients, the company will utilize that information to adapt its plans as they move forward.

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Concept

The elimination of inefficient business procedures in the early phases of a company’s development contributes to an increased likelihood of that company’s continued prosperity in the long run. It is the primary objective of this approach. It is feasible for initial-stage ventures to achieve profitability without needing large financing, comprehensive business strategies, or a product that is free from all problems if they implement the lean startup process. This is one of the many benefits of this approach.

To ensure the success of the lean venture process, the company that implements it must place primary importance on soliciting customer input about the first version of its product. The owner will be able to use this feedback while making adjustments and iterations to the product, which will enable the product to be enhanced over time in line with the shoppers’ desires.

One should also avoid wasting resources on functions and solutions purchasers do not want by paying attention to consumers’ responses. The objective or, say, the lean startup meaning is to make do with the minimum number of available resources.

Principles

Let us have a look at the five principles of lean startup.

Lean Startup Principles

#1 – Entrepreneurs are Everywhere

Anyone who owns a business, from a barber shop to a movie production company, can be considered an entrepreneur. The concept of a lean startup applies to any individual who owns and runs a startup. A lean venture is a solution for everyone eager to minimize their use of resources and time.

#2 – Entrepreneurship is Management

A startup is an institution, not a product; hence it needs specialized management. Management may not be as protocol-based as an established firm with a fixed model. However, as long as the risks are gauged, owners should still react to difficult events, manage investors, and let staff explore.

#3 – Validated Learning

Startups don’t simply make things or service clients. Instead, they want to set up sustainable businesses. Scientific tests can confirm this learning by testing each part of our perception. Lean firms use verified learning to create a viable business model. This entails running tests, collecting findings, and making decisions on data.

#4 – Innovation Accounting

Startups must make data-driven choices to build a tenable firm. Businesses must objectively assess processes, set milestones, and prioritize tasks. Lean venture document experiments and analyses to determine what works. Then, they measure progress based on what they’ve gained about the invention, not additional work.

#5 – Build-Measure-Learn

Lean entrepreneurs produce a Minimum Viable Product, the simplest product that works. This is tested and user-reviewed to determine how well it’s received. If it succeeds, they iteratively improve based on feedback.

Build, measure, and learn is a loop with four steps. It begins with the entrepreneur’s ideal product concept. Then, the cycle has four steps:

  1. First, build the Minimum Viable Product and give it to customers.
  2. Next, customers should try the product and give feedback to the entrepreneur.
  3. Finally, the entrepreneur analyses the data and concludes.
  4. Depending on these insights, the businessman learns about the customer’s wants and decides whether to enhance or scrap a feature.

The founder must add new features or restart the cycle after the fourth phase. This saves time and money. In addition, this allows the owner to expand while ensuring that the product works, is complete, and has a loyal customer base.

Examples

Let us look at the examples of lean startups to understand the concept better.

Example #1

Dropbox is a well-known cloud data storage provider using this concept. The file transfer service today has over 500 million users worldwide, yet it began as a 3-minute screencast demonstrating its capabilities. Dropbox used the video to assess product demand and build a waiting list. Dropbox’s team used comments on the video to guide product innovation based on customer needs.

Example #2

Forbes has an article that describes how to start such a startup. It emphasizes that creating a lean venture will boost chances of survival as it allows the firm to execute a timely pivot when it discovers that the present route is off track. This allows the company to respond better to changing market conditions. In addition, it refers to learning via experience, feedback, and iteration as important components of a successful lean strategy.

Lean Startup vs Design Thinking

The practice of “design thinking” dramatically alters the method of solving an issue. It increases the design team’s diversity and gives an in-depth understanding of a particular user. Creating viable goods and allowing the market to judge their worth are the cornerstones of the lean startup methodology, which aims to enhance both the quality of products and the efficiency of production.

Design thinking helps us develop better ideas, and lean startup helps us transform those ideas into business models that function.

Frequently Asked Questions (FAQs)

Why lean startup changes everything?

Lean startup alters everything because it abandons old methods. Customers aren’t assumed to want a product. One does not develop a costly infrastructure to support this product. Lean helps new companies launch items that customers demand more rapidly and inexpensively than traditional methods. “Lean startup” challenges conventional entrepreneurial thinking.

What is lean startup methodology?

A lean startup is a way to establish a company or launch a new product. Lean startup encourages producing things that people already want, so a market exists when the product is introduced. The Lean Startup presents a scientific method for building and managing companies.

What are the 3 steps in the lean startup?

The following are three stages that entrepreneurs may take to get their lean business off the ground: Find, Execute, and Validate. Learning via experimentation and exploration, Customer feedback, and Product development cycles that are short and iterative is the cornerstone of this approach.

This article is a guide to Lean Startup and its meaning. We explain its principles along with examples and a comparison with design thinking. You can also go through our recommended articles on corporate finance –

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