The Dropbox Effect: How to Utilize the Lean Startup Methodology

The lean startup methodology explained

The lean startup approach is based on a methodology developed by entrepreneur Eric Ries. It helps companies improve decision-making based on iterative product testing and uses early-adopter feedback to determine features and functionalities for a broader market launch. Getting in touch with your customer base early on will allow you to use their input to guide your company as well as give you a relationship to nurture as time goes on.

“Lean tools are tremendously effective at eliminating waste, revealing problems and developing people,” said Matt Savas, executive director of content at the Lean Enterprise Institute. “If everyone can see problems and has the capability and support to solve them, then a business is going to improve every single day.”

Ries, who founded Lean Startup Co., introduced the lean startup concept in his 2011 book The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. The concept for his book, which focuses on the experience he gained through his own failures and lessons, is based on the Japanese work process of vehicle production during World War II. 

Although the lean startup method is intended to get products to customers more quickly, it can also speed up your business’s launch, even if your focus isn’t manufacturing. The method can help you conserve resources and minimize wasteful practices during a crucial period in your business’s trajectory. This can either keep your losses small if your venture fails or give you a financial cushion if your business thrives. The method’s focus on constant experimentation can safeguard your company from stagnancy. 

The approach, also known as build-measure-learn, is based on lean manufacturing principles, such as those promoted by the Lean Enterprise Institute, that aim to increase customer value while using fewer resources. Most importantly, the lean startup method will help you recognize early on if your enterprise is worth pursuing, without wasting resources. 

Ben Hafele, CEO and managing director of Lean Startup Co., endorsed this experimental and test-based approach for starting a new business. “When it comes to something that’s new and unproven and uncertain, you should use more of a test-and-iterate approach,” he said.

How to utilize the lean startup methodology

Lean startups focus on unique and small-scale services they can provide to customers while emphasizing low operating costs and solid service delivery. Here’s how to get started with this methodology.

1. Build

In the build phase, companies make a minimum viable product (MVP). This prototype has sufficient core features to interest early adopters, whose feedback helps you identify the additional features you’ll need to appeal to a wider market. The build phase doesn’t have to be an actual product; it can simply be the idea of the product. According to Hafele, the first step in this building process is to assess the areas where the company wants to grow.

“Think about some growth ideas that you have, or a new product or a new business or a new feature on an existing product, and look for those areas of uncertainty,” he said. “Start with areas where you’re uncertain about what’s going to work.”

Savas echoed the experimental sentiment, adding that it’s important to try out different tools strategically and purposefully to see what works. Lean tools such as 5S (sort, set in order, shine, standardize and sustain the cycle), value stream mapping and others must be used to solve a problem, Savas said. “Unless the use of the tools improves performance and/or makes work easier and safer, they’re unlikely to take hold,” he added. 

How Dropbox did it: Dropbox signed on 5,000 subscribers before it actually had a product to offer. The cloud-based file storage and sharing services company generated sign-ups from a 90-second video that described its services and why people should pay for them.

2. Measure

The response to your MVP launch determines the following:

• Whether there is sufficient interest to continue product development
• If there is sufficient interest, what features and functionalities should be added or refined

How Dropbox did it: A second Dropbox MVP video demonstration generated additional interest, adding 75,000 early adopters in a single day. This was accompanied by a flood of high-quality feedback to make the product as simple to use as possible. The company encouraged people to use Votebox to provide comments about what they liked or didn’t like. 

3. Learn

Based on what you’ve learned from your early adopters, the next decision is whether to persevere or pivot. Can you carry on with the same product strategy, do you need to change some aspect of it, or do you need to shut down product development entirely?

If early adopters like the MVP, you can persevere. These are some examples of pivots:

• Other features are discarded in favor of a single feature that becomes the final product.
• The product becomes larger to incorporate missing features or functions.
• You discover that other customer needs are more important to address than what the MVP offered, so you go back to the drawing board.

How Dropbox did it: Enthusiasm among early adopters persuaded Dropbox to persevere. The question then became how to expand beyond the initial user base. The company invested in a variety of online marketing techniques that resulted in excessively high and unprofitable customer acquisition costs. What Dropbox learned was to instead build on the enthusiasm of its user base by offering a two-sided incentive referral program.

Dropbox then offered additional free storage to both new subscribers and those who referred users. In 15 months, Dropbox went from 100,000 to 4 million registered users, largely by word-of-mouth referrals. The company learned to continue doing what it was doing right in the first place — developing a committed user community and providing it with an influence on product development — and not to worry about more traditional marketing approaches.

Benefits of lean methodology

Businesses that use the lean methodology and an experimental, iterative framework are more likely to maintain cost efficiency and organizational simplicity. Here are some additional benefits of utilizing a lean methodology:

• It improves productivity. The lean methodology includes eliminating tasks that do not add value to the customer. For instance, producing unnecessary materials or collecting unused or unrelated data creates slow systems and wasted time, so removing those tasks from the process will ultimately increase productivity that is more beneficial for the customer.
• It positions you to meet customer demands. Once the production process is streamlined, your business can meet customer demands more effectively. The business can be in the position to allow customers to come to your business specifically to get the product they want or need.
• It improves product quality. When there is an issue with quality, a lean methodology provides businesses with the techniques and problem-solving tools to identify the problem’s root cause. As error proofing is put into place, it can strengthen the process, prevent the problem from recurring, and improve the quality of the product.
• It eliminates defects. Product defects cause more work, which wastes money and time and threatens your ability to deliver the finished product on time. The premise behind the lean methodology is to eliminate defects so your products are made correctly the first time.
• It minimizes waste. When the lean methodology is used appropriately, it can increase productivity and streamline operations, ultimately allowing your business to make more products with greater flexibility and responsiveness. The result is usable inventory, as opposed to stockpiled, expensive inventory that goes to waste.
• It strengthens customer relationships. The lean methodology requires early communication. If early adopters are satisfied with your products and services, they are likely to become loyal customers. Maintain those relationships, and check in with your customers regularly to make sure your business is on track.
• It focuses on improvement. Embracing the lean methodology in the early days of your company encourages a mindset of constant innovation and creativity. Regardless of how successful your company becomes, your origins show you that a company can always be better in some way. Consider implementing a development team to prevent complacency. 

The lean methodology is geared toward removing non-value-adding tasks and focusing on making the remaining value-adding tasks flow without delays, interruptions or defects. When the processes run smoothly throughout the production life cycle, the business will deliver high-quality products to customers on time.

Nicole Fallon contributed to this article.