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.
The lean startup methodology explained
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.
You can start a business for less than $500. Some examples include online stores, virtual education and social media marketing.
How to utilize the lean startup methodology
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:
- 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. 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:
- 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.
If you’re planning on opening a business from home, you can sign up for small business training classes, research the market and prepare a business plan to set yourself up for success.
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 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:
- 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 recurring and improve the quality of the product.
- No defects. A defect in products means more work, which means money and time wasted, and risks your ability 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 usable inventory as opposed to stockpiling expensive inventory that may otherwise go to waste; plus, there are fewer defects that almost immediately increase profit. Higher-quality products that are available for customer demand means happier, repeat customers.
- Strong customer relationships. The lean methodology requires early communication from the onset of your business. If those early adopters are satisfied with your product 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.
- A focus 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 a company can always be better in some way. Consider implementing a development team to avoid going stagnant.
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.