An Entrepreneurial guide: Lean Start-Up
As a digital entrepreneur in the rapidly changing business world of the 21st century, launching a digital business means overcoming several challenges. Let me share one challenge from my perspective, in one of my digital startups our team was working on creating a business plan. Like all startups, we needed to formulate a business plan describing how we intended to implement our business concept. We met with our investors and got guidance to answer the following questions:
- What product or service you will be selling
- Who will be buying the product or service
- The market
- Your advantages and disadvantages compared to competitors
The problem with this approach is as we learned is that we didn’t talk enough to our customers in the starting phase and thus adjusted our plans several times which caused frustration and allocated both resources and time.
In this post, I will share my learning as a founder comparing the traditional business instruments of management such as strategy creation and market investigation with a new methodology called the Lean Start-Up model.
The Traditional Way: Create your business plan
The traditional way of launching a new business is by first answering the questions in your business plan. They should cover:
- product or service, with pricing
- market and customers
- marketing strategy
- resource requirements
- risks and opportunities
- budgets, cash flow and profit forecasts
The problem with this approach is that it is a static way to describe your business opportunity or the problem you want to solve. In many cases, it becomes a desk exercise done in isolation even before creating something of value whether a product, website or service. In contrast to this approach, there is another way where the founder searches for a business model. It was founded by Eric Ries in 2008 and is called the Lean-startup and this approach combines the thinking of Lean and Agile Development.
A short summary of Agile and Lean Management:
In this post, we will not in detail describe these two methodologies but only give a short summary in order to understand the Lean Startup. Firstly, let us review the Agile Manifesto. The Agile Manifesto was written in February of 2001 by seventeen independent-minded software practitioners. While the participants didn’t agree about much, they found consensus around four main values
- Individuals and interactions over processes and tools
- Working software over comprehensive documentation
- Customer collaboration over contract negotiation
- Responding to change over following a plan
Application: Get out of the building
I and my team had the vision to “Increase the road traffic safety by offering a wides range of high quality LED vehicle lighting“. We had a previously build up other digital business using the traditional approach with limited success. In this approach, we used the Lean start-Up to apply the following principles:
Experimentation over elaborate planning: We started early on using PDCA cycles to ensure build-measure-learn feedback loops. We experimented with different website designs and applied A/B testing to every aspect of our website. We didn’t use traditional “big design” up front and worked with experimentation with direct customer feedback. One scheme that should be applied can be illustrated as: Ideas -> Build ->Product -> Measure -> Data -> Learn
Get out of the building: We took our sample products and got out of the building and met directly with our potential customers. In one case, we met with truck drivers and assessed their situation: What were their requirements? What was important for them to order online? Did they use mobile or desktop applications? We used the customers input and redesigned our offerings. This was done in loops with iterative testing and immediate customers’ feedback. In this way, we always could define value from the customer perspective and provide added value rather than unnecessary work.
Ask the critical questions: As an entrepreneur, you always need to ask critical questions about your business. Start by assessing these questions to understand your business from a customer perspective:
- Do consumers recognize that they have the problem you are trying to solve?
- If there was a solution, would they buy it?
- Would they buy it from us?
- Can we build a solution for that problem?
Minimum Viable Product: We entered the building phase (website, logistics set-up, and marketing) as quickly as possible. With this, we could showcase our ideas to investors and potential customers from the start.
Metrics and KPI’s: In the digital age, metrics, and KPI’ should be the heart of your business. Understand where you are doing progress and discover improvement areas. Learn more about KPI’s.
The Lean Start-Up Business Model Canvas: Ash Maurya, the founder of The Lean Canvas has created a 1-page business plan template. It consists of 9 basic building blocks. Use the template to develop your assumption iteratively through continuous and fast testing. The template is adapted from Alex Osterwalder’s Business Model Canvas.
Below find the Lean Canvas – Lean Canvas: nine business model building blocks, Maurya, Ash 2010
Final words: Continuously Improve
The Lean Start-Up model is not a shortcut to create successful successes. There are no simple ways to accelerate startups and implement strategies. Instead, focus on some of the key principles of the Lean Startups. For me, the number one learning is to continuously learn and improve yourself and your ideas as an entrepreneur. As for myself, I am still developing my skills to system thinking, listening cautiously what the market is telling and gather feedback daily on our products and service. As a final takeaway:
Remember that the lean startup method is not a magic formula – strive to be different and continuously improve your business idea, teams and partners!