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What is the lean start-up methodology?

Posted on: July 7, 2022
Image of a lit lightbulb with a team of people blurred in the background

A lean start-up is one which begins with the search for a new business model, not a new product or service. A successful lean start-up offers new ways of doing things that solves a common problem for a target market. It is also co-created by target customers who are early adopters, as their input and interaction contributes to the validated learning of iterative product releases. 

In essence, the lean start-up is almost always offering a digital product that is a work in progress, as it is continually improved to meet the needs of the customer. Even “final products” continue to receive updates.

What is the difference between a lean start-up and a traditional business?

An article published in the Harvard Business Review in 2013 entitled “Why the lean start-up changes everything” describes the lean start-up methodology as one which “favours experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.” It was written by Steve Blank who went on to create the customer development method (CDM), which some credit as launching the start-up movement. He also authored The Four Steps to the Epiphany: Successful Strategies for Products that Win.

Start-ups are not just small businesses; they behave differently and have their own methodologies and tools. Whereas traditionally starting up a business involves carrying out market research, writing a business plan, pitching your idea to potential investors, and assembling a team around producing a product or service, the lean start-up methodology summarises the premise for its existence in a business model canvas. According to its creators, Alexander Osterwalder and Yves Pigneur, this simple one-page template should include the following information by answering these questions:

  • Value propositions
    • What value do you deliver to your customer?
    • Which one of your customers’ problems are you helping to solve?
    • What bundles of products and services are you offering to each segment?
    • Which customer needs are you satisfying?
    • What is the minimum viable product (MVP)?

 

  • Key partners
    • Who are your key partners?
    • Who are your key suppliers?
    • Which key resources are you acquiring from your partners?
    • Which key activities do your partners perform?

 

  • Key activities
    • What key activities do your value propositions require?
    • What are your distribution channels?
    • What are your customer relationships?
    • What are your revenue streams?

 

  • Key resources
    • What key resources do your value propositions require?
    • What are your distribution channels?
    • What are your customer relationships?
    • What are your revenue streams?

 

  • Customer relationships
    • How do you get, keep, and grow customers?
    • Which customer relationships have you established?
    • How are they integrated with the rest of your business model?
    • How costly are they?

 

  • Customer segments
    • For whom are you creating value?
    • Who are your most important customers?
    • What are the customer archetypes?

 

  • Marketing and communications channels
    • Through which channels do your customer segments want to be reached?
    • How do other companies reach them now?
    • Which ones work best?
    • Which ones are most cost-efficient?
    • How are we integrating them with customer routines?

 

  • Cost structure
    • What are the most important costs inherent to our business model?
    • Which key resources are most expensive?
    • Which key activities are most important?

 

  • Revenue streams
    • For what value are your customers really willing to pay?
    • For what do they currently pay?
    • What is the revenue model?
    • What are the pricing tactics?

 

What are the five key principles of the lean startup methodology?

Eric Ries is another leader in the field, having authored The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. He is also co-founder of The Lean Startup Company alongside Heather McGough and Melissa Moore. It is the self-proclaimed “official place for entrepreneurs and corporate innovators seeking ways of working that support continuous innovation and sustainable growth through Lean Startup methodology.”

According to the Lean Startup Company website, the five key principles are:

  1. Entrepreneurs are everywhere – entrepreneurial minds can be found in all sectors.
  2. Entrepreneurship is management – lean start-ups need flexible, learning-oriented management.
  3. Validated learning – start-ups exist to learn how to build a sustainable business. 
  4. Innovation accounting – set milestones, measure progress with metrics, prioritise work.
  5. Build-measure-learn – customer feedback tells you whether to pivot or persevere.

What are the four key steps of the lean start-up methodology?

The lean start-up process is cyclical and made up of four main steps:

  • Map your ideas in the business model canvas

Made up of nine key building blocks, this document helps entrepreneurs consider all areas for potential innovation in product development.

 

  • Formulate hypotheses

Based on the data entered into the business model canvas, entrepreneurs can formulate hypotheses in relation to their business ideas. These can be placed into one of three risk categories commonly used in design thinking: desirability, viability, feasibility.

 

  • Test the hypotheses

The best way to do this is by creating a minimum viable product (MVP). This is a bare-bones functioning prototype with just enough product features for early-stage customers and begins the build-measure-learn feedback loop of the development process. It could even be a simple landing page or explainer video.

  • Evaluating customer feedback

In the lean start-up approach, the development cycle continues as customer feedback proves the hypotheses either right or wrong, leading the team to iterate once again or land on a product-market fit. This is ascertained after a clear customer segment is willing to pay for the value offered by the product.

Learn by doing with an MBA Entrepreneurship

The lean methodology favours those who are prepared to start a new business and learn as they go, rapidly implementing feedback as it arises and setting milestones for each round of funding. From nimble product development to lean manufacturing, every step of the innovation process benefits from a “just do it” approach that uses venture capital to make immediate improvements that lead to gains.

Put your appetite for entrepreneurial ventures to the test and study for an MBA Entrepreneurship with Keele University. This part-time, 100% online course allows you to study while you continue to work. Prepare to propel your career into new and exciting directions, whether you’re interested in starting new ventures or aim to bring innovation to your current role.

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