By nature, start-ups are high-risk ventures founded upon a single idea that may or may not work, even if enough funding is secured to launch the product or service. According to Embroker, only 10% of start-up companies succeed every year. Meanwhile, CB INSIGHTS refers to misreading market demand as the first reason behind a start-up’s failure, seen in 42% of the cases.
For a start-up, a major challenge is to generate new business. While established entrepreneurs may rely on traditional start-up models, the younger generation and first-time entrepreneurs are drawn towards a tried and tested new business model: the lean start-up methodology. Based on experimentation, testing, and repetition, this methodology focuses on building a sustainable business within a short period of time while keeping costs low – offering creative ways to test and structure ideas towards building a product based on real market demand.
The lean start-up model embraces all aspects of a new business, from the initial plan to manufacturing and customer development – with the latter being of utmost importance from the very beginning. As an entrepreneur, it’s essential to learn about the needs of the target audience as early as possible to secure the success of your product or service ahead of time.
Finding new solutions to old problems
The lean start-up methodology is a customer-centric business model that moves from an initial hypothesis for a product or service to a tested idea – whether that be through addressing a gap in the market or disrupting the existing one through disruptive innovation. This means finding new solutions to old problems by offering a more accessible and affordable product or service.
The model was first introduced by entrepreneur Eric Ries in 2008, who explained the reason behind his two previous failures as ignoring market demand. In his book The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Business (2011), Ries also referred to being inspired by the low-cost, high-value automobile manufacturing system at Toyota in post-WWII Japan.
Build, Measure, and Learn: the keys to success
The methodology itself is quite straightforward, often being described in terms of the following stages: Build, Measure, and Learn. Centred around the Minimum Viable Product (MVP), it implements one of the simplest models that can be offered to a subset of target customers for gathering feedback. The aim of the MVP is to collect as much information about the target audience, pricing, distribution channels, useful product features, etc. as a way to validate or pivot the initial hypothesis. The acquired data is then measured and applied to fine-tune the product in future trials while adding more features until its final release.
Ries’ lean start-up methodology is based on the ‘customer development methodology’ described in Steve Blank’s book The Four Steps to the Epiphany: Successful Strategies for Products that Win (2018). In his book, the Silicon Valley entrepreneur and academic argues that start-ups should focus on the customer from day one. By analysing a startup’s potential audience and identifying their problems and needs form the beginning, a start-up will have an overall stronger footing when starting out – and it’s this methodology which is at the heart of accelerator programmes like The Collider.
Blank’s methodology divides customer development into four steps: discovery, validation, creation and building. The first two steps – discovery and validation – identify customer problems and test business viability, with the goal of validating the business model. In the discovery phase, all hypotheses regarding the problem the start-up plans to address are analysed, along with the general interest in the product and overall business viability. Meanwhile, the validation phase looks at business viability through customer purchases, with the goal of creating a ‘sales roadmap’.
The last two phases – creation and building – are when the start-up is able to implement its findings. In the creation stage, the start-up’s business plan is executed by scaling through customer acquisition, which in turn generates user demand that is consequently directed towards the company’s sales channels. Lastly, the start-up moves into the building stage, which formalises and standardises all company operations and departments.
Embracing potential failure
An essential part of the entire lean process, validated learning, is described by Ries as ‘the unit of progress for lean startups’. Without it, there isn’t a way to determine what customers need and how to improve the product in each iteration. A lean start-up requires a high commitment to learning while being comfortable with potential failure.
As an entrepreneur, you should be questioning everything, from the initial idea to the product design and its added features. In fact, the whole methodology is about idea validation. What’s being subject to rigorous testing is not an MVP, but rather an entrepreneur’s initial hypothesis until they arrive at a well-structured idea that corresponds to market demand. Therefore, the less attached an entrepreneur is to an idea, the more chances there are to find one that actually works.
Creating customer loyalty from the beginning
The lean model offers a faster, less risky strategy for starting a business without the need to secure large initial funds. Neither is there a necessity for a comprehensive business plan to begin with, nor an idea for a flawless product – all being characteristic features of a traditional business model.
The benefits of the lean model derive directly from its core principles, which revolve around market demand and validated learning. By starting with an MVP to evaluate customer interest and favouring experimentation over sticking to a strict business plan, the lean start-up methodology offers a higher success rate whilst being fast and cost-efficient.
In a traditional start-up approach, the product will be kept a secret until the very end – which in the case of failure would be a colossal loss of resources spent on planning, design, and launch. In the lean model, the rigorous testing and iterative engineering offer a higher chance of fulfilling customer satisfaction upon final release. Generally, there is a shorter product development cycle, which translates to a higher value for lower costs.
There is still a risk of disappointing early users by testing a basic product that may not reflect the full potential of the end product or the business idea itself. However, through the proper application of quantifiable and actionable data derived from test users, each version of the MVP should anticipate and fulfil a higher range of expectations. In this case, through early exposure and working closely with active customers, the company is able to create customer loyalty from the very beginning, which is one of the bold features of the lean model.
Improve functionality and cut down on the non-essentials
Risk management distinguishes a start-up venture leading towards success from one that is bound to failure. The research-intensive lean start-up methodology requires perfect coordination from one stage to another, enabling entrepreneurs to think outside the box and move towards their vision. Meanwhile, risk is minimised through continuous evaluation of data and product reiteration. These aspects of the lean start-up methodology, amongst others, are an essential part of accelerator programmes, such as The Collider, and the success of start-ups and businesses around the globe.
As a pioneering tech transfer and venture-building programme, The Collider works hard to bridge the gap between science, corporates and entrepreneurship. This innovation project encourages tech-transfer initiatives to connect science and entrepreneurial talent and creates disruptive technology-based start-ups. The Collider is powered by Mobile World Capital Barcelona, a tech-focused initiative that aims to drive the digital transformation of society to help improve people’s lives globally.