Consulting

Lean Startup is a business development framework

Topics
Lean Startup, Agile, Product, Leadership, Business

A lot of people associate Lean Startup with Agile, which is great – it is, after all, an Agile approach. Unfortunately, many people associate Agile only with software development. Lean Startup is not “that part of Agile” – it is about building successful businesses. As a framework, Lean Startup can be applied anywhere where uncertainty of the right action is high. The framework was originally built to support startups (a domain that naturally has high uncertainty), but can be used by established businesses as well. For example, Lean Startup is useful for developing new products or services, or expanding an existing business domain or customer base. Lean Startup has also been used in process improvement and governmental initiatives. For the rest of the article, when I talk about a startup, I don’t just mean actual startups, but also large organisations applying the framework to their innovations. Or anyone using Lean Startup.

The heart of Lean Startup

The Lean Startup framework reminds us about the importance of recognizing that a lot of our beliefs about a product are assumptions. Some are more likely to be true, and others less likely, but they are still assumptions until we validate or invalidate them with appropriate feedback. Lean Startup also directs us to find out which of those assumptions are most critical to the success of the product, and test them as early as possible – before we invest too much of our time and resources in the wrong product.

To map our assumptions, we build a business model canvas for our product. Lean Startup provides its own standard template – the Lean Canvas – which has been modified to contain fields that are particularly important for startups and early product ideas. Another canvas – the Validation Canvas – helps us design and track our experiments and validated assumptions. And if some critical assumption is invalidated, we return to the Lean Canvas to consider how we need to modify our business model in light of the new information. Rinse and repeat until the business has achieved a market fit (more on this below) and is well on its way to success – or we run out of time or money.

Business development, not product development

The “product” that Lean Startup develops is not the startup’s product or service, but rather the whole business around it. I see four distinct elements that must be considered and aligned with customers:

  • Problem - Is the problem we perceive a genuine problem for the possible customers? Do they want it to be solved, and are they willing to part with something valuable (usually money) to have it solved? Who, within all potential customers, suffer enough from this problem to pay for a solution?
  • Solution - Does our envisioned service or product actually solve the problem? Does it solve the problem in a way the users want to use? Does the product or service meet the users’ unstated requirements? Is the solution financially feasible considering the cost and effort it takes to deliver it?
  • Business model - How do we make the business financially viable (i.e. make more money than it spends)? How and how much do we charge for the product or service? Are users willing to pay that much or that way?
  • Customer acquisition - How do we connect with our customers? Do they understand our message? Do people understand the problem and how we solve it? Does our sales funnel work effectively?

For startups, missing any one of the four areas means that the business will not be successful. Work on aligning all of them should start early. For example, it can be wise to charge money for the service or product from a very early date – if people perceive the value and are willing to part with money for it (even when the product is still in its infancy), it validates a lot of assumptions related to the business model and can be used to test pricing.

Market fit

The life of a startup can be said to consist of two stages - before market fit and after market fit. Market fit is the moment the four elements above “click together”, i.e. the four elements are aligned. That moment marks the transition from learning focus to scaling focus.

Before market fit, the business is still unproven and the focus of the startup is to learn what the product should really be. During this time, the business model is frequently updated to reflect the validated and invalidated assumptions. If a particularly critical assumption is invalidated, the startup may be forced to re-evaluate the whole business model and pivot to a different approach.

The primary question for this stage is “how many assumptions can we test before we run out of time or money?” The cheaper and faster the experiments can be run, the more times one can iterate on how to make the product successful. For real startups, money is usually the constraint that they run out of. For established businesses, it’s usually time. At this stage, the typical customers are early adopters who are generally willing to accept missing features or less comfortable use in exchange for being at the forefront of new ideas or services.

After market fit, the business has already proven its viability, and the focus switches to optimisation. Automating the service (to reduce costs) and scaling the product (to be able to serve more customers) become important. The product still needs to be improved since new customers are much less willing to accept incompleteness or poor quality of service. The success of experiments is usually measured in how the statistical behavior of customers changes (with e.g. A/B testing) rather than asking or observing individual customers.

Minimum Viable Product (MVP)

For Lean Startup, every experiment is a Minimum Viable Product (MVP). In the very early stages, the MVP can be an interview of potential customers. Very quickly, though, the MVPs become more elaborate - visualisations, prototypes, manually delivered services, minimalistic product versions, partial feature releases, A/B tests, etc.

Experiments on pricing or customer acquisition approaches are also MVPs.

The MVPs are critical in getting feedback and refining the product. Speculation and lab testing is rarely as useful as getting real-life feedback from actual users, so startups must reach outside their premises (thus leading to popular Lean Startup quote: “Get out of the building!”). Interviews, user observation and statistical approaches are all used to gather ideas for improvement. Early on, delivering the product can also include a lot of manual steps, so a lot can be learned in the delivery process itself.

The dedicated few

Early on in the life of a startup, it is usually much more important to find users that care for the product than to have a large user base. So, before addressing the needs of the early majority, find the innovators (and early adopters), and work with them to meet their needs.

Innovators are excited to be part of something new, and are willing to spend time to improve the idea with feedback. The large majority are much more likely to just drop, or ignore, the product at the first problem they encounter. The innovators are ready to answer questions and try out new features. And they are happy to suggest improvement ideas concerning features or the business model.

Also, if we cannot make the innovators excited about our product, how can we expect to excite the majority? If the innovators like your product, they will write / blog / tweet / talk about your product. And it’s these social leaders that the majority will follow. For most startups, such word-of-mouth marketing is invaluable.

Lots of users also generate lots of data. Lots of data can cloud issues, and it is challenging for the startup to filter out meaningful and important messages from all the noise. Quantitative metrics can help detect problems, but they will not tell why a problem exists. To ask questions, it’s easier for a startup to stay in touch with a small number of users versus communicating with a large group.

No one way, and never forever

It’s obvious that every startup has something unique about their circumstances. Every startup must find their own way, and explore how to make their product work.

But that uniqueness does not devalue what Lean Startup teaches us about the nature of building new products or businesses. In contrast to traditional business plans, Lean Startup gives a living, flexible learning framework that helps the startup get started and quickly revise plans as feedback is received. For each startup, it acts as a guide to find the right questions, allowing them to find their own approach and answers.

In addition, it’s important to note that if the startup is successful and turns into an established business, things start changing. The organisation will have new challenges that Lean Startup isn’t even designed to answer, such as HR issues, organisational decision-making, or competence development. Other frameworks and ideas are needed. A lot of the company’s operation will become much more corporate-like.

And at some point, the organisation may note that it has new competitors who are lean and mean, and are biting at its heels with their innovative solutions. At these times, the incumbent organisations will need to re-establish pockets of innovation, possibly with Lean Startup…