If you have been following entrepreneurship, starting a new business, or developing new products recently, you may have come across the term Lean Startup. Lean startup is transforming the Entrepreneur Space, and revolutionizing how businesses were built in the past five decades.
Lean Startup; What is It?
In 2011, Eric Ries created the lean startup concept as an alternative approach for entrepreneurs and corporate organizations to start new businesses and launch products faster. The concept was designed to ensure that entrepreneurs are able to launch new products and services that meet customer’s needs and wants. Lean Startup is a radical departure from traditional business-building approach, which leaned heavily on business plan.
As you may know already, MBA schools popularized business plan as a prominent tool for starting new businesses and launching new products. For more than five decades, everyone believed that to be the best route to start a new business or launch a product until recently. This conventional approach made us to believe that anyone can start a business with just an idea, then a business plan, a pitch to investors for finance, find a team to create and sell the product, and off to the market to sell the product or service. That was the trends for many years, and the result over those past years has been fatal loss for most entrepreneurs and small business owners. What we have now learned over these years is that business plan is not relevant for startups and new product development.
Why Startup Businesses Fail
According to recent study by Harvard Business School’s Shikhar Ghosh, 75% of all startups fail. This means that only 25% of new businesses and products manage to survive. The question everybody asks, which I will answer in this post is “Why does a staggering 75% of all startup businesses fail?”
Here’s the key. In the past, entrepreneurs were deceived to build businesses by writing up business plans straight from their ideas. So as soon as a business idea drops in their head, the spend several weeks or months writing a compelling business plan. With their business plan to hand, they are off to investors pitching for money. Whoever finds favour with an investor begins to develop his or her product or service with their team without saying a word to the customer until they complete what they are building. Many entrepreneurs were taught along the way to fixate too much on idea and passion as the two most important ingredients for business success. So they “passionately” build the product with no input from the customer and go straight to the market to sell. For great majority of entrepreneurs, this is the exit point for them. While trying too hard to sell what they build, suddenly the golden light bulb lights…. sadly the customer does not like what they invested enormous amount of time, effort and money to build.
The important lesson we learned after many years of watching several startups and new products fail is this:
Startup Businesses fail not because their founders did not build what they had in mind, but because they built what no one in the market wanted to buy.
Why Lean Startup Culture?
A lean startup culture is a combination of habits, thinking, behaviour and approach that entrepreneurs and business executives adopt in starting new businesses, and launching new products and services faster without wasting time or money. Unlike the traditional approach of building business, Lean Startup Culture relies heavily on ‘Customer Insights’ as a crucial factor for providing invaluable solutions that meet their wants and needs.
The lean start-up culture concepts suggest that rather than wasting time, money and effort building what the customer does not want, start-up founders and corporate organizations should fixate on creating, testing, iterating and pivoting hypotheses to first find a fit for their product or service in the market, and ensure that customers will pay for them.
For this to become a reality, smart entrepreneurs and corporate organizations need to embrace a new culture – the Lean Culture. Lean culture leverages comprehensive proven concepts and tools to develop business models and create Minimum Viable Product (MVP). While business model aims to commercialize founder’s ideas, MVP translates ideas into prototypes with sufficient features which customers can pay for or use in exchange for feedback. Feedback is an important lean culture approach used to improve (iterate) the MVP already produced, or pivot (make major changes on) the business model.
In a nutshell, a lean culture approach to starting a business or developing new products involves to:
- Find an idea,
- Form hypotheses and build a lean business model,
- Create MVP, test and validate hypotheses with customers, and
- Improve features based on feedback; if not, then pivot hypotheses
Lean culture eliminates waste, reduces product cycle and facilitates building of products or services that meet customer needs and wants. Lean startup culture raises the odds of success for entrepreneurs and corporate organizations. This is the way forward for smart entrepreneurs.
Nkem Mpamah is President and Founder of Cognition Global Concepts Limited Cambridge. Nkem helps ambitious entrepreneurs and business executives to double productivity and profits. He is Creator of The EntreCoach™ Program, a comprehensive Lean Business Coaching Tool for multiplying producitivity and profit.