According to a Harvard Business School study, 70% of startups fail. Also, the important balancing force has emerged that allows startup owners to reduce risks when starting a new company. This is Lean startup methodology, in which experiments stand above careful planning, customer reviews are more important than intuition, and constant adjustments replace the traditional approach when a product is developed from beginning to the end until tested by the market.
Although this methodology is new, its core ideas – MVP and pivoting in short order
took root in the world of startups, and business schools have already begun to include it. And despite the name of this methodology, in the long term, the largest companies that can benefit from it will receive the largest benefits.
You will learn about the methods of lean startups and how they can create the business economy in combination with other trends in business.
The flaw in ideal business plans
According to traditional views, every entrepreneur must first formulate the business plan the document that describes the scale of the business opportunity, the problem is solved and the solution that the new enterprise will provide. Usually, the business plan includes a 5-year plan for revenues, profits and cash flows. As soon as an entrepreneur is having a convincing business plan in his hands, he receives money from investors, begins to develop a product — he invests thousands of manhours into it and prepares for launch, receiving almost no or even no customer feedbacks. Entrepreneurs will find out that customers do not need most of the functions of this product or do not want to use them.
For decades looking at how startups follow this pattern, we found out at least 3 things:
– Business plans rarely experience 1-st customer encounters.
– No one except venture investors needs a 5-year plan that gives predictions about complete obscurity. This plan is usually a pure invention.
– The startup isn’t a tiny version of the big company. They don’t live according to the master plan. Those who succeed quickly move from failure to failure, adapting, changing something and improving the original ideas.
Sustainable companies implement the business model. Startups are looking for it.
This difference lies at the core of the lean startup method.
A startup is a temporary organization created to find repeatable and scalable business model.
Here are three main principles:
First, instead of writing a detailed business plan, entrepreneurs summarize their hypotheses in the form of the “outline” of their business model. This is a chart that shows how a company creates value for itself and for customers.
Secondly, Lean Startups rely on customer development: they survey potential users, customers, and partners about all the elements of their business model, including product functions, pricing, distribution channels, and acceptable strategies to attract customers. New enterprises quickly collect the MVP and instantly seek feedback from customers – and on the basis of it start the cycle again
Third, Lean Startups practice Agile Development, invented in the software industry. “Agile development” is a method for gradually creating MVP ( more about software development for startups ) .
When Jörghe Herod created “blue river technology”, they were still on my course at Stanford. They wanted to make lawn mowers for companies. After talking with hundreds of customers, they realized that the original target audience – golf clubs – was not very interested in their decision. But then they began to talk with farmers and found that there was a big demand for weed-free weedless chemicals. Meeting this demand had become their new challenge. For two and a half months, “blue river” created and tested a prototype product, and nine months later received venture funding for more than $ 2 million.
Stealth is no longer popular
During the Internet boom, startups often worked in stealth mode so that potential competitors did not learn about the attractive market opportunity and only showed prototypes to clients during well-planned beta testing. But the lean method is based on the fact that in most industries the opinion of customers is more important than secrecy, and constant feedback brings more valuable results than clearly measured disclosure of the product.