What Is The Lean Start Up Methodology, and Should You Actually Use It?

In 2011, Eric Ries wrote his seminal book The Lean Startup.

Why seminal? Because it outlined a new approach towards building a startup, and this lean startup approach is still being used by entrepreneurs around the world more than 10 years after the book was published. To better understand what the ‘lean startup’ part of lean startup methodology means, let’s dissect this wildly popular buzzword.

What does lean mean?

Nowadays, everything we are working on should be “lean”—to the point it can mean anything to anybody (“I love your business plan, but can’t you make it more ‘lean’?”), but the expression stems from 1970’s Toyota and their lean manufacturing philosophy. Without going into intricacies, its core idea is that—as the workpiece travels from station to station along the assembly line—the workers seek to add value to it and eliminate any waste.

And what is a startup, really?

Contrary to what it sounds like, a startup is not simply a freshly-founded company. You may open a restaurant or a stationery shop (and it might even be a successful business!)—but it is not a startup. You may be posted abroad to direct your company’s new foreign subsidiary—that is not a startup either.

A startup is a company set up to exploit a new market opportunity that promises tremendous growth.

Lean Startup Approach vs. Traditional Startup Approach vs. Non-Startup Approach

The non-startup approach for opening a company is:

• Discover a market opportunity
• Crunch some numbers
• Add in some optimism
• Set up shop if the business seems profitable.

Restaurants or accounting offices are good examples of this path: the business relies on a mix of “We are (sufficiently) better than our next-door competitors” and “Our next-door competitors can’t serve all their (potential) customers.”

The traditional startup approach is:

• See (or better: create!) a market opportunity that has a big potential for growth.
• Go “all-in” on that growth.

The actual industry can be pretty mundane. Take accounting offices as an example: let’s say you’d want to find a way to drastically reduce the time and cost of the accounting process by using AI. You see a huge upside (once you get the technology to work, you can deploy it across the entire country, continent or even the world), but:

a) you need to act fast, to remain ahead of competition, and

b) you first need to develop the technology.

For both, you need money. But you have none. How do you raise it? You write a business plan and pitch it to venture capitalists (“Give me 20,000,000 dollars to develop an AI-based accounting software in exchange for 5% ownership of my to-be company.”) If you’re lucky, you’ll get the money. If you’re even luckier, you’ll make the whole thing work and within a few years you’ll be known throughout the world as “that accounting maven who turned the accounting world upside down with that proprietary AI-accounting platform which, in today’s globalized world, is the closest equivalent to a money-printing machine.”

Too bad things usually don’t work out that way.

Even if you find a sucker who will be willing to bet on your huge and iffy leap of faith, chances are that he will neither give you the 20 million as a lump sum, nor will he be satisfied with an ownership stake as low as 5%. And even if (big if!) you somehow manage to get that AI-accounting platform developed, chances are that your potential clients won’t like it at all. Result: much ado about nothing.

And that’s where the Lean Startup approach comes in.

As opposed to the aforementioned, traditional approach, where as a founder you not only have to burn a ton of your own hard-earned cash and/or sell your soul to an investor but also spend a lot of time building your product before it hits the market, the Lean Startup Method seeks to minimize these big risks (running out of money, handing over control over your company, losing time on finishing a product…).

In brief: minimize the downside, and the upside will take care of itself.

Eric Ries has lived through both the early 2000s dot-com bubble (and its burst) as well as the financial crisis of 2008. Both heavily impacted the startup world: as funding dried up because lenders ran out of money themselves, startups went bankrupt—even if they had a promising product in the making.

This is what motivated Ries to come up with a new approach to building a startup.

The Lean Startup approach is based on the following principles:

1. Entrepreneurship is everywhere

The crispest definition of “entrepreneurship” was made by the French economist Jean-Baptiste Say, and you can find it on the first page of one of the best books ever written on entrepreneurship; Innovation and Entrepreneurship by the late Peter Drucker, a true legend of the Austrian school of economics.

