The lean startup method – success through lean processes

„The man with a new idea is a crank until the idea succeeds.”

These words of the American writer Mark Twain are likely to meet with agreement in the ears of many start-up founders. Between an idea, its realization and actual success lies, for new companies, a long road full of obstacles.

One of the biggest hurdles for start-ups consists of finding out whether one's own business idea actually has potential and can hold its own in the free economy in the long term. Quite a few new foundings lose their way in the process in unrealistic notions and thereby come off the path.

But how can one determine whether a product is market-ready? And how can the probability be increased that a start-up reaches its goals long before it runs out of breath? One answer to these questions is the Lean Startup method.

Who invented the principle of Lean Startups?

If you'd like to occupy yourself a bit more closely with the topic of Lean Startups, then there's no way around Eric Ries. The American entrepreneur from Silicon Valley is regarded as the creator of the method. And that, even though the principle itself isn't completely newly invented.

As the author of „The Lean Startup”, Eric Ries developed the Lean Startup method and spread it worldwide.

The persistent success of the Lean Startup method is grounded above all in the fact that it hits the nerve of the times. Many traditional management approaches no longer take hold against the backdrop of the increasing digitalization, globalization and complexity. That gives not only established companies trouble. Most strongly, this development hits those organizations that first have to hold their own on the market. Ries, who was himself a startup founder, recognized this problem.

The entrepreneur began to occupy himself with contemporary solution approaches for the challenges of young companies. In doing so, he drew his inspiration, among other things, from Steve Blank and his approach for Customer Development as well as from various management concepts like Lean Manufacturing. Strictly speaking, at that time some global players like Amazon or Twitter were already deploying aspects of Lean Thinking.

But although all these ideas and principles already existed in isolation, it was Eric Ries who united them in one framework. The Lean Startup method arose. He first reported on his insights in his own blog. In 2011 his book “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses” then followed, as well as further successor titles in 2015 and 2017. Today his works belong to the standard reading for aspiring company founders.

What is a Lean Startup?

The Lean Startup method is based on a decisive thought: the market regulates everything. An offering has to meet actual demand. Consequently, products and ideas that are conceived past the interests of the buyers will, sooner or later, disappear again.

For established companies, a failed market launch of a new product is admittedly painful, but as a rule bearable. They have the financial and personnel resources to absorb setbacks and readjust.

The situation presents itself completely differently, however, for start-ups. As newly founded companies, they as a rule do have great potential for growth. But success stands and falls with the decisive business idea and its implementation. If mistakes are made here, then these, due to mostly limited resources, can be devastating for the future of the complete company.

Exactly this risk is to be minimized with the Lean Startup method. The word „lean” lets itself best be equated with the German equivalent „schlank”. The goal of the approach is to check business models or product ideas for their market readiness with as little effort and expenditure as possible. The feedback gained in the process as well as the insights are meant to help implement innovations as fast as possible without delving into false assumptions.

Instead of long, cost-intensive loops in product development and the great surprise factor at launch, the concept relies on three cycles as a basic pillar – Build, Measure, Learn:

Development (Build)

Every development decision is based on a strategy. That is, a certain notion exists that has to be checked for its truth and practicability.

Let us illustrate this once with an example: A start-up has the vision of producing vegan, vegetable-based spreads. The thoughts behind it are, among other things, that conscious nutrition is becoming ever more important for people and a corresponding product variety on the market is still missing. The strategy is consequently to close this gap.

But however well thought out many business ideas are, whether they're actually a solution for the needs of the planned target group only becomes apparent once the offering meets the target group. And that's usually preceded by a months-long and cost-intensive product development.

So that this process doesn't take up too much time and money, with the Lean Startup concept a prototype of the idea or the product is developed in the first instance. This is also called the Minimum Viable Product (MVP), that is a minimally functional product.

With the MVP it's by no means about completeness or mature features. Rather, the prototype is meant, on a fundamental level, to help better understand one's own product and its advantages for one's own target group. This way, the customer profile can be sharpened with little effort.

