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Are you tired of pouring time and money into a product that may not even work? One common mistake startups make investing heavily in a product idea before verifying its market viability or success. Don’t let this hold you back any longer – by embracing the lean startup approach, you can validate your product and make sure it has a solid foundation before moving forward. So what is the lean startup approach, and how can you use it to make a business plan for a startup?
A lean startup is an innovative business model that uses rapid experimentation and iteration to validate new ideas and approaches quickly. It allows startups to be agile and adaptable in an ever-changing market. By quickly testing and refining their ideas, lean startups can stay ahead of the curve and avoid the pitfalls of traditional business planning, which often involves a lot of upfront investment and long-term commitments to strategies that may not work out in the end.
Let’s use an example to understand this. Suppose you are the founder of Nutribar, a startup looking to create a new line of healthy, plant-based snack bars. Most founders spend several months/years on manufacturing, research & development, and packaging, launching it on the market, only to fail halfway through due to having a lack of funds for development or finding out that the snack bar doesn’t have the right product market fit. After all, according to a study by CB Insights, 38% of startups fail as they run out of funding, while 35% of all startups find that there is no market need for the product. Rather than spending several months/years building out a fully-featured product that may fail, Nutribar can quickly test and reiterate the idea until they achieve its desired results.
Essentially, this starts with a hypothesis – in this case, it is the need for healthier, plant-based snack bars that are convenient and tasty. Once a hypothesis is developed, Nutribar should look to develop a Minimum Viable Product (MVP), which in this case is a small batch of snack bars with just a few flavors and packaging options. This MVP should then be tested with a small group of potential target customers, enabling the company to gather feedback & data to see how well the snack bars solve the problem first outlined in the hypothesis. Once the feedback is gathered, Nutribar can tweak the recipe & packaging, adding or removing the flavors as needed. This rapid experimentation, testing & iteration should continue until Nutribar is confident that the snack bars are refined and ready for a wider launch.
Thus, by using the lean startup, Nutribar will be able to minimize waste and maximize efficiency. The company will also avoid risking the time and resources that go into developing a product that nobody may want or need and will be able to quickly pivot its trajectory based on the development of the current market.
To successfully apply the lean startup methodology, it is important to understand the underlying principles involved. There are five main principles in creating a lean startup. These include –
The “build, measure, learn” loop is a key part of the lean startup approach, which involves gathering data and testing assumptions through continuous experimentation and iteration. The fundamental principles of build, Measure, and learn can be broken down into four stages – building the minimum viable version of the product, letting customers test the product, measuring data, and understanding the future of the product. According to a Harvard Business School study, over 30,000 new consumer products are launched, yet only 5% are truly successful. To break out from the rest of the competition and gain success, startups need to employ the build, Measure and learn approach.
Startups should use innovative accounting to focus on tracking financial metrics relevant to the business model and goals. For instance, in Nutribar’s case, the company would need to track important metrics such as customer acquisition costs, lifetime value, and churn rate rather than traditional financial metrics such as revenues and profits.
Validated Learning is a principle that focuses on gathering and testing various assumptions about the business model through integration and experimentation. A survey from Marketing Research Association showed that only 40% of developed products make it to market, and only 60% of those ever generating any revenue. Thus, startups must tweak their approach for a more successful launch.
Startups require effective management, including adapting to risky situations, managing investors, and allowing employees to experiment with calculated risks. A flexible and adaptable management style focused on continuous learning and innovation can increase the chances of success and build a sustainable business.
Essentially, the practice of entrepreneurship can be applied to any context or situation. This requires a flexible and adaptable mindset and the ability to gather and act on data and customer feedback to make informed decisions and continuously innovate. The ‘Entrepreneurs are Everywhere’ concept encourages individuals to adopt an entrepreneurial mindset and approach to problem-solving and opportunity-seeking in any context or situation.
Traditional startups can also benefit from integrating the principles of a lean startup. For instance, the minimum viable product helps startups focus on the core value proposition of their product or service and validate its assumptions about what customers want. Staying lean and making rapid iterations also enables startups to identify what is and isn’t working, allowing them to make the necessary adjustments to their strategies. The same principle also carries over to understanding the customers’ needs, enabling startups to continuously monitor the feedback to improve their business. Furthermore, the lean startup ideology also prioritizes embracing agility, whereby startups can quickly pivot based on new information or changing market conditions, which should help them adapt to changing conditions.
The lean startup approach has established itself as a leading methodology for entrepreneurs looking to build and grow successful businesses in today’s fast-paced and dynamic market. By focusing on continuous learning and iteration, startups can validate their assumptions about their product or service and make necessary adjustments to their strategies as they go. This approach emphasizes the importance of customer feedback and agility, allowing startups to stay ahead of the curve and respond to changing market conditions as needed. As such, a lean startup approach is a valuable tool for any entrepreneur seeking to succeed in the modern business landscape.