So what did Say say? “The entrepreneur shifts economic resources out of an area of lower productivity to an area of higher productivity and greater yield.”

When you think of what we said in the beginning, a startup is the epitome of entrepreneurship: it seeks to exploit those opportunities that will truly change the way we do things and, hence, will move humankind forward.

And the best thing is: opportunities are everywhere. Think of the accounting example: most likely the tools to fully automate it already exist, and sooner rather than later, some “accounting maven” will come up with a solution that will turn the accounting world upside down and make automatic accounting accessible for everyone.

2. Entrepreneurs are everywhere

I find Jean-Baptiste Say’s definition not only crisp but also empowering: as opportunities are everywhere, there is no reason why anybody should not try to exploit them. Ries realized this too, and chose to include it in his set of principles. His experience showed him that the startup world can only thrive if it encourages potential entrepreneurs to participate in it.

3. Validated learning

This one is a real, tangible cornerstone of the lean startup methodology—as opposed to previous approaches, where you took a huge leap of faith into the unknown and hoped that your new product, product idea or business model will take off once you’ve built it. “Validated learning” means that, all along the way to your finished product, you frequently (as in, not only once you’ve finished your product!) try to check whether you’re still on the right track. And you do that in the following, iterative order:

4. Build-measure-learn

Your “big, bold, new business idea” might be (and should be) a big stretch—after all, it’s supposed to change the way people do things—but the building itself should be composed of smaller steps, so that after each step you can present something to your (potential) market. And that “something” is called a “minimum viable product” (MVP). Ries wants you to create such a basic product as quickly as possible, show it to selected, potential customers, ask them for feedback, learn as much as possible from that customer feedback, and implement it into a new version of that product. And then repeat that product development cycle until you have created a (sufficiently good) final product—all before you run out of money!

5. Innovation accounting

In classic project management (and “developing a product” is a project, as it is “a one-time undertaking that is carefully planned to achieve a specific result”), your core metrics are quality, budget and schedule, and your main goal is to finish the project. You use KPIs such as milestones, (pre-defined) quality reports, cost-per-unit calculations, et cetera.

The kicker is: in classic project management, your goal is pre-defined from the start. But when you develop products, your goal (i.e. the finished product) usually is not (and cannot) be pre-defined. That’s why in product development projects, you have to adapt your KPIs.

In the lean startup process, you select KPIs that will indicate how innovative your solution is (remember: you seek to create an innovative product, service, or business model that will change the way people do things) as well as how well-perceived it is in the market (as each MVP with respect to its subsequent iteration is going to be thrown into market in order to collect customer feedback and, ideally, bring in some cash to keep your startup running.)

BTW—if you didn’t already know, running out of cash is THE major reason why startups fail.

Which KPIs you choose to track is highly product-dependent and to be chosen anew with every MVP iteration, but using our AI-accounting example, meaningful KPIs would include things like:

• How many customers have you spoken with?
• Which features have you split-tested? (For example, take your old MVP, build in a new feature, such as “scanning bills via smartphone without needing to be logged in”—but show that feature only to one part of your audience, and then compare their reaction to the reaction of the other cohort that still has to login to scan bills.)
• How many features have you validated—and what “no-nos” and “yes-yesses” have you learned from?

What YOU Can Take Away from the Lean Startup Methodology

The 1+3 Steps for Lean Startup Product Development

Whether you are a junior product developer who is starting off your freelance career, or you are an established professional taking the jump into entrepreneurial waters, or you are heading a corporate product development division and want to stir things up—the lean startup methodology can be applied in many different fields (as any good methodology should be). But as with any methodology, you have to check whether and how you can apply it—and what outcomes it will likely produce.

Step 0: Decide whether it makes sense for you to use the lean startup methodology

A method is always a means, and should never be an end in itself.

