- Lean startup is the three-step approach designed to help companies improve their decision-making in order to reach a broader market.
- From the building or idea phase to the learning phase, this methodology can allow you to determine whether your company has a viable product.
- Lean methodology offers a wide range of benefits that ultimately lead to a competitive advantage for companies
What is 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.
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 the value to customers while using fewer resources.
In the build phase, companies make a minimum viable product (MVP), which is basically a prototype with 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:
- Whether there is sufficient interest to continue product development
- If there is sufficient interest, what features/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, accompanied by a flood of high-quality feedback to make the product as simple to use as possible. They encouraged users to make comments on Votebox about what they liked or didn't like. In fact, the company continues to use Votebox to allow its users to comment on which features work best for them and which ones don't.
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 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 it's 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 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.
Benefits of lean methodology
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 is 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. These are some of the benefits of utilizing a lean methodology:
- Better productivity. Utilizing lean methodology includes the elimination of tasks that do not add value to the customer. For instance, producing unnecessary materials or collecting unused/nonrelative data creates slow systems and wasted time, so removing these tasks from the process will ultimately increase productivity that is more beneficial for the customer.
- Better flexibility and responsiveness. Once the production process is streamlined, your business can better meet customer demands. The business can be in the position that allows customers to come to your business specifically in order to get the product they want and/or need and when the product is available at the time of need.
- Improved product quality. When there are issues with quality, lean methodology provides businesses with the techniques and problem-solving tools that allow them to identify the root cause of the issue. As error proofing is put into place, it can strengthen the process, prevent the problem from reoccurring and improve the quality of the product.
- No defects. A defect in products means more work, which means money and time wasted, and the risk of not being able to deliver the finished product on time. The premise behind lean methodology is eliminating defects so that your products are made correctly the first time.
- An increase in the bottom line. When lean methodology is used appropriately, the method can increase productivity and make operations smoother, which ultimately allows your business to make more products with greater flexibility and responsiveness. The end result is creating a usable inventory as opposed to stockpiling expensive inventory that may otherwise go to waste, and there are fewer defects, which almost immediately increase profit. Higher-quality products that are available for customer demand means happier, repeat customers.
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 are running smoothly throughout the lifecycle of production, the business will deliver high-quality products to customers on time.