Lean Startup Methodology: What it is and How it Works?

Starting a new business is a completely different management task from leading a mature product or organization.

Traditional management focuses on two key activities:

• Create a sound strategy based on analysis of the current market, emerging trends, and own vision of the product.
• Execute the strategy by aligning all required teams and stakeholders with a common goal.

This works great when you already understand your product, target customers, and competitors, and there are no big market shifts. However, that’s not the case with startups.

In startups, product teams deal with high levels of ambiguity and uncertainty. They must establish fast learning cycles to gather more information and adapt their plans based on the acquired knowledge.

This is where the Lean Startup methodology comes into play. It was​​ developed by the entrepreneur Eric Ries in his book, “The Lean Startup,” to provide a management framework for organizations that are creating new products.

What is a Lean Startup Methodology?

The lean startup methodology is a set of principles that help product teams build in-demand products that result in successful businesses. This product development process is based on custom validation, rapid prototyping, iteration, and adaptiveness.

Key Benefits of Implementing a Lean Startup Methodology

New businesses that embrace the Lean Startup benefit from the following:

• Higher chances of getting to a successful product,
• Minimizing the investments and time needed to get from zero to product-market fit,
• Faster time to market.

What’s Hard About Startups?

The only way to win is to learn faster than anyone else.
The Lean Startup Book, Eric Ries

The biggest enemy of startups is time! From the moment you set to create a new product, a countdown timer starts ticking, marking the seconds left until your game is over. You cannot buy additional time, and you can only accelerate your progress within your given time limits.

The Lean Startup process provides techniques and best practices for racing with the clock and increasing the chances of getting to a successful business. It emerged as a methodology for tech companies where the pace of the industry is lightning-fast, and the failures cost a lot of time and money. Still, nothing in those principles does not apply to any type of new business.

What are the 5 Key Lean Startup Principles?

Objective #1: Uncover a durable and profitable business model

A business model is a reason for a company to exist, and no company, big or small, can be around for long without building a sustainable business model.

A business model describes how a company can create value for its customers and profit from this to sustain and grow its operations. The lean business model is a concept that applies the Lean Startup method to finding the business model and is a great topic to explore further.

However, creating a business model doesn’t happen behind closed doors.

It’s perfectly fine to start with your assumption by building your hypothesis about:

• What value can you provide that will address unmet customer needs?
• How your business can scale beyond the initial group of early adopters to a meaningful customer base?

Once these hypotheses are defined, they must be validated with real-world feedback as soon as possible.

#2 A Process for Validated Learning

The biggest reason new businesses fail is creating a product or service that nobody needs. Startups spend too much time building the business and too little time understanding what customers want.

The remedy is simple, effective, and largely underutilized: Talk to your potential customers and capture their customer feedback. There are no shortcuts here. But talking is not enough—you have to ask the right questions and focus only on reliable insights based on your customers' previous experience.

Once you have enough information from potential customers about who they are, their problems, and your unique value proposition, it’s time to create a solution.

#3 Building the First Version

Another common mistake companies make when developing products after validating the problem they want to solve is investing too much in building without validating that the solution solves the customer's problem.

One of the principles of the lean startup approach is “Ship Often.” The first version of your product should be the minimum stripped-down version that can solve the customer problem, also known as an MVP (Minimum Viable Product). The main goal of your first version is to measure how well it addresses the unmet needs of the target customers.

Sometimes, even the first version can take months to deliver. In those cases, other techniques, like Proof of Concept, Prototypes, or Concierge MVP, can shorten your feedback loop and provide early validation that you are on track for problem-solution fit.

#4 Build Measure Learn Loop (BML Loop)

Once your product is out of the door, you must create a process that maximizes your learning. These processes are often referred to as “Build, Measure, Learn” based on the three steps involved into it:

• Based on everything you know, build or improve your current solution
• Measure how well the new version solves the customer's problem
• Learn where the gaps are and what can be further improved and repeat

The more iterations you do, the more learning you will accumulate, which will increase your chances of achieving a successful business model before running out of time.

Split Testing

One powerful technique for BML loops is Split Testing. Once enough users use your product, you can create two versions that differ only by the existence or lack of a certain feature. You can determine whether the feature is successful by measuring a certain metric you plan to improve with the feature in question.

This is similar to the blind tests that scientists do and is the most powerful method for proving the value of certain functionality. It’s also a great way to reduce the waste in your product, which, in this case, is unused or has unwanted features.

A key part of the BML process is measuring progress, so how do we measure progress in a Lean Startup?

#5 Measuring Progress

Startups often fall victim to so-called vanity metrics that are easy to measure and are not good indicators of how much progress they are making.

An example of a vanity metric can be “Number of Registrations.” In most cases, we can easily increase the number of users who register for your product by sacrificing other factors like how good a fit these users are for your product, resulting in a bigger audience of less engaged users.

That’s why it’s important to set robust key metrics aligned with your business goals.

Lean Startup Example

Traditional management of mature companies is often compared to launching a rocket. It involves long-term strategic planning followed by flawless execution that can take years to complete.

But think about that … Space X, one of the most successful rocket companies nowadays, doesn’t operate like that. The success of Space X is rooted in running the company as lean as possible:

• Minimal waste across the whole product development process
• Fast iterations with a strong learning feedback loop
• Improving the product based on new learnings through rapid prototyping and testing

This unusual approach was unseen in the aerospace industry, which is often limited by existing regulations not accustomed to such aggressive development processes.

At the same time, it reduced the cost of launching a rocket ten times.

Wrap Up

The Lean Startup is a set of principles that help entrepreneurs navigate the highly risky but also highly rewarding journey of turning an idea into a successful business. It has been battle-tested in the past decades by countless startups, which are multi-billion dollar businesses today.