The Lean Startup business model explained

The concept of a Lean Startup business is all about finding a gap in the market in the most efficient way possible in terms of time and money spent. It’s the amalgamation of multiple techniques that help your new product or service get to market quicker whilst avoiding the development of a product that no-one wants.

For many fledgling entrepreneurs in the idea phase of setting up in business, it can feel like they are simply taking a stab in the dark; but it doesn’t have to be such a hit-or-miss proposition. With a little lean thinking it’s possible to develop and refine your ideas to mitigate market risks.

Let’s take a look at some of the key principles of the lean business model that give start-ups a better chance of long-term success on a limited budget:

The main principles of a lean business start-up

Controlled deployment of resources

Arguably the most organic principle of any lean start-up is its ability to utilise resources in the most efficient way possible. Most start-ups don’t have the benefit of unlimited pots of money, so the lean business model encourages the controlled deployment of resources that you do have.

At every juncture a lean start-up will evaluate how best to use their next pot of money to get in front of their target customers and enable them to test, evaluate and refine their product. By keeping costs at the absolute minimum of what’s required to remain operational the lean business model enables start-ups to maximise profits when sales occur.

With minimal capital investment, lean start-ups are heavily reliant on organic growth. The reinvestment of profits gained from early stage development enables businesses to scale up their operations in a more controlled manner without sacrificing on levels of quality; known as Innovation Accounting.

Validated learning

This process involves the testing of every iteration of an idea followed by the measurement of its success and potential at each step. It is influenced by the development of a minimum viable product (MVP). An MVP is the most basic form of your idea that enables you to obtain the maximum amount of validated learning from customers and the rest of the industry with the least effort.

As a risk reduction tool, an MVP is simply an initial prototype that allows you to test the water with the aim of refining it into a better version further down the line. It’s a sensible, measured way of understanding whether your product(s) or service(s) have a demand within your target market using optimal resource.

The typical framework of validated learning is as follows:

  1. Specify an objective
  2. Select a metric that represents your objective
  3. Attempt to achieve your objective
  4. Analyse your chosen metric – did you meet your objective?
  5. If not, why not? Learn from Step 3, improve and try again

It’s all part of the ‘Build, Measure, Learn’ cycle: build a prototype, get it into the real world, measure reactions from customers and industry influencers and learn from it through incremental and iterative engineering to continuously build better products.

In essence, all of these principles combine to help start-ups avoid wasteful spending whilst simultaneously maintaining and increasing quality and productivity. It’s an all too frequent occurrence that a start-up spends months, even years developing a product without once showing it to its intended market – even in its most basic form. Once a customer then communicates their indifference to the product, the start-up is placed in immediate jeopardy.

A lean startup model is not about failing quickly; it’s more about failing cheaply and giving your start-up a chance to refine and develop a product that allows you to build a sustainable business around it.

If you’re in the process of developing a new product, the Lean Startup business model can help you work smarter, not harder to deliver a product that solves real problems for customers. Sign up to our ‘Lean Startup’ webinar for practical and interactive guidance on developing a lean strategy that allows you to develop a product or service without the need for outside funding or an elaborate business plan. Visit our events page to view our upcoming events.

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