In our example, the start-up could create a zucchini spread as MVP. This need by no means be final in its recipe or packaging yet and will presumably be only one of many flavors. But with this prototype, the still young company succeeds in finding out how the target audience might react to vegan spreads at all and which product properties it values.

Summarized, the first step is thus about developing a prototype of the business idea with which strategic assumptions can be measured.

Measurement (Measure)

With that we're already at the second basic pillar of the Lean Startup method, measuring.

If the exemplary startup wants to track whether its own notions and progress are positive or run in the wrong direction, it needs a benchmark. But how can one measure whether the zucchini spread is an indicator for the possible success of vegan spreads?

Since startups, when measuring developments, as a rule can't fall back on years of business figures and corresponding market experience, they need different metrics than established companies.

It's therefore essential that it's determined exactly already before the step of measurement which aspects give information about success or failure. These can of course change flexibly at any time, but should always be exactly defined. After all, the goal is to come to the desired results as lean as possible, that is with little effort.

In our example, the startup could, for instance, right at the very start, test in a small field trial on the street whether people even want to try the zucchini spread as MVP at all. This sample can give conclusions about properties of the target group as well as its attitude toward vegan spreads in general. In a second round, the start-up could, among other things, measure how people rate the flavor.

So you determine, at best already during the development of the MVP, which indicators can be used for an evaluation of the idea or the product. This system can subsequently be further adapted with gained insights.

What's important in any case is that you determine exactly what you want to measure, how and why. This way you avoid the waste of important resources and always obtain the data you need for moving forward.

Learn process (Learn)

The third phase is probably the most important and at the same time most challenging. At this point, everything depends on asking the right questions and drawing adequate conclusions.

Is progress being made? How is it to be evaluated? Do first insights confirm the initial theory or does a course change have to be undertaken?

It's about verifying and, if necessary, adapting the initial basic hypotheses about the product, its properties and the aspired strategy. The crux here lies in approaching this learning process as neutrally as possible. The temptation to absolutely want to see one's own assumptions confirmed is great. You should therefore quite deliberately keep in mind that holding on to a wrong decision can do more damage than a course change.

If our example start-up finds in the field trial that only very few people wanted to try the zucchini spread, then it can draw various insights from this. It could hold on to the idea and the prototype and conduct further research with regard to the suitable target group. But it would also be possible that the flavor composition of the MVP didn't convince.

Depending on which assumptions and measurement data you assign to your product in the first two steps, you can, in the learn process, define results and make decisions. If a complete reorientation comes about here, then one speaks of a pivot. In this case, the business model, the strategy or also the product itself is completely overhauled.

Regardless of whether you have a pivot case after the first run-through or merely require further fine-tuning, the three-stage cycle is repeated at every new stage of development. The individual phases should be kept as short as possible in the process in order to obtain conclusions for the further improvement of the product promptly.

Build, Measure and Learn: the Lean Startup method consists of a three-stage cycle and has the goal of minimizing lead times.

Why is a Lean Startup worth it?

In various articles around the founder scene, one keeps coming across the same statistic: about 90% of startups fail within the first one to two years of their business activity.

Even if the actual number may deviate from year to year and from country to country – the forecast is devastating nonetheless. Especially since there can be numerous reasons for this development. Of these, lacking knowledge about the market or the target group, poor marketing, overly complex organizational structures and bad investments are only some of the possible options.

Lean Startups are a solution approach with which new companies can arm themselves against these pitfalls and prevent a too-early end.

• Before larger investments are made, one first obtains the feedback of potential customers;
• Instead of constantly new visions, one keeps to a recurring cycle of development, measurement and learn process (“Build-Measure-Learn”);
• Products and business models are thus evaluated success-oriented, with the least possible effort and especially fast;
• Start-ups can thereby budget better and save costs;
• Possible stumbling blocks like bad investments, product flops or inefficient workflows can be avoided from the outset.

If your company is to benefit from these added values and you need support with implementing the Lean Startup method, then we're happy to be at your disposal. Thanks to our professional expertise and our experience with transformation and management processes, we can help you apply the right lean strategies and workflows in your start-up.