Q 447. What is Lean Startup? How are Lean Principles used in a Lean Startup? What is Lean Canvas? How does Lean Canvas help in creation of the Lean Startup? 

 

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A lean start-up is a scientific approach in creating and managing start-up companies focused on faster product release. This method is used as a green field initiative to setup a new company or introduce a new product on behalf of an existing company advocating development of products that consumers have already confirmed or demonstrated their desire such that the market already exist by the product launch time itself. Unlike regular concept of developing a product hoping to create or emerge demand post product launch/ company setup. The approach helps understand and drive start-up with faster turn around and proposed when to grow business with maximum acceleration.

 

Lean Start-ups imbibes the lean concept of Build and Measure and Learn from the experience in a faster pace.

The approach focus on lean principles like

1.            Keeping the principle and workflow simple- Understand what is perceived as “Value “ by the customers, design your workflow lean by eliminating the non-value added processes and ensure that the process runs efficiently 

2.            Build, Measure and learn faster: the major focus of start-up is to turn ideas into products, measure customers response, and then learn whether to pivot or persevere the product launched.

3.            Understand the customer through feedbacks - All successful start-up processes are designed to accelerate the feedback loop

 

Lean Canvas is a simple and efficient approach to develop a single page business plan for planning and segregating the business idea into key assumptions for better analysis. It creates strategic document to helps managers to accumulate hypotheses of a particular business model for any start-up / new product launch. The main focus of the Lean Canvas is to provide actionable and entrepreneur-focused business plan focused on problems and solutions, key metrics, competitive advantages etc.

A business plan usually takes long to write , plan and execute while Lean Canvas is designed to create  quick visualization of any idea, hare it and get a feedback quickly which is essential for a start-up environment.

 

Lean Startup methodology is similar to Lean Manufacturing and Lean Software development with the aim to eliminate waste and increase value in the initial startup phase of a product or service. The Lean startup methodology ensures greater success with reduced funding, simple business plans, or an imperfect product/service. Continuous customer feedback is critical to lean startup methodology to ensure that the product/service is being developed as per the customers’ requirements. A minimum viable product is released and customer feedback is obtained early in the product design and development stage. Specific customer requirements are assessed through the minimal viable product, in order to develop the product/service required by the end-user with the least possible resources and risk.

 

Objective - The Objectives of Lean Startup would be to shorten the product development cycle and to quickly check if the business model is viable by combining business-hypothesis-driven experimentation, iterative releases, and validated learning. Thus, we can say that Lean Startup methodology prioritizes customer feedback over intuition and flexibility over planning, with the assumption that Iterative building reduces the market risks and reduced initial capital requirements.

 

Customer over Product - Customer development and not product development is key to the lean startup methodology. This was brought out by Steve Blank in his book “The Four Steps to the Epiphany: Successful Strategies for Products that Win” (2005, 5th edition 2013). The four steps of customer development as brought out by Blank are customer discovery, customer validation, customer creation, and company building. Customer discovery looks at the problem, the solution, and the business viability, customer validation looks at the business viability through purchases, customer creations look at scaling through customer acquisition, and company building looks at building the company departments and operations.

Lean Startup Terminology - Eric Ries in this book “The Lean Startup” defined some specific terms. These are given below: -

1. Minimum Viable Product. This is the minimum development of the product that would help in the collection of customer feedback to enable validated learning.
2. Split Testing. This is also called A/B Test. Alternate versions are offered to the end-user at the same time. A statistical test is done in order to measure the difference in impact between the different versions.
3. Actionable Metrics. These are important since they magnify the key drivers of the proposition. It may also be noted that vanity metrics for one firm may be an actionable metric for another firm. For example, page views may be an actionable metric for a magazine but a vanity metric for a financial firm. 
4. Pivot. A course correction to test a new premise about a product or strategy.
5. Innovative Accounting. This deals with how to maintain accountability, maximize outcomes through the measurement of progress, planning milestones, and prioritizing activities.
6. Build-Measure-Learn Loop. This loop is a learning cycle to Build a Minimum Viable Product, measure its effectiveness in the market, and learn and decide if you need to continue to pivot. Speed is critical in this iterative loop.

 

Lean Principles used in Lean Startup

 

Define Value - Lean startup determines right from the initial phase through the Minimum Viable Product actual or latent need of the customer that they are willing to pay for. The Build-Measure-Learn loops help in determining the value of what the customer wants, how they want it delivered, and the price which they are willing to pay for it.
 

Map and Value Stream - Lean startup methodology prioritizes the customer’s value stream over the product. Starting with the customer as a reference point, the Lean startup methodology is able to measure through actionable metrics, what the customer values and what contributes to waste.

Flow - The iterative Build-Measure-Learn loop that the Lean startup uses, would ensure the removal of steps that cause delays and thereby ensure flow in the process.

 

Pull - The pull is created from customer needs. The Lean startup is focused on customer needs and hence incorporates a pull-based system into the lean startup methodology. Design of a product/service using Lean startup and Pull would ensure that the product developed would not only eliminate waste but also satisfy the customer's need.

Perfection/Continuous Improvement - The iterative Build-Measure-Learn loop is akin to Continuous improvement which is the bedrock lean principle.

