At the heart of the new-product development movement known as “Lean start-up” is a conversation. The conversation starts with an idea – a hypothesis – about what customers care about and how a company or an institution can address that with a product or service, with a concerted effort on soliciting the voice of the customer. The hypothesis is about both an idea about what customers want or need and how a product or service will meet that want or need. Customers need X and the business thinks that product Y will meet that need; the business then has a conversation with the customer (which might include some prototype testing) to validate that finding.
Developing that product or service efficiently hinges on continued conversation between the customer and business through the notion of validated learning – new products are introduced iteratively with customer feedback incorporated into each iteration. (Although not a part of Lean methodology per se, Lean start-up advocates using pieces of Lean and agile development methods in the new product development process.)
Although this approach was first conceived of for high-tech start-ups in Silicon Valley, anyone can have the conversation, whether they work alone or in a giant institution.
The Lean Start-up Core Philosophy
The Lean start-up philosophy began in software development environments in which iterations of software code culminate in products accessed by customers through the Internet, but Lean start-up principles may be applied to any startup context in which new products are developed.
Eric Ries, the 34-year-old start-up advisor and ostensible leader of the Lean start-up movement, failed in his first two startups before learning that putting the product first – in uncertain economic and competitive environments – was a mistake. The logo on his 2011 book, The Lean Startup (Crown Business), is an image of the ancient ouroboros, the snake eating its tail. This image implies a circuitous evolution that is never-ending, one that requires a deliberate self-consumption. At the beginning of the circuit is the hypothesis; at the end, the learnings that are consumed by the evolution of the idea itself so that it can grow into products that people want.
An idea or hypothesis, which (in theory) has evolved from earlier conversations, is built into a product (or code in software development contexts). Data is gathered by precisely measuring customer response to the product. The idea or hypothesis is validated or invalidated by the data gathered. New ideas and hypotheses are developed, and the process iterates anew. This circular Lean start-up frame illustrates its “build-measure-learn” basis.
The Lean Startup Framework
In a Lean start-up, the focus is not as much on products as on ideas. Customers do not care much about products; they care about solving their problems. A start-up, like any business, should exist to help customers solve their problems. A good way to understand their problems is to talk to them, know them, and then see if what the company leadership is thinking (their hypothesis) can result in a product that the customers want.
Ries, with the help of other thought-leaders in tech venture culture and management, has been the most ardent articulator of Lean start-up philosophy. Here are the methodology’s six core themes:
1. Eliminate Uncertainty. Eliminating uncertainty is almost impossible. But the business culture, whether a person is operating alone or in an organization, needs to reflect willingness to have “the conversation” to help eliminate most of it. Engineering myopia and marketing bravado will not help.
2. Work Smarter, Not Harder. The question, “Can this product be built?” is not the right question. Start by answering the question, “Should this product be built?” The only way to learn the answer is to talk to customers. If a business gets a lot of “Yes” replies, then it is already ahead of the game with early adopter evangelists.
3. Minimum Viable Product. After answering the “should” question, a company must maximize its learning by building a product with the least amount of effort that can then be used to gather input from the customer to feed the next iteration of the product. Every product feature needs a question behind it that a business is answering by putting the product in customers’ hands. This provides the basis for the build-measure-learn cycle (represented by the image of the snake eating its tail and described in more detail below).
4. Validated Learning. Ries is definitive on this core principle: “Progress in manufacturing is measured by the production of high quality goods. The unit of progress for Lean start-ups is validated learning – a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty.” What about revenue? Revenue can be measured, but the question needs to be couched in terms of what customers care about. For example, are customers who care about X willing to pay Y to get it? This is a basic tenet of the voice of the customer, but is easily forgotten in the flurry and glitter of start-up culture.
5. Innovation Accounting. While manufacturing accounting principles might be useful, start-ups generally require accountability in areas that are unheard of in established companies, where revenue is likely the determining factor of success. Ries and his cohorts put an emphasis on measuring qualities of the product, organization or service that will drive change, or what he calls “pivots” because such metrics provide real information that can lead to action. For example, in a social media start-up, a pivot might be the time and resource allocation required to integrate voice of the customer into new product features. These are in contrast to “vanity” metrics – those outcomes that appear enticing but are not tied to business performance and are not actionable. If it relies on vanity metrics, a start-up can look good on paper up until the end simply because it was not measuring its ability to innovate.
6. Build-Measure-Learn. The essential frame for any Lean start-up is the cycle of evolution: build-measure-learn – the faster and lighter the better. All aforementioned core philosophical principles are embedded in this one cycle of evolution. Its simplicity belies its effectiveness and also the real need to create a managed process. Ries and his cohorts endorse rigorous management based on Lean start-up principles, since many of them have learned the hard way how quickly the market will orphan brilliant ideas. Done right, claims Ries, the build-measure-learn process will provide the guidance and leadership a start-up needs to be successful, rather than relying on the charm and brilliance of start-up executives. Ideas and products are thus based on learnings derived from this cycle.
Successes using Lean start-up principles already are numerous in new and established organizations. Several examples illuminate these successes:
- File-sharing startup DropBox increased its user base from 100,000 to 4,000,000 in 15 months by using the build-measure-learn cycle as a guide to iterate its product faster to test what their customers wanted.
- Wealthfront brings together top investment managers to common investors through a system of constant deployment in an SEC-regulated environment in which risks and costs of failure are high.
- Votizen was able to pivot its validated learnings from a social network of verified voters into a full-fledged lobbying platform in the United States, which led to the first social media-driven bill in the U.S. Senate.
Press coverage of the Lean start-up movement has been filled with the kind of matter-of-factness reserved for well-established ideas. Forbes.com recently posted a list of videos in which “social good” organizations are demonstrating how Lean start-up principles are helping them reach their constituents. A columnist for The Huffington Post published his top seven takeaways from the 2013 Lean start-up conference:
- Have an experimentation culture
- Kill the highest paid person’s opinion with learned results
- Know exactly what your customer values
- Get 100 customers who are thrilled with you
- Think metrics, not pixels (products)
- There is no new behavior – but making behavior easier
- Be articulate and clear
In start-ups operating in an environment of uncertainty, conversations ground production of a product (or service) in reality. Conversations (as conceived in the Lean startup philosophy) are cheap and can save an organization a lot of money – if the organization is not afraid to have them first and often, and to then put the learnings obtained from those conversations back into its products. This may lead to reevaluating the original product idea.
Money is not needed to follow the Lean start-up philosophy. But a company does need to know what it is doing and why. Hypotheses about why its ideas matters to customers must be tested rigorously, through product iterations and conversations with customers, before it is too late – and too expensive. Otherwise, a business is likely to find out its solution does not matter to its customers.