Before discussing Lean Startup, we must understand why it’s important to use this methodology.
It is a universal fact that a majority of the startups fail in the first two years of their operations. Most common reasons of failure of startups are: they build products that don’t sell, they run out of finances, their idea is good but their execution is not and lastly team issues. Lean Startup aims to increase the survival of startups in those early crucial years.
Lean Startup is a methodology of developing businesses and products that are successful and efficient. The term ‘Lean Startup’ was first introduced by Eric Ries in 2008. After suffering a failure Eric Ries studied Lean manufacturing and applied those principles in the domain of startups.
The whole concept of Lean is to eliminate all waste processes and focus on critically important tasks that create value. For a startup it means shorter product life cycles and less wastage of time, money and resources. Using this approach, entrepreneurs can get to know earlier whether their idea is working or not and which strategy to follow.
According to Eric Ries, any place or institution where people work together to create products and services in the conditions of extreme uncertainty is called a startup and those working there are called entrepreneurs. So you don’t have to work in a garage now to be an entrepreneur. This means that Lean Startup approach can be applied everywhere in any sector and in any type of organization ranging from a large enterprise to a small business.
According to Eric Ries, since a startup works in the conditions of uncertainty, a new kind of management is required to cope with the uncertainty. Most of the people think of management as boring and they are more excited towards ideas and products, but they don’t realize that this boring stuff is the key to perfect execution of ideas.
Most of us think that startups exist to create products or services but we’re wrong, their reason of existence is to learn how to create a sustainable business. In order to learn, entrepreneurs must run experiments that allow them to test viability of their ideas and plans. In this way startups learn what works and what doesn’t work thus validating their ideas. This whole process of learning must be done continuously in order to improve.
In order to cope with the uncertainty, entrepreneurs must be held accountable and outcomes must be controlled. This can be done by using innovation accounting which includes: measuring progress, setting up milestones and prioritizing tasks and goals. In established organizations, we have standard measures of progress like financial statements, but for startups they aren’t very useful because most of the startups operate without revenue and profits. So innovation accounting uses a different set of metrics to control outcomes and hold everyone accountable. These metrics include Acquisition, User Experience, User Retention, Referrals and Revenue.
This is a feedback loop where entrepreneurs build products based on their ideas, measure the outcomes, learn and then repeat the process until perfection is achieved. This whole feedback loop works in a speedy manner because the crux of lean is to eliminate wastage of time, money and resources.
Although Lean Startup is a very broad topic but these above mentioned principles are the keys which can dramatically improve the success of startups. We will be sharing more on Lean Startup in upcoming days so stay tuned and learn the science of turning a startup into a sustainable business.