Lean Start-Up – A term that we encounter more and more often. But what is behind it? Is it a hip buzzword or a meaningful concept? One thing is clear from the start: It is definitely not a meaningless hype or buzzword. It’s a very interesting approach to the topic of startups. Let’s take a closer look at it.
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Lean Startup: Let’s find a definition
Lean Start-Up is an approach to founding companies as well as implementing business ideas. The focus is on lean processes and learning through iterative and customer-centric testing. Through continuous customer feedback and hypothesis testing, conclusions are drawn as early as possible in product development. This keeps the process lean and reduces the likelihood of failure. Lean Start-Up explains or describes this process as a “build-measure-learn cycle”.
This systematic approach enables errors to be identified as early as the product development process. In this way, feedback and error loops can be avoided, which in the classic approach were only detected after the product launch. Although classic startups also go into customer acceptance tests, the level of iteration is not comparable.
The term “Lean Start-Up” is based on the same principles as the Lean Manufacturing principle and was established by Eric Ries in 2009. In 2011, his book “The Lean Start-Up” was published, which forms the basis of the method. Literally, “lean” can be translated as “slim” and, in the context of innovations, it means checking quickly and cost-effectively whether a product is marketable or not.
What is the idea behind Lean Start-Up?
Starting your own business always involves certain risks. As a founder, you face many challenges. Everything has to be implemented in the best possible way, usually with a limited budget or according to the expectations of investors. And there are many questions: Will your own business idea work out? How do you make the planning as simple as possible but still effective? How do you handle Innovation Management Processes? How can the company be developed and grown quickly? What are the needs of your customers?
Many start-ups fail right at the beginning because they invest too much time in planning the perfect product. In retrospect, it often turns out that this product idea was not so perfect after all. If the product does not meet the needs of the target group, the company will not survive the initial phase. In addition, there is the uncertainty of resource planning.
This is where the lean start-up method comes in. It helps founders to minimize precisely these risks during the start-up and to design their own concept in such a way that they do not lose themselves in perfection.
The core principles of the Lean Start-Up
The basis of this method is an approach that has long had a bad reputation: “learning by doing”. Here, the founders are supposed to develop a product, without long planning. Simply doing and learning is the core idea. The market need and customer acceptance of potential buyers are thereby tested. The product is then further specified on the basis of the feedback received. The whole model is based on a certain cycle, called the BML cycle. It can be applied to phyiscal products as well as to a digital strategy.
This refers to the principle of “Build Measure Learn” (BML). The cyclical nature of these three steps ensures that a product is repeatedly tested and improved based on customer feedback until its final launch on the market. As a founder, you can therefore be much more certain that your product will meet the needs and requirements of your customers when it is ready for the market.
What is the BML cycle?
The idea behind Build Measure Learn is relatively obvious. It becomes exciting when implementing this principle in one’s own startup.
At the beginning it says “build”. And that also means build. A first version of one’s own product idea is developed. The focus is not on perfecting the idea right from the start. Only an MVP is developed according to the thought “just do it”. It is important to set up hypotheses for your own MVP. Starting with “This product fulfills a need for potential customers”, these hypotheses can be rough or slightly refined. It is recommended not to form too many hypotheses at the beginning.
In the second step of a lean start-up, “Measure,” the company’s own hypotheses are then tested. Customer feedback is obtained on the current status of the product, which, together with appropriate metrics, should ultimately provide information on whether the company’s own hypotheses have been confirmed or falsified.
In phase 3, the “Learn” phase, the collected feedback is processed. Depending on how one’s own hypotheses were confirmed or not, further work is done on the product based on the feedback. The goal is to improve the existing MVP to such an extent that it meets the customer’s requirements in the next round.
And this is exactly where the systematics or logic behind the Lean Start-Up idea becomes apparent. The BML process is repeated until a product is created that is believed to be ready for the market.
Advantages and disadvantages of the Lean Start-Up principle
As good as this may sound, the Lean Start-Up principle also has advantages and disadvantages. We would like to discuss these briefly. Because even if the idea is very logical and simple, it is not suitable for every product or innovation.
One big advantage is that you don’t just launch a product on the market that nobody needs. It is precisely this hurdle that has caused many start-ups to fail, because their business idea did not meet the market need. This problem is circumvented with the Lean Method. The constant customer feedback may not necessarily mean a proof of concept, but at least a confirmation of the idea. The certainty increases with the number of iteration rounds.
Another advantage is that the founder has very close contact with customers and can thus perfectly adapt his own idea to needs. You get all the important information and thus significantly shorten all development processes. Through this you save a lot of time, capital and manpower. Especially this step shows a clear advantage over classical development processes.
It is also beneficial for the investors, as they can better rely on the business idea and estimate the success of their investment. This in turn can have a feedback effect on the founder. If the investors see that the idea is developing positively and has corresponding market potential, further financing rounds become much easier for the founder of a lean Start-Up.
The fact that you have very few meaningful opinions at the beginning can make it difficult to get started. You have hypotheses that your business idea will have a market need, but they must first be tested and confirmed.
One of the biggest dangers is that the BML cycle to your own product becomes endless, or has to be repeated so often that efficiency is lost, at least from a cost perspective.
Another disadvantage is transparency in competition. This argument depends heavily on how great the competition for one’s own product idea is, or can become. With the test rounds, competitors can theoretically observe and track the entire development process. The changes compared to the previous round clearly show which concerns the customers have expressed and how they have been responded to.
This is where a dilemma for the lean Start-Up becomes apparent. Of course, you can try to create a legal framework with the appropriate test customers to prevent the loss of your own idea. But let’s be honest: If a competitor wants to, the idea can still be stolen. The dilemma thus becomes apparent in the test phase itself.
If you want to act as safely as possible, you select a rather small number of test customers. However, this has the logical consequence that only little feedback is returned. The less feedback you receive, the more likely it is that market maturity will be incorrectly defined. If, on the other hand, you select a large test group, you receive a lot of feedback, which minimizes sources of error. At the same time, however, the chance of attracting the attention of a competitor increases.
Despite the disadvantages mentioned, the Lean Start-Up idea is a radical and disruptive approach that has a lot of potential to produce wonderful products. Of course, the argument of industrial espionage is not to be neglected, but this can happen either way. Even the most established companies are not 100% protected from this danger.
In our eyes, this principle is definitely worth considering. However, one should carefully consider whether one’s own product is suitable for such an approach. If this is the case, there are not many comparable opportunities to develop a product so close to the customer as lean Start-Up does.
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