A look at the past, present and future of lean startup principles.
If you’re already familiar with the concept of the "lean startup,” you may be surprised to realize it’s already 10 years old!
Silicon Valley veteran and blogger Eric Ries coined the phrase in 2008 when he began publishing his experiences and analysis after working with several tech startups throughout the early 2000s. He solidified his concepts in the bestselling book, The Lean Startup, late in 2011, and thus began a legitimate international movement.
With over a decade of hindsight available, let’s take an objective look at how the lean startup movement has fared, and where we can expect things to go from here.
Where the lean startup shines
One of the best known and most successful proponents of the lean startup model is Dropbox. The ubiquitous cloud storage app grew very quickly in a highly-saturated market, and CEO Drew Houston credits much of that momentum to the application of Eric Ries’ lean startup principles. Houston has since written and spoken extensively on the subject. Reviewing his rundown of how Dropbox effectively went lean outlines the generally-accepted benefits of lean startup concepts:
Minimum viable product (MVP)
The initial private “launch” of Dropbox was really nothing of the sort. At the time, Houston and a few friends had a fleshed-out concept, a barebones prototype mostly coded, and an ambitious development calendar, but little else. With just those assets in hand, Houston began reaching out to potential investors and users with a simple combination of videos and a landing page for collecting email addresses.
The first video – a brief runthrough of the app’s interface and explanation of the problems it solved – was sent to Hacker News and other similar outlets, as well as venture capital firms. As it turned out, this quick-and-dirty video runthrough was sufficient to intrigue Y-Combinator and to spark a buzz online about this “new and improved” cloud storage startup.
A second video, which went viral on Digg.com, resulted in over 75,000 potential users added to the waiting list in just one day.
This illustrates the core lean startup principle of the minimum viable product Dropbox was able to achieve powerful traction, funding and a ton of valuable feedback based off an app that was not even finished yet. Instead, it had a prototype that was sufficient for illustrating its goals, and an ambitious development roadmap that investors and users both could get behind.
Focusing on developing an MVP allows lean startups to go to market, learn and iterate more rapidly than startups that concentrate on developing a polished, completed product first and foremost. And, importantly, this feedback loop lets them quickly answer the most important question for every startup: “Is this a product people are willing to pay for?”
Another key tenet of the lean startup methodology is actually borrowed – with all appropriate attribution – from another keen business mind of the early 21st century, Steve Blank, and his theory of customer development.
While there's far more to the complete concept, the overarching point is that "build it and they will come" almost never works, and entrepreneurs who rely on that idea are fooling themselves. Instead, startups need to approach the development of their customer base or target audience in just as rigorous and disciplined a fashion as they approach product development, quality control, and marketing.
In Dropbox's case, these principles resonated with Houston, and he recognized early on that he and his co-founders were, themselves, early tech adopters. So, this was a consumer persona they knew well and understood. They were, therefore, able to target other early adopters with laser precision in the way they wrote and distributed those initial videos and many other pieces of content that followed.
The result of this disciplined, targeted development of its customer base was rapid adoption and profitable growth in the neighborhood of 15 to 20 percent, month-over-month for years.
Finally, the lean startup model's focus on constantly experimenting, monitoring and iterating based on results leads to a common outcome: Companies find that many of the traditional marketing and growth strategies they felt compelled to implement because “that’s just how you do it” didn’t work. On the other hand, thinking outside the box and trying something new often resulted in unexpected success.
As it drew near a full public launch, Dropbox invested heavily in SEO and SEM because that’s what all its competitors were doing. But, keeping a close eye on analytics showed that these strategies were providing a horrible cost of acquisition – over $300 per customer. Selling a $99 product, those figures were unacceptable.
With some creative thinking, however, the company recognized that much of its continued growth was due to satisfied users regularly telling friends about the app. Dropbox decided to encourage this behavior by establishing its now-iconic referral program – invite a friend to Dropbox and you both get 250 megabytes of bonus storage – and the rest, as they say, is history.
What's the future of lean startups?
While there's no denying that many companies have seen great success following Eric Ries' guidelines for lean startups, the methodology has its critics as well. And, by the author’s own admission, it’s not a formula for success in all circumstances or industries.
However, particularly in the United States and industries that support small businesses, even 10 years into the lean startup movement, most of the shine remains. The principles and guidelines simply work in many cases.
So, is it reasonable to expect lean startups to continue to succeed going forward? There's no reason to think otherwise. The real key, however, is for each entrepreneur to educate themselves on lean principles as one of the numerous approaches to startup success. Then, through careful planning and experimentation, decide what’s going to work best for bringing their unique vision to life.