There are countless different strategies for starting and growing a company, but the lean startup approach has become one of the most popular choices in the last decade and a half. If you’re curious about how the approach works—and whether or not you can apply it to your operation—keep reading.
Below, we’re explaining lean startup principles, breaking down the methodology’s advantages and challenges, and sharing tips for getting started.
What is the lean startup approach?
The lean startup approach is a concept that took hold in the early 2010s when entrepreneur and author Eric Ries first introduced lean startup methodology in his 2011 book, “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.”
According to Ries, the most successful startup founders use lean startup strategies to launch and scale their companies. Inspired by lean manufacturing principles, lean startup techniques are designed to maximize efficiency, keep costs low, and shelter against uncertainty during the process of developing and bringing an offering to market. The goal: carve out a space for yourself in the market first, then build and improve as you go.
The lean startup approach is rooted in experimentation and adaptation, rather than linear planning and implementation. Unlike the traditional method of building a company, which begins with a detailed business plan, the lean startup approach begins with a potential business model.
From there, entrepreneurs act like scientists testing a hypothesis: they form assumptions, experiment, gather and analyze data, then revisit their hypotheses and repeat the process all over again.
Who can use the lean startup approach?
A lot of startup founders take the lean approach to launching a new company; that way they can develop quickly without having to spend a ton of money or time upfront—and they’re prepared to change course fast if they need to.
However, small, midsize, and enterprise operations can all benefit from lean business principles, too. Here are a few situations when you should consider lean startup techniques:
- You’re trying to launch a startup.
- You want to expand your current operations.
- You want to test out a new offering based on customer feedback.
- You want to break into a new niche or industry.
Stages of the lean startup approach
Here’s what the lean startup approach looks like in practice:
1. Develop a business model canvas
A business model canvas is a visual framework for articulating your business concept, customers, and value proposition. However, unlike a traditional business plan, which is a multi-page document, a business model canvas is a one-page document organized into nine key boxes:
- Customer segments: Who are the people you’re trying to reach?
- Customer relationships: What will your interactions with your customers look like throughout the buying journey?
- Channels: How will you communicate with customers?
- Revenue streams: How will you generate revenue?
- Key activities: What tasks/projects do you need in motion to fulfill your value proposition?
- Key resources: What types of resources do you need to carry out your key activities?
- Key partners: Who are the suppliers, vendors, and/or external partners you need for your business?
- Cost structure: What are the different costs associated with running your company?
- Value proposition: How will you bring value to your customers and differentiate yourself from your competition?
2. Create a minimum viable product
A minimum viable product (MVP) is a service or product that has enough functionality for customers to use, but that isn’t refined yet. You’ll usually give your MVP to a select group of beta customers, who can provide feedback on it before you offer it to a wider customer base.
Instead of kicking off a long development cycle to create the perfect product—with no guarantee that customers will respond positively to it—creating an MVP first lets you figure out what customers like and dislike, then make appropriate changes.
For a software company, for example, an MVP might be a basic app with one or two key features. For an ecommerce apparel company, the MVP might be a line of sustainably made T-shirts in one or two different designs and colors. For a coffee shop, the MVP might be a signature latte that you test at pop-ups at farmers markets or retail center events.
3. Gather feedback
At the core of the lean startup approach is the build-measure-learn loop: create an initial offering, analyze its impact, then incorporate changes in the next development round. Unlike the traditional plan-build-sell model, build-measure-learn lets you create products and services in an iterative way, making small but meaningful changes incrementally.
To do this, you need to track a handful of key metrics and consistently gather customer feedback. Once you comb through the qualitative and quantitative data you’ve accumulated, you’ll be able to see whether or not your initial business hypotheses were correct, and how interested people actually are in your company.
Depending on what you learn, you might decide to target a new segment of customers, switch up your revenue structure, or change your offerings.
4. Keep adapting and growing
The lean startup approach requires constant trial and error. Failing is an essential part of the process; you’ll head back to the drawing board over and over again to tweak your business model and offerings.
As you refine your products and create more demand through marketing campaigns and sales strategies, your business will grow. Along the way, you’ll continue to evolve, whether that means redefining your mission or adjusting your business model.
What’s the difference between traditional business building and the lean startup approach?
The traditional approach to starting a business requires designing and building the entire operation upfront—before bringing in customers. The lean startup approach, on the other hand, means building one component of the business very quickly, then using customer input to dictate what you build from there.
Here are some areas where they’re different:
- Planning stage: The lean startup approach requires building a business model canvas and forming a hypothesis first. The traditional approach requires creating a comprehensive business plan and linear steps for execution.
