In early 2015, Forbes published an article stating that 90% of all startups fail. Another equally grueling myth circulating among entrepreneurs is that 8 out of 10 startups fail within their first 18 months. Facing such dismal numbers, entrepreneurs feel overwhelmed by the gargantuan job that lies ahead of them. Consequently, a lot of literature on the matter has hit the shelves, including The Lean Startup by Eric Reis. In The Lean Startup, Reis lays out a methodology, drawn from Reis’s years of experience in the field of entrepreneurship, to greatly enhance a startup’s chances of success.
What Is a Startup?
The Lean Startup expands the definition of a startup from a small company that starts out in a garage to the following:
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
There are a couple of aspects within this definition worth pointing out:
- He labels a startup as a human institution while omitting any mention of the startup’s size. Thus, Reis expands the definition of a startup to include any endeavor that introduces innovation. That’s regardless of the source of said innovation. As a result, both a group of teenagers starting a company out of their parents’ garage and a multi-billion dollar company launching a new product have an equal right to the startup label. On the other hand, building a company that relies on an already well-proven business model in order to serve a guaranteed customer segment is not building a startup.
- The use of the word “designed” in the definition demonstrates how one creates a startup on deliberate planning: building a product and just hoping for the best is unacceptable.
- To Reis, the main hallmark of a startup is how it is full of uncertainty; an entrepreneur does not know his customer segment, his business model, or his final product. Although the segment, the model, and the product are assumed in a business plan, these assumptions are often incorrect or inaccurate.
What Is the Lean Startup Method?
Given how pervasive uncertainty is, The Lean Startup makes one more shift in how it views startups: the immediate purpose of a start-up isn’t to build a product and then try to sell it but to learn what product to build that customers will clamor to buy. In other words, a startup should use the scientific method in order to learn what the market wants instead of wasting time on something the market has no use for. With this shift in paradigm in mind, Reis lays out a methodology to systematize as well as speed up the learning process. He describes it as “validated learning”.
How Does the Lean Startup Method Work?
1. Know what you are assuming to be true
Every startup is premised on several assumptions that answer several important questions: why do people need our product? Why would they buy our product and not someone else’s? And so on.
Unfortunately, for most startups, these assumptions remain assumptions without ever being refuted till it’s too late. Therefore, in order to substantiate or refute them, The Lean Startup stresses the importance of fleshing them out at the beginning of the process. In particular, the two most important assumptions to look out for are the “value proposition assumption” and “ the growth engine assumption”: do people want our product? How will our company enjoy sustainable growth in the years to come?
2. Define the necessary metrics to substantiate or refute the assumptions
Once the inherent assumptions are clear, proper metrics should be chosen that will aid in the learning process. For example, if it is assumed that once a customer starts using a startup’s product, the customer will continue using it indefinitely, then the startup must always track its retention rates along with the various effects each action has on those rates.
3. Build a minimum viable product to start testing out the assumptions
The purpose of the minimum viable product is to begin experimenting as fast as possible using minimum cost. So, any features that do not test the initial assumptions are temporarily discarded.
4. Always try to get at the heart of the problem
As a startup is experimenting with its ideas, it will inevitably run into countless problems. Sometimes, the problem is clear. At other times, a little probing is necessary to find the root of the problem. To attain a deeper understanding of a convoluted problem, a startup can employ numerous techniques, such as client interviews and the five whys.
5. Keep fine tuning the minimum viable product
When the minimum viable product is out in the market, it probably won’t be a grand success; plenty of upgrades will be needed. However, a fallible strategy is to release a lot of updates at the same time. A good strategy is to make small changes frequently, so as to be able to monitor the effect of each upgrade individually as well as to have a smoother learning process.
6. Know when to pivot
Occasionally, a product will not succeed, no matter how much a startup tries. Consequently, there will always come a moment where a startup has to make a critical decision: go on with its upgrades or change its strategy altogether. This change of strategy could entail a change of customer segment, a change of product, or any other change. In simple words, a pivot is an admonition that an initial assumption was wrong in some way. This admonition is never easy, which is why it takes plenty of courage.
7. Regardless of the growth of the company, keep a culture of innovation
The business terrain is filled with the carcasses of companies that failed to keep up with the changing world around them. It is for this very reason that it is imperative that each company maintain a spirit of innovation and entrepreneurship, no matter the size.
Needless to say, everything that was just said is a mere glance into a much bigger topic. Despite having briefly covered the essentials of the lean startup method, each aspect deserves an entire article on its own. Should you, the reader, be further interested in this topic, I recommend reading the source material: The Lean Startup. It is a succinct book that is accessible to anyone, regardless of their background.