Lean startup methodology is one of the alternatives to the traditional, hit-or-miss approach to starting a business. It allows startup owners to tackle new-product development with less risk and more flexibility.
The odds of your startup succeeding aren’t in your favor. According to one Harvard Business School study, 75% of all new businesses fail. Only one or two startups in ten will bring a substantial return on investment.
The lean startup approach allows you to improve your odds of success. It increases your chances of creating a product with features, price and distribution channels that customers will buy. It achieves that by introducing key changes to the traditional business development process:
Finding the right business model first and only then, executing it.
Verifying assumptions instead of making a business plan.
Valuing customer feedback as the key driver of product development.
Working in short iterations and shipping improvements frequently.
Continuously re-assessing the direction of the business.
We covered all these concepts for you below. By the end of this article, you’ll know what lean startup methodology is. Most importantly, you’ll have a better idea of how to apply to your business idea.
What Is Lean Startup Methodology?
Lean startup methodology is a business approach used wherever a product needs to be developed in uncertain conditions.
This applies to virtually all start-ups. By definition, a startup is a business that charts new territory as it comes up with innovative products and solutions.
Lean startup methodology has its roots in lean manufacturing, developed by Toyota as early as the 1930s. Their ideas of reducing waste in the production process and efficiently using resources were then translated into the business context by investor Steve Blank.
In 2005, Blank published The Four Steps To The Epiphany. There, he explained why the traditional approach to business wasn’t suited for startups:
Start-ups aren’t just small versions of established companies. Unlike big businesses, they look for the right business model - rather than executing it.
Business plans rarely work for start-ups because they’re based on assumptions, not data.
Building a complete product before launch is financially risky. Most start-ups can’t afford such risk.
In his book, Blanks outlined a process called customer development. Soon, he invested in IMVU, a social platform that combined his process with lean software design. The founder behind IMVU was the now-famous Eric Ries - the author of The Lean Startup.
In his book, Ries described the lean startup methodology he used to build his company. The three main principles of lean startups include:
Experimentation and learning over long-term business planning.
Customer feedback over the business owner’s intuition.
Short, iterative product development cycles over long-term projects.
To see how these principles can work in practice, let’s look at an example.
The 3 Key Principles Of The Lean Startup Process
The lean startup process is organized around the “build-measure-learn” principle. This includes shipping your minimum viable product (MVP) fast and figuring out the next steps based on customer feedback.
To better understand how this works, let’s imagine you’re a startup founder trying to develop a mobile app to help people eat a healthier diet. Here’s how the 3 key principles of lean startup methodology can help you navigate the process.
1. Experimentation and learning - starting with hypotheses, rather than a business plan
Start by acknowledging that your initial product idea is based on assumptions, not facts. You need to phrase these assumptions as hypotheses and verify them.
Lean startups use business model canvas or lean canvas to do that. These are visual representations of your ideas on how you’re planning to deliver value.
When you’re starting to think about your diet app, you may have the following assumptions in mind:
“A healthy diet means the same thing for all my customers.”
“Most people struggle with too high-calorie intake.”
“People are willing to pay for an app that helps them eat better.”
You must recognize these as assumptions, not facts. As you move on, you’ll be either confirming or rejecting them.
2. Customer feedback - customer development
The second principle of the lean startup approach is to start testing the product idea with potential users early on. This way, you can verify if the product features, pricing, distribution channels and customer acquisition you have in mind could work.
Based on customer feedback, you’ll either make adjustments to the product or business model - or revise the big-picture idea by pivoting.
In the case of your diet app, customer feedback could help you verify your initial hypotheses. For example, you may find that your potential users don’t have an issue with calorie intake - but they struggle with balancing micronutrients. This would give you a better idea of how your app should work.
3. Short, iterative product development cycles - agile development
The third principle of lean startup methodology is rooted in agile software development. It’s about building your product or service in short development cycles - also called iterations.
This approach eliminates waste and focuses on shipping the product as often as possible. It’s closely related to customer feedback - the two go hand in hand.
Imagine if, with your diet app, you decided to build a complete product after one initial round of feedback on your MVP. This could lead you to develop features users don’t need - for example, a premium subscription plan with access to 500 meal recipes.
