Lean Startup Methodology: Principles & Benefits

Entrepreneurship has always been a cornerstone for the U.S. economy. However, that does not mean that starting a new business will result in success.

According to the Harvard Business Review (HBR), about 75% of all startups fail. That’s why many people are starting to look toward different approaches beyond the old formula, described by HBR as “write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can.”

Lean Startup methodology provides that alternative. HBR believes it “changes everything” when it comes to successfully developing a startup.

What is the Lean Startup Methodology?

Lean Startup methodology focuses on providing a framework for managing a startup business and getting your products to consumers faster but also maintaining high quality. The approach is the opposite of the usual business plan approach.

“Business plans are typically really big, complex documents, which are trying to forecast five to 10 years in the future before you actually start your business, build your product, engage any customers,” said Tim Muth, a Business Instructor at Florida Tech.

On the other hand, Muth said Lean startup methodology “is all about going out and testing your hypothesis before you spend a lot of money and a lot of time on a business plan.”

Lean startup methodology revolves around the idea that the question is not “Can this product be built?” Instead, the questions should be:

  • “Should this product be built?”
  • “Can we build a sustainable business around this set of products and services?”

One of the most important factors in the methodology is market and consumer analysis. These “are the most critical sections,” says Dr. Bob Keimer, Assistant Professor of Management and Program Chair of Online Programs at Florida Tech.

“You really have to know the market and who the target customers are. It’s easy to tell if the person who wrote the business plan actually went out and spoke to potential customers and acquired in-depth market data,” continues Keimer, “If you don’t know those answers and understand who the target customer is, you might as well not launch that business because that’s the critical foundation.”

The Principles of Lean Startup Methodology

A study conducted by researchers at Chalmers University of Technology, Entrepreneurship and Strategy in Sweden found that Lean Startup methodology contributed to “an evolutionary coaching strategy aimed at transforming and developing entrepreneurs.” The study found this approach worked better than using a business-plan approach that tends to be “more functional in style.”

Lean provides a common point to start all discussions about a startup between the entrepreneur and those coaching them using Lean. It also “instills trust, encourages honest interactions with coaches, and increases participants’ willingness to change their behavior,” according to the report.

Functioning from these principles, Lean startup methodology can offer a better chance for success and overcome issues such as what HBR calls “the fallacy of a perfect business plan.” It doesn’t exist.

Some of the core components of Lean startup methodology include:

  • Taking the first step of finding a consumer problem that needs to be solved and then developing the Minimum Viable Product (MVP) that can solve that problem
  • Beginning a process of measurement and analysis of potential solutions to the problem that are better than the MVP
  • Seeking feedback from potential customers on whether the product is a solution to their problem
  • Valuing customer feedback over intuition
  • Focusing on iterative design rather than one massive design initiative at the start
  • Favoring experimentation more than elaborate planning
  • Minimize uncertainty with an established process that provides a framework for every phase of a startup

Muth said seeking feedback is one of the most important steps. He urges students to think in terms of getting “outside your office, outside the classroom and go talk to potential customers.” He said this leads to building prototypes quickly rather than “spending millions of dollars on prototypes – spend $100 and go get some feedback from people.”

Who Uses Lean Startup Methodology?

Lean startup methodology can be used with any type of new business, although it’s most associated with tech companies. However, it can apply to startups in engineering, healthcare, energy, management, construction and retail, to name a few. And despite the name, it can also be used for product development in mature companies. It also applies to any service provided to customers, not just products. The common theme in all cases is that the product or service is being created in an environment of uncertainty.

What’s The Difference Between Lean Startup, Agile and Design Thinking?

The goals of all three are essentially the same. They all strive to create customer-focused processes that improve efficiency, take a data-driven approach, eliminate bottlenecks and lead to faster, better product development.

The focus with Lean startup methodology is providing a process which deals specifically with great uncertainty. Startups or new products and services from an existing company come with a high degree of risk. Lean startup, unlike the other approaches, is developed specifically for that situation. But both design thinking and Agile concepts are used within Lean startup.

Researchers in Berlin found that Lean startup, when compared to design thinking, had more of a focus on pivoting earlier to change designs based on customer feedback. They found the approach also focused more on quantitative analysis, business process and hypothesis testing.

Downsides to Lean Startup Methodology

One of the potential hazards of Lean is going too fast and not keeping focus on product quality. The methodology might not work for all products either, including high-end luxury items such as designer cosmetics or luxury shoes. Additionally, having a set process to develop a project could lead to less room for artistic vision.

Benefits of Lean Startup Methodology

The major benefit of Lean startup is that it steers people clear of the pitfalls of a process that leads to a three-out-of-four failure rate. Instead, entrepreneurs have a method that allows them to work smarter, not harder, and dive directly into creating the first iteration of a product rather than spending months on research that likely will prove inaccurate anyway. As noted by HBR, “Business plans rarely survive first contact with customers.”

As the research from Chalmers University in Sweden showed, having a proven approach also helps foster an environment where people are willing to experiment more and move away from traditional approaches. With that framework, a startup is more likely to move fast from failure to failure, learning how to make their product better through customer feedback and quickly building new iterations.

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