As we pointed out before, the lean startup methodology stems from the startup world. A startup seeks to build a product, service or business model that will change the way people do things—and build it fast. Hence, it only might make sense for you to use the lean startup methodology if your goal is to build such a product.

And even if you intend to build something that is predestinated to be built by a startup, you need to be clear whether you can establish the right environment to actually operate as a lean startup.

When I was working as a product manager in the product development department of a big car company, neither the products that we built nor the environment we worked in were at all startup-like. It was an established industry, where the focus always has been on quality and reliability and regular, incremental improvements of the overall product.

So if you work in a corporate environment and your boss (remember their love for anything buzzword!) asks you to “Come up with a lean approach for our next product”, alarm bells should sound!

Accept such an assignment if, and only if:

a) that product truly is supposed to be groundbreaking, and

b) you get a mandate that will let you build a genuine startup environment: your own team (hand-picked by you), your own budget, your own physical space (outside your company premises), and authority to decide on anything without having to comply with corporate standards.

ALSO (and most importantly!), you would need to be suspended from your corporate position, not receiving any salary or other corporate benefits as long as you are involved in the startup. Only such an arrangement would ensure the right incentives for everybody involved.

Step 1: Live the 5 principles of the lean startup

Nothing new here, but a reminder that anything we undertake has to be built on principles; in our case, the lean startup principles.

Step 2: Use the build-measure-learn flywheel (and accelerate it as fast as possible!)

It is one thing to quickly build an MVP, measure its underlying hypotheses, evaluate customer feedback, and then either “pivot or persevere” (i.e. either re-adjust the upcoming MVP’s product features or stay the path), as Eric Ries puts it. But this is only one half of the truth.

The other half is, sustaining a startup operation costs money—and you have only a limited amount of it (your “runway”). That’s why you have to pack as many iterations of the build-measure-learn flywheel into your runway as possible. Accelerate the hell out of it, and turn your startup into a sustainable business!

Step 3: Get, borrow, steal all the material on “The Lean Startup”—and try out all the tips you can find

If you are serious about applying the Lean Startup methodology, you better get good at learning everything about it. In this article, we have only touched upon the main concepts of the Lean Startup. To dig deeper, get your hands on anything related to the Lean Startup methodology, and figure out how you can best implement it into your product development process.

Also, I recommend the material of Steve Blank; a forefather of the Lean Startup movement who touts a “customer development” approach. Another fascinating neighboring field is “category creation,” with the crew of “Play Bigger” being some of the champions of the movement.

Instead of going through the notions and write down a summary of what we have discussed, let me share with you a few extra tips instead:

• If you are building an “in-house startup” within your corporate environment, here’s another aspect that can help you make your case: let your startup run under a completely different brand name than your mother-company. Thereby, neither side will be (publicly) influenced by the other side’s decisions.

• When looking for product ideas, use a matrix of obvious/non-obvious problems vs. obvious/non-obvious answers: the “sweet spot” is to find
  • non-obvious solutions to obvious problems—think of Airbnb or Couchsurfing, who revolutionized the rather mundane problem of “Where am I going to sleep when travelling?”

    or,

  • obvious solutions to non-obvious problems (such as Škoda’s parking ticket holder that is integrated into the windshield: once you start using it, you want wanna go back.)
• When picking KPIs/metrics for measuring your product’s progress, make sure they fulfill the “3 As”:
  • Actionable: Does this KPI help make my product better (e.g. the number of people coming back to my website and downloading my new product version) , or is it just a vanity metric (number of likes under a pitiful tweet)?
  • Accessible: Can anybody in my team easily extract the KPIs, or is this a complicated procedure that nobody wants to go through – and hence validation can only seldom take place.
  • Auditable: Can the insights of the KPIs be easily challenged/reality-checked? The number of monthly downloads I can easily check whereas a KPI like “overall customer satisfaction”, filled out via an anonymous form is much more difficult to interpret.

Wanna dig deeper? Check out the following articles:

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