What exactly is the lean startup methodology?
ver wondered what exactly a lean startup is? We answer this question and look at three case studies which show how the approach has been successfully used by programs and companies across a range of industries.
“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty,” American entrepreneur and author Eric Ries famously said. In his bestselling book titled The Lean Startup, Eric developed a methodology for budding businesses, offering them a way to continuously test a product throughout its life cycle to ensure success.
In an interview with Entrepreneur in 2010 about the lean startup concept, Eric said: “If you’re building something nobody wants, who cares if you’re doing it on time and on budget?”
Traditionally, companies that conceived an idea for a product would commit to an elaborate long-term business plan and would estimate every move they made from the get-go, he added. But this resulted in failure because they had little idea of whether their product was actually useful to prospective companies.
Eric has publicly stated that his first company, Catalyst Recruiting, failed because he and his colleagues spent too many resources on the initial product launch without understanding the wants of their target customers.
The lean startup methodology, on the other hand, seeks to shorten the time spent in developing a product by equipping companies with a way of continually testing their idea (i.e. several rounds of small experiments, followed by an evaluation period).
Entrepreneurs are advised to develop as fast as possible a minimal viable product (MVP), which is a quickly-constructed version of a product. They are then meant to test it with consumers and adjust it according to the feedback they receive.
Since Eric’s book was published in 2011, his methodology has become something of a movement. Today, lean startup meetups and conferences continue to take place all over the world and lean startup principles are taught in institutions like the Harvard Business School.
Conventional wisdom about prototyping and product development for entrepreneurs has been turned on its head, with many businesses – some of the high-tech variety – choosing to publicly employ Eric’s approach in order to reduce market risks.
While it can’t be said that the lean approach can work for all businesses and products, here are three case studies across various industries where the methodology has been employed, where its use could have changed the outcome of one business, and where
Encouraging quick innovation: Airbus BizLab
Based on the lean startup methodology, the Airbus BizLab program aims to streamline the process of getting a business off the ground by offering support to startups and early stage projects.
The aerospace accelerator has been featured in two of our books: Startup Guide Hamburg and Startup Guide Madrid. With four global campuses, Airbus Bizlab focuses primarily on three pillars that reflect Ries’s lean formula: customer desirability, solution feasibility and business viability.
During the program, startups and early-stage entrepreneurs go through three stages of building an MVP, testing it and then pivoting based on customer feedback. To date, almost one thousand startups have interacted with the BizLab program.
As competition in the aerospace industry increases, the need to accelerate the pace with which companies commercialize ideas has equally intensified. While a big industry might seem like an attractive target for new businesses, it can be difficult to get a foothold in a space with established giants and regulatory hurdles.
Moreover, some business owners lack the commercial experience to develop viable business models, while others face difficulties accessing customers.
“Airbus is a huge company,” Stefan Holst, Airbus BizLab Coach and program leader, told Startup Guide. “We have more than 130,000 employees around the world, and it’s operating in a complex industry.”
“That can make it a tricky market for a startup … that’s one of the reasons Airbus launched the BizLab initiative, to benefit from the innovation of startups and the way they work and to help connect them to the big companies.”
Instead of battling through an opaque industry populated by large corporations, BizLab enables aerospace startups to utilize lean principles to quickly innovate their technologies, based on customer desires, technical feasibility and the sustainability of their business model.
Constantly testing and evaluating: Zoomsquare
Christoph Richter, founder of real estate search engine Zoomsquare, started his company in Vienna to develop a more efficient way of matching customer needs with properties currently on the market.
“Creating a company is the most interesting thing to do,” Christoph told Startup Guide. “You learn a lot, and there are always times when you’ll fall down, but the important thing is to get back up.”
Zoomsquare was met with early setbacks which could arguably have been remedied by the development of an MVP earlier on. “We got a little state funding, and we took three months figuring out what we thought would be the perfect search engine,” Christoph said. “Then we found out we never could build it. So we lost three months.”
Choosing this time to use an extreme lean approach with extremely fast product development, Zoomsquare created an MVP before placing it in front of consumers. “To keep [the process] as lean as possible,” Christoph told Startup Guide, “we first developed only a bookmarked sidebar.”
This meant that a user could visit any Austrian real estate website and then use a bookmark to figure out the geolocation of the listing they were looking at. In turn, this meant that the company got 300 people to use their product and provide feedback on its effectiveness.
From this initial round of experimentation, Zoomsquare was able to prove that the technology they had produced was working effectively and that people were interested – using minimal time and resources.
Experiencing failure and then learning from failure is an essential part of the lean methodology. By continually testing and evaluating, Zoomsquare were able to arrive at the best version of their final product.
Refining your focus: larger corporations
The lean startup methodology was initially developed with early-stage companies in mind. But in recent years, established large corporations such as General Electric (GE), Toyota and software company Intuit have been noted as leveraging lean startup principles as a way to continually innovate.
According to a recent Harvard Business Review article on entrepreneurship, GE continually refined the focus of one of its products throughout its life cycle. In 2010, Prescott Logan, the general manager of GE’s storage division, discovered how the production of a new battery had the potential to disrupt the industry. Using global customer feedback, he developed an innovative sodium industrial battery using lean tactics.
After meeting face-to-face with countless global prospects, Prescott and his team researched into the purchasing patterns of their customers: how they bought batteries and how often they used them. GE eliminated one of their initial target segments, data centers, and discovered a new one – utilities. GE “narrowed the broad customer segment of ‘telecom’ to cell phone providers in developing countries with unreliable electric grids,” the Harvard Business Review stated.
Through a process of testing, and then re-defining their target market, GE was able to produce a product that contained the right features for their particular set of customers.
More recently, this year at the Nordic Business Forum, Eric described the challenges he faced in applying the lean startup method with GE on their Series X Engine project. He said that upon arriving at GE, the company presented him with a graph that forecasted the next 30 years of the project based entirely on their own speculations.
But instead of having an entire organization mobilized towards one convoluted business plan, Eric emphasized the importance of producing smaller startups that were able to frequently experiment in order to evaluate the product’s effectiveness.
Eric further streamlined the company’s approach by refining their focus from many priorities to a single one. He challenged the notion of creating a single engine to serve one purpose and suggested instead that innovation be driven through incremental changes.
Main photo: Unsplash/Thomas Litangen