Benefits of Lean Start-up

small business productivity

What is Lean-start up?

Launching a new business – whether it’s a tech start-up, a small business, or an initiative within a large corporation – has always been a hit-or-miss proposition. According to the decades-old formula, you write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can. And somewhere in this sequence of events, you’ll probably suffer a fatal setback. The odds are not with you, because about 70% of all start-ups fail.

In the last decade however, a new approach to managing start-up has emerged, one that can make the process of starting a company less risky. It’s a methodology called “Lean start-up” and it favours experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.

We like Lean Start-up as a start-up philosophy for four reasons:

1. Lessen Uncertainty

Using the Lean Start-up approach, companies can create order instead of chaos by utilizing tools to test the start-up’s vision continuously. Lean isn’t simply about spending less money, or just about failing fast, and failing cheaply. It’s about putting a process, a methodology around the development of a new business and its products and services.

2. Work Smarter Not Harder

The Lean Start-up approach has as a premise that every start-up is a grand experiment that attempts to answer a question. The question is not “Can this product be built?” Instead, the questions are “Should this product be built?” and “Can we build a sustainable business around this set of products and services?”

This experiment is more than just theoretical inquiry; it’s development of a first, and early, product. If it’s successful, it lets a business owner get started with his or her start-up: enlisting early adopters, getting first sales, adding more features to each further experiment or iteration, and eventually starting to build scale into the business.

By the time the product or service is ready to be distributed widely, it’ll already have established customers and solved real problems.

3. Learn When it’s Time to Pivot

A core component of Lean Startup methodology is the build-measure-learn feedback loop. The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible.

Once the MVP is established, a start-up can work on tuning the engine. This will involve measurement and learning, and must include actionable measurements of success. Ask simple questions to study and solve problems along the way. When this process of measuring and learning is done correctly, it will be clear whether or not the company is moving the drivers of the business model. If not, it’s a sign that it is time to pivot or make a structural course correction to test a new fundamental hypothesis about the product, strategy and engine of growth.

4. Validated Learning

When you focus on figuring out the right thing to build – the thing customers want and will pay for – you don’t have to spend months waiting for a product beta launch to change the company’s direction. Instead, entrepreneurs can adapt their plans incrementally, inch by inch, minute by minute.

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Get out of the building – get to know your customers

lean start-up customer feedback

When we last talked about Lean Start-up, we discussed how you’ll need to create a minimum viable product, or MVP – a basic version of your product that early customers can give feedback on. Then, you develop based on measurement and learning.

So now, it’s time to talk about getting that feedback, and what to do when you get it!

Customer feedback and a product or service hypothesis

Here’s what you’ll need to do:

1. Identify potential customers who could give you feedback on your product or service ideas.

2. Develop testable hypotheses around metrics (market test results) that will give you enough information to pivot or persevere with your idea, such as the number of sales or sign-ups for example.

For example, you believe that running an ad campaign will be a cost-effective way to gain customers, but you don’t have the data to prove it. That’s okay! You should still run the campaign, but when you use Lean Start-up methodology, you’ll do it within the structure of a hypothesis. The goal of Lean Start-up methodology is to help you move quickly, iterate rapidly, improve your product (or service) and your company. You shouldn’t spend your time inventing a new way to write hypotheses.

The basic structure is this:

I believe [target market] will [do this action / use this solution] for [this reason].

There are three parts:

  • The belief
  • The target market
  • The measurement

It’s all too easy to write a hypothesis and say, “well, it hasn’t been proven one way or the other yet, let’s just give it more time.” Instead, your hypothesis should be time-bound and short-term. Creating a great hypothesis is an excellent first step, but it won’t help anyone if you don’t keep track of it. There are many ways to do this, but the easiest one is to create a simple, shared spreadsheet that people can enter their hypotheses into. Not only will tracking your hypotheses make it easier to organize your experiments, but it will also help you refine your assumptions and see if there are patterns. If you see 10 hypotheses in a row with similar assumptions all proven false, you can see an area where you need to rethink your approach to the problem. Without tracking, you won’t be able to see those patterns.

Want to learn more? Check out our online small business training for this and dozens of other entrepreneurship skills.

 

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The business concept: The product or service definition

product_or_service_definitionNext up in our examination of the business concept – the product or service definition.

Most small businesses today are part product and part service. Defining exactly what your product or service is, and what’s unique or special about it, is key to creating a strong business concept.

What exactly are you offering? What need are you satisfying? What problems are you solving? The product or service definition outlines what you’re offering, highlighting the benefits.

Here’s an example:

Maria is thinking of starting a bicycle shop. She and her friends often talk about how useful it’d be to call up a bike shop and ask someone to come out to fix their flat tires or other bike issues, just like with roadside assistance for cars. She thinks a lot of cyclists would love it. Maria’s bike shop business solves a problem because her employees would be bicycle experts, and therefore fully qualified to ride out to the other end of the city and do whatever replacements are needed to get cyclists on the move again. Customers can either buy a yearly membership or pay a fee each time they get a repair done. No hassle, and no dragging a broken bike across town to get it fixed.

Maria describes her business through the eyes of the customer:

“Maria’s Mobile Bike Doctors will rush to your location and fix your broken bike. We can get anywhere in the city in 35 minutes or less, and our bike experts can perform any bike repair quickly and with a smile. It’s quick, convenient, affordable and safe. Our customers will be on the road again in less time than it would take to find the nearest bike shop and get their bicycle there for repairs.”

Once you know who your target customer is and what they’re looking for, you can come up with a better product or service definition. This adds to a complete, well-rounded, and effective business model.

(Oh, one other thing: if your product or service is proprietary, it should be included with the product or service definition.)

Further reading:

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What is operations management?

When we talk about operations management in a small business, we’re talking about a lot of moving parts. So what is operations management? It refers to all the activities, processes and controls a small business uses to produce its products and services. The components of operations management include:

  • New product or service development
  • Inventory management
  • Purchasing
  • Manufacturing
  • Distribution
  • Logistics
Tips for creating an operations management plan for your small business

Whether your small business is in retail sales, manufacturing or a service company – or anything in between – you need an operations management plan. Of course, the operations plan for a hair salon won’t be quite the same as that of a small manufacturing business, but a plan is vital. How will you source your suppliers? How will your inventory get to your location? Who will control purchasing? Is it the same person who will control distribution? The list goes on! The components of operations management are interlinked, so a well-crafted operations management plan will ensure you are prepared.

Sounds complicated, but there’s a silver lining – entrepreneurs and small start-ups can design and implement new and innovative operations processes without having to overcome outdated ways of doing things. Older, larger businesses are always looking for ways to cut costs and improve operations. Small firms are fast and flexible, and can quickly gain the upper hand over the competition if they can deliver more efficiently too.

Have more questions about operations management? See what questions have already been answered in our Ask an Expert – Operations Management section. If you don’t see your question there – ask! We love talking operations management with fellow entrepreneurs.

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