The Lean Startup Revolution: a new approach to disruption

Entrepreneurs are seen as risk-takers. They are admired for their tenacity and often thought of as being larger than life. They turn ideas into value, creating jobs and improving the economy as they do so.

So why don’t we see more entrepreneurs and more startups?

While the rewards for entrepreneurs can be big, the risks are even bigger. Up to 90 percent of startup fail and for most people, it’s not a bet they are willing to take. The time, money and energy invested into creating something that doesn’t take off is just too much to handle and most people are happier just to work for somebody else.

Lean Startup Methodology (LSM), however, is a relatively new way of developing, building and launching products that reduces the risk of large scale failure.

Companies like Dropbox, General Electric, and Citi ventures have all used LSM to build world-changing companies and in some cases have completed disrupted well established industries.

What problem does LSM solve?

Traditional product development is inefficient, time consuming, costly and full of risks. In essence, established companies following an old-fashioned approach need to predict a market need, develop a prototype (which, depending on the industry, can take more than a year), release it, and then hope for sales.

A lot can go wrong with this. First of all, in the time it takes to research and design (R&D) a product and then roll it out, the situation can change and the new product can become obsolete.

Secondly, competitors might well beat your company to the punch and release something that takes most of the market share. Imagine, for example, developing a new type of walkman and releasing it at the same time as the Apple’s first iPod.

Thirdly, you might just have a poor product market fit, an incompatible price-point or profit margin.

For startups these problems are magnified tenfold. Without an established revenue stream, R&D and a product launch is often a one-shot opportunity. If a launch is unsuccessful, that’s the end of the startup; all the money has gone and, for most people, it’s back to the day job.

LSM, on the other hand, helps speed up the development process, factors failure into the testing phase, improves efficiency and increases the chance of success.

So how does it work?

Originally a book by Eric Ries, The Lean Startup, LSM follows a number of principles that helps a startup build products, then test them, and fail cheaper and faster, so they may continually move towards a product with a good market fit.

The following principles are adapted from the Lean Startup website:

1. Establish a market early on

Rather than asking whether a product can be built, a startup should ask whether it should be built and whether the company can build “a sustainable business around this set of products and services”.

By researching these questions, talking to potential customers and getting feedback from early adopters, the startup can reduce the risk of finding no product-market fit.

2. Develop a Minimum Viable Product (MVP)

The MVP is a working prototype that fulfils the minimum requirements for it to be useful. It allows the startup to spend as little time and money on early stage development as possible, gets it to market quicker and speeds up the learning process.

Once an MVP is deployed, it’s essential that the startup measures performance and key metrics that show how it is working and where it needs improvement.

3. Build – measure -learn

Startups must implement a process to test the product on the target market during its development. This testing shows how well or how badly the product is meeting its objectives and informs further development.

While there will be failures, these will be faster and cheaper, and the development process can continue.

The secret to LSM’s success lies in its ability to reduce or even eliminate uncertainty. While it is primarily a product-focused methodology, the principle of build-measure-learn certainly has a wide range of applications in many industries, including marketing, tourism and hospitality.

 

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