While some of you may have already heard this term 2 years ago, others will still be trying to wrap their heads around how even normal startups actually work.
The way we understand startups is currently undergoing a fundamental revolution, inspired by the advent of lean manufacturing which took place in the 1930’s.
So I guess you might ask, what is lean manufacturing?
Lean manufacturing is an approach which originated in Japan, partly through Toyota. To oversimplify it, lean manufacturing can be summed up as the identification and the steady elimination of waste. The underlying idea being that, as the waste gets eliminated, the quality improves while production time and costs go down.
Toyota’s approach focuses more on improving the “flow” or smoothness of work as opposed to reducing specific wastes per se, but the end result of both schools of thought is the same: increasing quality and reducing costs.
Naturally, it was just a matter of time before someone thought to link the lean approach and apply it to startups. And it’s about time it happened.
The way most startups work goes something like this: entrepreneur gets an idea, drafts up a 5 year business model, seeks investment, gets investment, spends all the money developing a product/service, realises no one wants the product the way it is, goes under.
An alarming 75% of all startups fail, and no self-respecting entrepreneur should operate under the delusion that it will never happen to him. However, what every entrepreneur SHOULD do is attempt everything they can to try and minimise the risks associated with launching a startup.
So now let’s look at what the lean approach means for the startup industry:
- It eliminates the business plan: instead of spending a ridiculous amount of time writing up a 5-year business plan and trying to anticipate problems they might or might not encounter in the future, founders start from hypotheses or ‘best guesses’. These hypotheses are summed up in a document called a ‘business model canvas’. Conventional business models are starting to be deemed unnecessary because they are mostly seen as a waste of time: it’s almost impossible and surely futile to make a 5 year plan for something that hasn’t even seen the light of day yet.
- It relies on customer input and feedback: most startups spend eons developing products in total isolation, then upon release of the product, realise the market isn’t there. Meanwhile, they’ve spent most of the money they raised. Enter a concept known as ‘continuous improvement’ (also part of the lean approach). Startups are now strongly encouraged to ditch the ‘blinker’ approach and involve customers as much as possible in the product creation and evolution process.
- Putting out MVPs: In conjunction with customer input and development, lean startups aim to put out products following an approach called ‘agile development’ which mostly consists of developing products in a progressive and incremental fashion, no longer aiming for fully developed, immaculate products but instead MVPs (Minimum Viable Products).
At the core of the lean startup methodology lies the concept of trial and error which can sometimes lead to a ‘pivot’, which is essentially a way for founders to test a new hypothesis about their business. One example of a successful ‘pivot’ is Groupon, which originally started out as an online activism platform called ‘The Point’, at first it received no traction whatsoever until they decided to post a coupon for a pizza shop.
Steve Blank, a Silicon Valley entrepreneur and Godfather of the Lean Startup Methodology describes a pivot as “changing (or even firing) the plan instead of the executive (the sales exec, marketing or even the CEO).”
The relatively new methodology could potentially revolutionise the way people think about startups as highly risky enterprises by enabling founders and investors to make more rational decisions: optimising time and resources, putting the customer at the centre of the products and leveraging a flexible and dynamic approach to development and design.
What do you think? Does the lean approach have the potential to change the startup economic landscape?