Starting a new business can be scary, but there are many success stories to reference on your journey. For instance, Dropbox utilized the lean startup methodology to go from having no products to becoming an industry standard in only a few years. Since it minimizes expenditures, the lean startup method can ease some of the most concerning aspects of starting a new business, like startup costs, by verifying the value of your product or business early and often. Business owners can even use the lean startup method for companies opening up a new venue of income or switching gears.
What exactly is a lean startup? This approach is based on a methodology developed by Eric Ries that 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. Ries introduced the lean startup concept in his 2011 book, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Business. 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.
While intended to get products to customers at a quicker pace, the lean startup method can help your business get up and operating more quickly — even if your focus isn’t manufacturing. The method can help you conserve resources and minimize wasteful practices at a crucial period in your business’s trajectory. This can either help keep your losses small if your venture fails or give you a financial cushion if your business thrives. Its focus on constant experimentation can safeguard your company from going stagnant.
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.
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, but can simply be the idea of the product.
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.
The response to your MVP launch determines:
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. They encouraged users to provide comments on Votebox about what they liked or didn’t like.
Based on what you’ve learned from your early adopters, the next decision point is whether to persevere or pivot. Can you carry on with the same product strategy or 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, then you can persevere. These are some examples of pivots:
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 as well as those who referred users. In 15 months, Dropbox went from 100,000 registered users to 4 million, largely by word-of-mouth referrals. They learned to continue doing what they were 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.
Lean methodology is often used to make small, sectional changes in the processes to improve efficiency, quality, and speed of the service or product being delivered. It should be used as a long-term approach for continuous improvement, not as a quick fix. With the fast pace of the world, it is important for a business to be able to adapt to the increase in demand as well as be prepared for continuous improvement. Businesses that utilize lean methodology can reap substantial benefits, allowing them a competitive advantage. The benefits of utilizing a lean methodology include:
Lean methodology is geared toward removing non-value-adding tasks and, instead, focuses on making the remaining value-adding tasks flow more smoothly, without delays, interruptions or defects. When the processes run smoothly throughout the lifecycle of production, the business will deliver high-quality products to customers on time.