Launching a startup has always been risky business. According to Fortune.com, 9 out of 10 startups fail, leading many to search for a more reliable alternative to the traditional rubric of building a business. In the past, this has meant writing a business plan, presenting it to investors, building a team, introducing a product or service to the market, and then selling ‘til the cows come home.
The key issue with this traditional model is that it fails to take into account that customers may not even want the product or service that founders are offering. Many businesses spend months perfecting their new products before asking customers what they need and want, only to discover that their target market has no interest – and then after all of the hard work necessary to launch, they eventually close shop.
The Lean Startup Model is a relatively new way of founding a company that shakes up the old process and lets founders dip their toes in the water before diving in. The innovative element of this model is its focus on acquiring customer insights in order to create a product or service that customers really want. While the traditional route requires startups to develop a thorough business plan based on educated guesses – then following through with the proposed model – the lean model allows founders to experiment, acquire customer feedback as they go, and evolve the business as they see fit. The result: less risk, and more successful businesses.
There are the 3 Key Components to creating a Lean Startup:
- Business Model Canvas – Founders implementing the lean startup model acknowledge that they don’t know what’s going to happen. The best they have is a hypothesis of how they can create value for their customers, so they turn that educated guess into a framework business model.
- Customer Development Approach – The next step for founders is to test their business model canvas with a customer development approach, which involves asking potential customers and partners what they want and then listening to them. They get immediate feedback on everything from the business model, product features and pricing, distribution channels, etc., before going back to the drawing board and making adjustments. Then, they repeat the process and gradually perfect a model that they are confident will work.
- Agile Development – By receiving frequent customer feedback, founders are able to incrementally develop the product they offer. Instead of typical long product development processes that presuppose customers’ needs, agile development eliminates wasted time and resources by continuously altering a product as the needs of the prospective users become more clear.
The Lean Startup Model: a Force of the Future
The lean model has taken the startup world by storm, and the success of those who have implemented it forecasts that it may have a lasting impact on a large scale. According to Steve Blank, associate professor at Stanford University and experienced founder,
“Using lean methods across a portfolio of startups will result in fewer failures than using traditional methods. A lower start-up failure rate could have profound economic consequences. Today the forces of disruption, globalization, and regulation are buffeting the economies of every country. The creation of an innovation economy that’s driven by the rapid expansion of start-ups has never been more imperative.”
The lean approach is altering the entrepreneurial landscape. Founders are now able to launch products knowing that customers actually want them, and can do it much more quickly and less expensively than they have been able to in the past. Additionally, because of the information they have acquired, the venture becomes much less risky and primed for success.
This is also made possible by the access that entrepreneurs now have to various types of financing for their businesses. This includes super angel funds and accelerators like Y Combinator and TechStars for early-stage investments, as well as crowdfunding portals for a more democratic method of capital raising for startups.
In a business world where products and processes call for continual innovation to succeed, the lean startup model isn’t just for founders getting their feet off the ground. Large companies can implement this model into their existing organizational structure as a means to evolve with the demands of the market. The lean startup model encourages change and innovation in businesses of every shape and size, while changing the way we think about business.
Written by: Judson Sutherland, Founder & CEO