Business

The Lean Startup Methodology Explained

If you dive into the tech-startup world you will encounter the term "Lean Startup" or "Lean Startup Approach" (without a shadow of a doubt). The lean startup methodology aka lean startup method has been floating around for over a decade. Yet still, many founders don't know what it means.

Sebastian Scheerer
Digital Product Designer | Serial Tech-Founder

Many early stage founders have some idea of what lean startup methodology might stand for, but not an in-depth understanding. After all, the terminology itself allows for some interpretation that might go in the right direction. This guide will summarize the most important points and get you up to speed with the lean startup methodology. What does lean startup mean? Let's find out.

What is the lean startup methodology?

Startups are difficult, and only the best ones survive. A common way for traditional startups is that they often start with a product or business idea and then try to build the entire thing before validating if there is even demand or market for it. Many times, new companies fail because they are not solving any real problems for their target audience and they end up with a product no one wants.

A lean startup attempts to solve this problem scientifically by using specific principles and processes from the lean startup methodology. It was Eric Ries, who came up with the idea of a lean startup and wrote about it in his book and on his website.

Meet Eric Ries

Eric Ries is a startup founder and New York Times best-selling author of the book "The Lean Startup – How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Business" (Published by Crown Business). 

Eric Ries – Author of The Lean Startup
Eric Ries, Author of "The Lean Startup"

Lean Startup Quotes by Eric Ries

He has served on a number of technology startups and has consulted new and established companies as well as venture capital firms.

Eric didn't invent the methods described in his book, but he managed to tie it all together and market it in a very approachable and attractive way.  This paved the way for a whole generation, a movement even, of founders implementing his advice and singing his praises. For the startup world, the principles of the lean startup book became like the ten commandments on how to define, validate and run your business without wasting resources. So let's look at what Eric actually proposed, shall we?

“The Lean Startup method teaches you how to drive a startup-how to steer when to turn, and when to persevere and grow a business with maximum acceleration.” - Eric Ries

Eliminate doubt with a proven startup approach

According to Ries, the lack of a suitable process is what prevents most new startup companies from succeeding. The founders and companies just start building without any form of management. However, the lean startup approach offers a way for order instead of chaos with a set of tools to continuously test and refine the product in the right direction.

The lean startup methodology isn't merely about saving resources or money. The lean startup method isn't only about failing quickly and without losing a lot. It is about following a proven methodology and process to develop a product with less chaos and more certainty.

Work smarter instead of working harder

At its core, the lean startup methodology assumes that every startup is a big experiment that tries to answer one question. The question is not whether a product CAN be built. The question is whether it SHOULD be built. This also entails whether a business can be sustainably built around the product and services. It all comes down to solving real problems for real people even with the very first product. Once the product and its features have been validated, it can be marketed and the business operation scaled up with more employees, etc.

“Startup success can be engineered by following the process, which means it can be learned, which means it can be taught.”- Eric Ries

Build a Minimum Viable Product (MVP)

The build-measure-learn feedback loop is a central part of the lean startup methodology. Finding out if you're actually tackling a problem that is worth solving is the first step. The next step is to build a minimum viable product (MVP) and start learning as fast as possible. By the way, nowadays you should build a minimum lovable product (see image below). Having great UI / UX design is mandatory to convince users that your solution is good.

Minimum viable product
Image Source: tinytracker.co/blog/minimum-viable-product-vs-minimum-lovable-product

As soon as you've launched your MVP you can refine it with the help of actionable data which helps you understand what's happening – and why. Your MVP is taken through rigorous testing and feedback loops for collecting user testing feedback and data on how targeted customers react and respond to the product. The feedback is then used to iterate and improve the product to make it better and better.

This startup approach also allows you to pivot or correct course early on by asking a set of investigative questions (Called "The Five Whys"). They help examine and solve challenges that come up along the way. If executed correctly, it will become apparent if you're moving the needle of the business model in the right direction or not. If you can't make it work, it's time to pivot, form a new hypothesis or change your approach.

Validated learning in the lean startup philosophy

Traditionally manufacturing companies measure their output by the production of physical goods of high quality. For a lean startup the most important measure of progress is validated learning. Validated learning is the strict process of making progress when you're not sure what the problem even is. When founders embrace and execute validated learning, the development process can be significantly reduced. Focusing on what matters can mean getting paying customers who want what you have instead of working months on end on a big beta launch just to find out people don't care on launch day. Validated learning helps you make informed steps and iterate step by step. 

