Startups often have a hard time understanding their target customers’ needs. This is due to a lack of experience and consumer data to evaluate whether their business idea is viable or not. Given this inadequacy, startups tend to develop their products based on intuition.
While this might not always be a bad thing, data shows that 34 per cent of startups fail due to a lack of product-market fit. This means the product designed by the company is not able to satisfy the market demand.
This is where the lean startup methodology can help. It reduces your business risk and ensures that your product aligns with your target customers’ needs. It establishes a framework to develop competent products that have a strong market demand.
In this article, we’ll see what is a lean startup, its principles, and how it works.
What is a Lean Startup Methodology?
The lean startup methodology is a blend of multiple techniques for building a business or introducing a product based on the feedback from your target customers.
Its primary role is to:
- Reduce risk
- Test the viability of a business model
- Reduce product development time
- Increase the product usability
Lean startup methodology follows a process that involves envisioning a viable business idea, developing and testing prototypes, and collecting user feedback to help create a great product. It’s an iterative process that helps reduce the wastage of resources and time.
Eric Ries’s 5 Principles of Lean Startup Methodology
The lean startup methodology was developed by American entrepreneurs Eric Ries and Steve Blank in the early 2000s. In his book, The Lean Startup, Ries states the five principles that drive the lean startup methodology.
1. Entrepreneurs are everywhere
This principle says that innovations can happen anywhere and anytime. You don’t necessarily need to have an office to build a startup. All you need is an idea, the vision to make it big, the willingness to start small, and the ability to scale it with rigorous and consistent efforts.
2. Entrepreneurship is management
Unlike an established business, startups don’t have a loyal customer base and haven't figured out a business model that works well for them. Due to this, they are subject to numerous risks and can’t rely on a standardized business plan.
What they need is management that’s tailored to serve their unique needs and is capable enough to handle unpredictable roadblocks.
3. Validated learning
Building a startup is like laying the groundwork to ensure a long-term sustainable business as they help you test ideas, determine viability, identify flaws, and come up with creative solutions.
By doing so, you are able to scientifically examine your startup and make changes based on validated data. This then helps you minimize risk and increase the chances of success.
4. Innovation accounting
Metrics such as ROI, revenue, and market share are great for established businesses, but they aren’t of much use to a young startup because they don’t represent potential, only results.
There is where innovation accounting comes in. It’s a procedure to quantify, track, and communicate the growth in innovation and the state of R&D in your startup.
This principle is the central idea of the lean startup methodology. It describes the process of building the ideal product that aligns perfectly with your target customers’ needs. This is done by setting up a feedback loop to consistently improve your product with each iteration.
Lean Startup Stages: Learn, How does it Work?
Instead of following a standard plan, the lean startup methodology prioritizes experimenting, recording results, and implementing learnings. There are three stages in the lean startup methodology.
Stage 1: Problem-Solution Fit
When you stumble upon a brilliant business idea, the first thing to do is to check whether or not that idea is solving a problem that people have.
The lean startup methodology addresses this in the first step. It involves discovering a problem worth solving and identifying creative solutions to it.
You can determine this by interviewing customers you believe might need your solution. After multiple interviews, you learn whether the problem exists or not. If it does, you can now pitch your solution and collect their feedback.
Using the feedback from one responder, you can then improvise your pitch and present it to the next one. Once you're done with the interviews, you will have adequate data to proceed to the next stage.
Stage 2: Product-Market Fit
In this stage, you determine whether or not your product has a market. Even if the product you’re building is really innovative, it’s not of much use to you if it won’t sell. To do so, you need to make sure there is enough demand in the market for such a solution.
We do this by testing its viability via a minimum value product (MVP). An MVP is essentially a prototype tested by various early adopters and focus groups who give their opinion and feedback to help improve the product.
Product/Market fit means being in a good market with a product that can satisfy that market. — Marc Andreessen
This process helps remove defects and is repeated until you build a product that matches your ideal quality standards. Once done, the product is ready to be sold in the market. This iterative process includes five key steps:
- Build: Build your product or service
- Test: Test the product to ensure quality
- Measure: Collect data and analyze feedback
- Learn: Use the data to improve offerings
- Repeat: Start again with an improved offering
Stage 3: Scale
Once you have a business that addresses the pain points of your target customers and generates profit, the next step is to scale it. In this stage, you make small but impactful changes to your product to drive sales.
Now that your product has a proven track record, you can invest in building more units or in R&D to develop more competent versions. It involves running A/B tests to conclude which version of your product is more preferred by your target customers.
Scaling also includes setting SMART goals and milestones to identify, measure, and track your growth. It allows you to detect which aspects of your startup are growing and which aren’t.
Build a better product with the Lean Startup Methodology
Building a startup is a very taxing process, especially when you don’t know what to offer to the market. With the lean startup methodology, you can be sure to create a product that your customers will love.
Through it, you can mitigate risks, prepare for uncertainties, reduce product development duration, and increase the utility of your product.