- Product creation: With the lean startup approach, you develop an MVP, then design iteratively over time and with lots of feedback. With the traditional approach, you usually conceive of and create a complete product before bringing it to market.
- Team: With a lean startup mentality, you generally hire people for their potential: people who can work quickly, take initiative, and apply their skills and experience across a handful of different areas. With a traditional approach, you hire people who have specific qualifications and a track record of execution.
- Definition of success: The lean startup methodology defines success as the ability to pivot quickly and improve continuously, while the traditional approach usually defines success as the ability to follow and implement a plan to a tee.
- Numbers: With the lean startup approach, metrics like customer acquisition cost and churn rate are more valuable indicators of the viability and longevity of your operation. However, with a traditional approach, cash flow and profit and loss numbers reign supreme.
Benefits of the lean startup approach
There are a lot of advantages to incorporating lean startup principles into your operation, no matter what type of business you’re starting. Consider these benefits:
- More flexibility with business planning
- Greater cost efficiency
- Faster time to market
- Higher likelihood of satisfying customers
- More experience pivoting and adapting to external circumstances
Criticisms of the lean startup approach
The lean startup approach isn’t a perfect solution to starting a successful business from scratch. Here are some of the criticisms of lean startup methodology:
- Your initial business strategy isn’t always fully developed: In the interest of working quickly, the lean startup approach doesn’t encourage you to clearly define your business model and growth strategy upfront. Starting with a general idea or vision might work for some entrepreneurs, especially those with a lot of entrepreneurial experience or familiarity with a certain market, but some people need more concrete goals from the start.
- You risk scrapping valuable products and concepts before you give them a chance: When you’re creating an MVP, it’s hard to know what constitutes good enough. The concepts of “minimum” and “viable” aren’t clearly defined, nor are they universal for every industry and sector. As a result, if you rely solely on customer feedback for your early-stage offerings—and those offerings aren’t as thoughtful or fleshed out as they should be—you might be tempted to nix everything you’ve worked on if you get negative customer input.
- It can limit your creativity: If you only spend time making incremental changes to your offerings based on what your customers say, you might not ever make a truly innovative or groundbreaking product.
In lieu of the lean startup approach, many founders are now advocating for the deliberate startup method, which involves developing a detailed product strategy in a document called Product/Market Fit Narrative.
How to incorporate lean startup principles into your business
Here are seven ways you can incorporate lean startup strategies into your operation, no matter where you’re starting from:
- Revisit your original value proposition: Consider what problem you’re solving for your customers and how you’re bringing them value, then make sure all your business practices—from marketing to customer service—are in service of that value proposition.
- Embrace customer feedback: Customers are the lifeblood of every business—they keep it going. Instead of assuming what customers want and need based on research, take the time to gather and implement customer feedback. Try beta testing for new offerings; send customer surveys; read and respond to your customer reviews; and dig into the data on customer interactions with your website and social media pages.
- Don’t be afraid to experiment: Try new things within your operation and track the results. In addition to experimenting with your offerings, you can play around with different marketing strategies, tweak your customer service policies, or test out new backend workflows and systems.
- Review a full range of metrics: Your bottom line numbers aren’t the only way to assess your business’s overall health and growth potential. You also need to look at key performance indicators like customer acquisition cost, customer retention rates, year-to-date sales growth, and net promoter scores.
- Hire for soft skills and learning potential: When it’s time to hire, consider opening up certain roles to people with wide-ranging qualifications and experience. Look for people who can learn quickly, communicate well, be proactive, solve problems creatively, bring people together, and make decisions efficiently.
- Outsource: Free up your time and brainpower by outsourcing. Think: investing in business software to automate payroll and HR tasks, or hiring a social media marketing strategist to develop some new marketing campaigns.
- Aim for continuous improvement: The most successful businesses are never static—they’re constantly evolving and growing. Building a culture of continuous improvement starts with reframing mistakes as learning opportunities. From there, take time to review employee feedback, listen to customers, and look for new ways to stretch yourself as a company, like adopting sustainable business practices or working toward a specific business permit or certification.
The future of business building
The business landscape is constantly changing. As more and more experienced startup founders share insights from their careers, as the economy fluctuates, and as cultural events shape consumer opinion, new business-building strategies emerge—and so do critiques of the status quo methods.
That means there’s no one proven playbook for building a successful business; there are dozens of valid paths you can take. The one you choose just depends on your experience, resources, and goals.