Instead, you could use short development cycles to see if it’s worth investing in that feature. Give users access to three recipes first and see if they like it. This allows you to avoid wasting time and resources.
The Business Advantage That Comes With The Lean Startup Approach
Now that you know what lean startup methodology is, let’s look at the concrete benefits it could bring to your business. For many startups, these can be the make-or-break of their success, so read carefully!
It’s less risky to start a business with the lean startup approach. Statistically speaking, there are fewer failures than when entrepreneurs use the traditional methods. That’s because, with lean, you’re not betting everything on the accuracy of your assumptions. This allows you to minimize some of the biggest business risks: product risk, customer risk, and business model risk.
You need less funding to launch a product. When you start by launching an MVP, this eats up fewer resources. As a consequence, your need for initial funding to kick off your project drops. A lower sum may mean it’s easier to get funding. On top of that, you gain trust from investors as many of them recognize the benefits of lean startup approach.
You fail fast and learn fast. In the lean startup process, failing isn’t really failing. Each negative piece of feedback is learning material that moves your business forward. In his book, Eric Ries dubbed this process “validated learning” - updating your assumptions based on customer feedback.
You develop a product that customers really want. In business, it sometimes happens that a bad product is designed and forced down people’s throats. Lean startup methodology helps you avoid that. Eric Ries says that this happens thanks to what he calls “innovation accounting” - a disciplined way of monitoring if a product comes closer to satisfying customers.
You can use it for any startup - not just in tech. Lean product development can be used in all startups and even established companies. The flexibility of lean principles makes them useful for various businesses and industries. As Steve Blank put it: “If the entire universe of small business embraced them, I strongly suspect it would increase growth and efficiency, and have a direct and immediate impact on GDP and employment.”
Lean Startup Methodology Success Stories
The lean startup methodology has worked in all kinds of industries and contexts. Here are some real-life examples of lean success stories.
Eric Ries and IMVU
When Eric Ries was seeking funding for his startup in 2004, Steve Blank agreed to invest in it. But he had one condition: Ries and his partner Will Harvey would need to adopt the approach he called “customer development.”
Eric Ries quickly understood its advantages and became the pioneer of the lean startup approach. IMVU - the social platform he built with Harvey - released their MVP in just under six months. With insanely rapid development cycles, they were moving forward at an unprecedented speed.
As a result, they raised $1 million and then another $18 million in venture funding. Today, 16 years later, IMVU continues to be a thriving business with at least 6 million active users.
Dropbox is one of the most popular cloud storing solutions today. Most people know Dropbox - but not many are aware that the company owes their success to the lean startup approach.
Before they first launched their product, Dropbox developed an MVP. Interestingly, this wasn’t even a working service for users to try - but a video. In it, Drew Houston presented how Dropbox works in less than five minutes.
The result? The startup gained tens of thousands of subscribers overnight. People loved the idea and shared suggestions for improvement. By incorporating customer feedback, Dropbox gradually developed requested features - for example, integrating their tool with Microsoft Office.
Today, the company has over 500 million users worldwide and its net worth is estimated at $10 billion.
GE is a great example that not only startups can benefit from the lean approach to business. This giant corporation used it while developing a new type of industrial battery in 2010.
Instead of building a factory and manufacturing a product based on assumptions, they decided to go out and talk to customers. As a result, they found a segment of the market that was particularly interested in the new battery. They focused on cell phone providers in countries with unreliable power grids.
Thanks to the lean startup methodology, GE met a specific market need with a custom product. The new battery was named Durathon and became one of the company’s flagship offerings.
How Can You Benefit From Lean Startup Methodology?
Many startup founders get the whole business game backward.
As soon as they have an idea, they want to make it profitable. That’s natural. But to make a profit, you need to define the right business model first.
The traditional approach based on a business plan usually isn’t the best way to do it.
That’s where the lean startup methodology comes in. It acknowledges that a startup isn’t just a smaller version of an established company. It’s very much a work in progress. Because of that, it should thrive under lean principles.
Keep in mind that your initial ideas are most likely based on assumptions. You need to verify them through customer development and incorporating feedback. Then, keep moving forward in short development cycles and continuously check if you’re on track.
If you follow the principles of the lean startup approach, you give your startup a higher chance of succeeding. Remember, three out of four new businesses fail.
Your startup doesn't have to be one of them.