What is the Lean Startup Methodology? Basic principles

by Ivanna Nösel, on 1/19/21
lean startup

In recent years, the Lean Startup Methodology has begun to replace traditional business model canvases for startups. Lean Startup shares principles with Design Thinking and Agile Methodologies and applies them to startups.

Lean Startups begin by finding a business model. They test, revise, and reject hypotheses, continuously gather feedback from customers, and rapidly evolve their products. This strategy reduces the likelihood that startups will waste a lot of time and money bringing products to market that no one will actually pay for.

What is the Lean Startup Methodology?

Definition

The Lean Startup methodology is a scientific approach to creating a startup that relies on the "Build Measure Learn" cycle to guide and accelerate the iterative development of the product.

The term Lean Startup was first developed by Silicon Valley entrepreneur Eric Ries. In his 2011 book The Lean Startup, he defined it as "a group of people organized to develop a new product or service under incredibly uncertain circumstances."

The methodology stems from the main difference between startups and traditional companies: namely, innovation rather than an established business model. Thanks to so-called lean management, resources are saved by using them to gather confirmation for the basic idea.

How did the Lean Startup method come about?

High risk is the characteristic that distinguishes a startup from any other type of business. That's because startups are inherently innovative.

Eric Ries wrote The Lean Startup to help companies minimize risk through a Minimum Viable Product (MVP), rigorous experimentation, gathering feedback, and a willingness to learn.

At its core, the Lean Startup methodology is about creating a sustainable business with minimal waste of time and money.

This concept came about after Ries himself failed with two startup attempts.

“We need to change our idea of what a modern company looks like.”

Eric Ries, The Lean Startup

Innovation comes from cross-functional teams, a willingness to fail, and a rigorous commitment to learning. Any company, large or small, can become a start-up. Entrepreneurship is an important function for almost any type of organization.

What is an MVP?

The Minimum Viable Product (MVP) is a minimally functional product and an extremely minimalist implementation of a single idea. The goal is to meet customer needs with minimal effort and gather feedback from test customers. The feedback helps the company learn what works, understand what doesn't, and figure out which direction it should take.

The Build-Measure-Learn Feedback Loop

Entrepreneurs using the Lean Startup methodology are encouraged to question everything from their initial idea to their design decisions to any features they want to add.

Ries recommends giving the MVP to a select group of test customers to determine what improvements need to be made.

The basic idea is that young companies "build, measure, learn" and repeat the process until their MVP can be turned into a sustainable business plan. Often this process leads founders to move from one idea, market, or niche to the next in search of a great product.

Coming up with structured ideas and then finding creative ways to test them is central to the lean startup method. And it's proven to be a great way to innovate even if you have limited resources.

Build-Measure-Learn is a research-intensive process that can be emotionally taxing, as developers must be willing not only to put their creations out into the world before they're "ready," but also to accept and implement feedback.

Implemented correctly, the lean startup method can lead to a company that meets the needs of its customers, is sustainable, and has its business purpose validated before the founder even starts looking for funding. Ries' website cites Dropbox as a prime example of a large company that has become successful using the method.

The goal of Build-Measure-Learn is not to build a final product to ship or to develop a beta version of a product but to maximize learning through incremental and iterative development. (The learning could be about product features, customer needs, getting the pricing and distribution channel right, etc.).

The "build" step refers to the design of an MVP. It is important to understand that an MVP is not a product with fewer features. Rather, it is the simplest thing you can show customers to achieve the greatest learning effect at that point.

This five-part Build-Measure-Learn diagram helps us realize that the real purpose of the building is to test "ideas" - not just blindly build without a goal.

Build-Measure-Learn

Ⓒ mindtools.com

The circle labeled "Product" could also be called "Code" or "Build Hardware". The circle labeled "Data" tells us that after measuring our experiments, we will use the data to further refine our learning. And the knowledge gained will inform our next ideas.

So we see that the goal of Build-Measure-Learn is not only to build things but also to build things to confirm or invalidate the original idea.

4 Steps to Lean Startup

The Build-Measure-Learn loop can be summarized in the following points:

  • Step 1: Plan your experiment and develop a formal hypothesis.
  • Step 2: Build a Minimum Viable Product, and test it.
  • Step 3: Measure the results to decide if the product offers potential for your business.
  • Step 4: Learn from the experience and decide whether to continue or change the course.

Then return to the beginning and repeat the cycle as you develop your product.

The Lean Startup Methodology minimizes cost and risk in developing products and services. It avoids releasing ideas that no one wants and helps you focus on something that appeals to customers.