 

Lean Canvas

 

This is an adaptation of Alex Osterwalder’s Business Modelling Canvas which was developed by Ash Maura in 2010 for startups. It is a one-page business plan template. It replaces the problems/solution blocks and the key metrics/unfair advantage blocks in the Business Modelling Canvas with Key partners/Activities and Key resources/Customer relationships blocks respectively. It looks at the customer problems and delivers solutions through a unique value proposition.

 

The Lean Canvas has nine sections viz.

1. Identification of the Customer Segments. This includes the likely target customers of this product or service.
2. Identification of the Problem. What are the top three problems of your target customers?
3. Revenue Streams. What are the likely sources of revenue?
4. Solution. What are the likely solutions to the problems faced by the customer segment?
5. Unique Value Proposition. What is the single, unique, clear, compelling proposition that would engage a visitor and keep him interested in the product or service?
6. Channels. What are the likely paths to my target customers?
7. Key Metrics. What are the metrics that give a clear picture of the current position of my business?
8. Cost Structure. What are my fixed and variable costs?
9. Unfair Advantage. In what areas do I have a competitive advantage. A resource that has a competitive advantage should be valuable, rare, inimitable, and non-substitutable.

 

Lean Canvas and Creation of the Lean Startup? 

 

The Lean Canvas gives a bird' eye view of every element that is necessary for the development of a Lean startup product or service. It draws the boundaries of every element that needs to be taken into consideration in the development of a product or service. Since the lean startup methodology is required to progress quickly within the Build-Learn-Measure loop, the Lean Canvass acts as an excellent template/framework to keep the development within viable boundaries.

 

References

https://en.wikipedia.org/wiki/Lean_startup

https://theleanway.net/The-Five-Principles-of-Lean

One of the primary requirements for a start-up to be successful, is to have an innovative or disruptive idea that will witness sizable market adoption. However, when they start, founders have no idea, whether their idea will actually gain any market acceptance at all.

 

Founders and companies spend months and sometimes even years in building a perfect a product / service, to eventually learn that customers don’t even want that specific feature, or USP, or quite often than not, the product all together.

 

This is the problem that the lean start-up solves.

 

The Lean Start-up

The lean start-up is an approach to build companies and launch products quicker, that are in-sync with customer needs.

 

It was proposed in 2008 by Eric Ries (also the author of the book “The Lean Start-up”), with his entrepreneurial learnings from adapting customer focused development and lean practices to technology start-ups.

 

As the name suggest, the lean start-up evolved from the lean management framework of continuous and iterative improvement through Plan Do Check Act (PDCA) cycle.

 

Lean Principals in a Lean Start-up

Testing before Investing

The lean start-up demonstrates the importance of iteratively development, and involves building an MVP (Minimum Viable Product), viz. a version of the product that has just enough features to be released for testing and feedback from early customers.

This approach essentially limits the exposure to associated market and financial risks, by reducing and often eliminating the need for enormous capital investment in extensive product development and expensive product launches, for ideas that not even be accepted by the market.

 

The lean approach is centered around the concept of agile development and aims to,

o    Shorten product development cycles

o    Rapidly validate the business model’s is viability

o    Build products are in sync is customer requirements and wants

 

This is achieved by framework of hypothesis-driven experimentation, iterative product releases and validated learning.

 

 Customer Centric Approach

+ Flexibility

+ Rapid, Responsive Development

 

The lean start-up emphasizes on a customer centricity, by that it follows a rapid development and validation through a consistent customer feedback methodology (rather than intuition), prioritizing flexible and iterative development, over stringent planning. 

 

Companies use these customer feedbacks to learn if and what in the products, do the customers want and don’t, and use these learnings for validation on whether to continue to build the product, pivot and/ or enhance some product features. The company continues this cycle called the Build, Measure, learn loop, also called the lean principles.

 

This framework hence, enables recovery more often, vis-à-vis a full-fledged product deployment.

 

 

The Lean Canvas

The lean canvas was devised by Ash Maurya, that helps deconstruct and brainstorm ideas from their fundamental business assumptions. Adapted from Alex Osterwalder's Business Model Canvas and optimized for Lean Start-ups, the lean canvas a has striking, and rather tactical combination of the Business Model Canvas and Brand Proposition Canvas, keeping in sight the critical aspects of and symbiosis between both the product and the market.

 

Lean Canvas in creation of a Lean Start-up 

While, traditional business model canvases offer a long-term view of the business with limited capabilities for performance measurement; Start-ups really need something that keeps them focussed on the fundamental elements and targets of the business.

Lean canvas model on the other hand offers constant visibility to these elements, enhanced problem solving, iterative planning & flexibility and tools to monitor goal – performance measurement metrics, the lean canvas is instrumental to the success and growth start-ups and development business, both.

The General Electric – Used Case

General Electric is often cited as one of the most a successful example of a large organization demonstrating the power and potential of the lean start-up approach and principles (to read more follow the link: https://hbr.org/2014/04/how-ge-applies-lean-startup-practices)

 

Lean canvas graphic source: https://medium.com/@steve_mullen/an-introduction-to-lean-canvas-5c17c469d3e0; References: https://yonderconsulting.com/3-examples-of-lean-startup/

 

 

Priyanka Bose has provided the most comprehensive answer to the question and hence her answer has been selected as the best answer.

 

The other answers are also a must read.