The five main lean startup principles according to Eric Ries

Startup founders who follow these lean startup tips and key principles to iterate their way to scalable business models based on customer feedback will increase their chances of startup business success dramatically:

1. Entrepreneurs are everywhere

There are many types of entrepreneurs and startups, which means there are a lot of opportunities for success. Entrepreneurs can take advantage of these opportunities to build successful businesses and not every entrepreneur needs to chase after the next unicorn opportunity.

2. Entrepreneurship is management

Let's face it, every company needs to be managed. And startups are (almost) no different. Because lean startups are a little bit different. Implementing agile, learning-oriented management improves the chances of success for a lean startup.

3. Validated learning

A Lean startup's primary goal is to serve its customers through its products. The key is to adapt to the needs of the target customers by studying exactly what it is that the market wants. Continuous experiments and testing are the way to find out what works and what doesn't.

4. Innovation Accounting

Lean startups record every experiment and analysis to find out what works best. They measure success by the amount of insights and things learned on the thing they are trying to innovate on, rather than how much new work they did. 

5. Build-Measure-Learn

With a lean startup, you start by building the simplest version of the product that can perform what it needs to do to satisfy the customer's main requirement. This first version of the product is called the Minimum Viable Product (or MVP). 

Image Source: tinytracker.co/blog/minimum-viable-product-vs-minimum-lovable-product

Why the lean startup methodology works?

It's easy to get lost when starting a business. For some reason most people get caught up in the bureaucracy of incorporating a company and then jump heads first into building a product or service they've just come up with in their heads – assuming people will love and buy what they build. Many never even talk to their target customers before or while building the solution.

The lean startup methodology works because it provides a clear framework for evaluating ideas and building products your customers actually need and happily pay money for, which is the prerequisite for a sustainable business.

The Lean Startup Stages

Just like humans, every startup is different, but every lean startup has to move through the 3 key lean startup stages to be successful.

Stage 1: Problem Solution Fit

The most important thing at the very beginning is to validate the problem you're trying to solve. To many founders try to solve non-existent problems. The first phase is all about finding a real problem that needs a solution. The bigger the pain, the better. Once you have found a real problem, it's time to move to the next stage. At this stage you can use the jobs to be done framework (JTBD) to identify real problems you can solve.

Stage 2: Product Market Fit

Achieving product market fit is hard, but you know when you have unlocked it. Your customers will happily pay you for your produt. Real problems of real people are being solved and the world is a little bit better because of it. Revenue is coming in and you're building momentum. You have ignited a little flame.

Stage 3: Growth Stage.

The last stage is to feed the flame and turn it into a bigger (but controlled) fire. For that, you need to further improve the product, learn and listen to your users needs – and scale your startup. Now, you don't have to take on investment from outside investors if you don't need or want to. But if you want to grow fast and hire a lot of people and spread the word through paid marketing campaigns, you will need funds. Fortunately, having built momentum makes raising money from investors so much easier.

The lean (business model) canvas  – aka lean startup canvas

By now you might be wondering how get started if you just have an idea in your head. Well, the most important thing is to get those ideas out of your head in a structured way for further examination. It's really the most important thing because it allows us to present it to others and get feedback on it. This is the point where traditionally you create a detailed business plan. This approach could easily take several weeks.

But what if there was a better way? What if you could do the initial heavy lifting on just on SINGLE page to get started? Sounds awesome? It is!

Lean Canvas Template
The Lean Canvas

The lean canvas puts every important aspect of a working business model on one page that you can fill out in 20 minutes to describe you idea. It's an adaptation by Ash Maurya of Alex Osterwalder's Business Model Canvas and customized to deserve the name LEAN Business Model Canvas.

You can use it every time you have an idea for a product or company to quickly guide you through the key considerations before you even get started building anything. Don't get me wrong, a business plan can be useful in some cases, but most of the time it's a huge waste of time. Especially in the very beginning.

Here's a quote from Steve Blank to drive this point home: “Business Plan: a document investors make you write, that they don’t read”.

So in the very spirit of the lean methodology, the aim is to eliminate unnecessary work and focus on what's essential. 

The lean canvas is divided into nine blocks that guide you through the process of defining:

  • the problem
  • solution
  • unique value proposition
  • key metrics
  • customer segments
  • your unfair advantage
  • channels
  • cost structure
  • revenue

Download our free Lean Startup Canvas PDF template

We've created a free blank lean canvas PDF for you to download. Just put in your contact details to let us know where to send the download link. Click here to Download the Lean Canvas

Why get the lean startup book?

The Lean Startup Book

There are tons of resources online, so why get the book anyways? I think it's an essential read for any entrepreneur getting started (and even beyond). Having the paperback version allows you to dive in and read the book from start to finish,  take notes and highlight what's important to you. You also get to read everthing from the author, Eric Ries, himself. Online content can easily miss some things or interpret things slightly.