What is lean start-up thinking, and how does it work?

Concept

Lean start-up is a method for developing new businesses and products that aims to shorten product development cycles and rapidly discover if a proposed business model is viable. The lean approach works by adopting a combination of business hypothesis, driven experimentation, iterative product releases, and validated learning (i.e., processes of build-measure-learn). A lean start-up is a customer-centric approach emphasising customer feedback to validate learning over traditional product development ways. It involves five principles: 

• Value definition: what are the value propositions?
• Value streams: what are the components of the value streams, and how do you develop them?
• Pull: what customers decide as something valuable will be so; otherwise, it is valueless. 
• Flow: what are the activities to manage values flow from materials to product to market without waste?
• Continual improvement: lean is a dynamic and iterative cycle of continuous improvement, influenced by many factors. 

The lean start-up method enables you to reduce the market risks and the need for initial investments to create a new business by investing time and effort in the validated learning process to meet the needs of early customers.

Background

The term ‘lean’ is first coined by Henry Ford, the founder of the Ford Motor Company, in the early 1900s as ‘lean manufacturing’. Ford invented several vehicles (e.g., the Model-T automobile), developed assembly line techniques of mass production, and produced cars affordable to customer streams. Recently, lean manufacturing was further theorized by James P. Womack’s book ‘The machine that changed the world’ and Taiichi Ohno’s book ‘The Toyota production system’.

Further, Steve Blank’s book ‘The four steps to epiphany’ and Eric Ries’s book ‘ The lean start-up’ pioneered the concept of ‘lean’ in start-up development. Steve Blank argued the method of customer development, explaining the steps necessary for customer discovery, customer validation, customer creation, and company creation. Eric Ries introduced the validated learning principle to quickly and gradually build a start-up.

How does it work?

Eric Ries added valuable literature on how the lean start-up method works, such as lean start-up principles, validated learning, minimum viable product, values and growth hypotheses, validation, innovation account, and more. Here is a brief description of the lean start-up method introduced in Ries’s book ‘The lean start-up’ (Ries, 2011)¹:

• Lean start-up principles: are (1) entrepreneurs are everywhere (e.g., in public or private business or personal life), (2) entrepreneurship is management (i.e. entrepreneurship is a key skill for managers), (3) validated learning (i.e., setting hypotheses on values and growth, test them on the market, and confirm acceptance from customers on hypotheses), (4) innovation accounting (i.e., includes metrics on how to measure progress, how to set up milestones, and how to prioritise work on developing and creating a start-up and new product), and (5) Values versus waste (i.e., which of our efforts are value-creating and wasteful? Value is only benefiting the customer, anything else is waste). 
• Validation: this is proof of assumption on start-up development based on customer approval. Proves concluded we put theories into practice and built subsequent versions of the product that showed superior results with actual customers.
• Experiment: testing the start-up strategy to see which parts are workable and unworkable. An experiment follows the scientific method, which begins with a hypothesis and then a test to prove validation empirically. Start-up experimentation is guided by a vision, aiming to discover how to build a sustainable business around that vision.
• Strategy: is based on assumptions to achieve the start-up vision. Because these assumptions are yet to be proven true; then, the goal of start-up early efforts is to test them as quickly as possible.
• Value and growth: these are two kinds of leap hypotheses, considering the most critical leap-of-faith questions any new start-up faces. Value assumption focuses on whether a start-up can create values that customers want, whilst the growth assumption shows if the start-up can scale.  
• Get out of the building: As Steve Blank has been teaching entrepreneurs for years, the facts that we need to gather information about customers, markets, suppliers, and channels that only exist “outside the building”. Start-ups need extensive contact with potential customers to understand them, so get out of your chair and get to know them. The first step in this process is to confirm that your leap-of-faith questions are real and that the customer has a significant problem worth solving.
• Design and the customer archetype: The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at the basic levels that we understand our potential customers and what problems they face. With that understanding, we can craft a customer archetype (i.e., visual object), a brief document that seeks to humanise the proposed target customer. This archetype is an essential guide for product development to ensure that the daily decisions that every product team make are in line with the target customer requirements. This customer archetype is a hypothesis, not a fact until the strategy has shown through validated learning that it can serve this type of customer sustainably.
• Test: it is an iterative process to collect customer feedback on value and growth assumptions and decide whether to accept or reject them. Testing can be on value assumptions like the problem-solution fit and product-market fit, as well as on growth chances. 
• A minimum viable product (MVP): helps entrepreneurs to learn as quickly as possible, to build a product or a start-up. MVP is not necessarily the smallest version of a product imaginable though it is simply the fastest prototype to get through the Build-Measure-Learn feedback loop with minimum time and effort. The goal of the MVP is to learn, not end it. Unlike a prototype or concept test, MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.
• Innovation accounting: is a systematic approach to managing progress and discovery processes on values and growth chances toward building a start-up. Innovation accounting works in three steps: (1) building and using a minimum viable product data to test values and growth assumptions, (2) testing when start-ups attempt to tune the engine from the baseline toward the ideal, and (3) pivot or persevere assumptions.
• Measure: collecting customer feedback on value and growth assumptions. Probable feedback from customers can be whether customers are interested in trying a product, value acceptance, or growth rate (e.g., conversion rates, sign-up and trial rates, customer lifetime value, and so on). Measurement involves establishing your baselines on value and growth assumptions, then turning the engine or collecting customer feedback before you consider or pivot assumptions.
• Learn- pivot or persevere: based on the results of building a business model and MVP and measurements learnt from early adopters, you can change assumptions (pivot) or confirm assumptions (persevere).

• This post is sourced from my new book- Your Guide To Reach Innovation. 
• For more information about the book: https://growenterprise.co.uk/your-guide-to-reach-innovation/
• To register in our newsletter: http://eepurl.com/ggcC29

Final note: the book- Your Guide To Reach Innovation, is an actionable guide to innovation from beginning to end. Enjoy reading the book, and I look forward to your reviews.

Author: Munther Al Dawood

www.growenterprise.co.uk

maldawood@growenterprise.co.uk

References:

1. Ries, E., 2011. The lean start-up, Crown Business, New York.