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Building a Lean Startup from Scratch in Three Simple Steps

By gswardman March 25, 2022

The lean startup approach is a way of operating and growing a fully-fledged business or startup by experimenting, testing, and recapitulating while creating products based on customer feedback and your conclusions.

This business and product development style is intended to provide products to consumers faster (typically in the form of an MVP) by focusing on product features verified via detailed customer input at various stages throughout the product development cycle.

Business icon and IMVU co-founder Eric Ries introduced this concept in his book “How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses,” published in 2008. This concept was further developed by Steve Blank.

If you’re thinking about starting a sustainable business and looking for ideas, knowing the difference between lean startup and traditional methodologies is essential.

Knowing what the lean technique comprises will help you decide if it’s good for you and your company. This article will examine the lean startup process in further detail and discuss when it is appropriate to use it.

What Is Meant by Lean Startup?

What Is Meant by Lean Startup

The lean startup process is used to develop tech companies and products in a short amount of time, allowing the business or product developer to establish whether or not their business model is feasible swiftly.

When using the lean startup technique, your business will concentrate on lean manufacturing a product while also gathering user input, which generally entails releasing an MVP (minimum variable product) to the market or a small group of your consumers.

The purpose of this method is to eliminate inefficient practices during the early phases of a business, giving the business a better chance of long-term success.

Early-stage startups can succeed by following the lean startup process, which does not require large sums of money, detailed business planning, or a perfect product.

The success of the lean startup process depends on the startup’s focus on gathering user feedback on the original product.

This input will assist you in making product improvements and iterations that will allow it to evolve over time as per the client’s preferences.

The input you receive from consumers should also prevent you from wasting resources on services and features that your customers don’t like. The goal of the lean startup process is to use as little resources as possible.

How Do You Lean Startup?

How Do You Lean Startup

If you want to implement the lean technique in your tech startup, you’ll need to focus your efforts on the consumer. You won’t need to start by writing a business plan for your business if you already have a product or service concept.

Instead, start by developing a minimal viable product. Bear in mind that clients will watch the development procedure firsthand, which isn’t always pleasant.

Fortunately, this can help you build and even improve customer loyalty. The most essential elements that will allow users to interact with the product actively should be included in the minimum viable product.

Following the creation of the MVP, the next stage is to distribute it to a small subset of your target audience. It will be quite difficult for you to build a long-term consumer base if these people dislike a product you make.

Customers should provide feedback as they use your MVP, which can be utilized to make adjustments to the item and eventually make it more feature-complete.

You can expect to conduct tests on a frequent basis after becoming a lean startup. While the results may not always be to your consumers’ liking, reversing modifications should be simple with the iterative approach you’re adopting product development.

Over time, you should be able to develop a product that is ready for commercial release. This is a speedy product and customer development process that should save you money. It can, however, be stressful when you respond to test client comments.

The lean startup process is crucial to understand since it can serve as the foundation for your entire business.

Whether you pick the lean startup approach or the traditional startup approach understanding the distinctions between these two approaches should make it simpler for you to evaluate which strategy would be ideal for your business.

What Are the Five Principles of the Lean Startup?

Five Principles of the Lean Startup

There are five lean startup principles and they include:

Entrepreneurs Are Everywhere

If you have established a startup, you’re a businessman, and you can implement the lean startup technique. It makes no difference if you operate from your bedroom, dedicated office area, or garage.

Also, it doesn’t matter how big or small your company is. If you want to save time and money, and the lean startup technique sounds like it could be right for you, then go for it.

Entrepreneurship Is a Management

Like any other business, startups require management, but it doesn’t have to look like traditional management.

This means that procedures will be less orderly and protocol-driven than they would be in an organization with a well-established business strategy.

Managers should be able to respond quickly in high-risk circumstances, control investors, and encourage staff to try new things as long as the risks are acceptable.

Validated Learning

The objective of lean startups is to create a long-term business model based on validation learning. This entails carrying out the aforementioned trials, analyzing the outcomes, and basing all future decisions on the information gathered.

Is your product addressing a market need? If not, how will you be able to pivot and adapt?

Innovation Accounting

To establish a long-term business, entrepreneurs must objectively track progress, set milestones, prioritize tasks, and make the best decisions possible based on the facts.

Build, Measure, Learn

Build, Measure, Learn

The ‘build, measure, learn’ cycle allows for verified learning by using the renowned MVP (minimal viable product) as the basis for the trials. As a result, it’s an essential tenet of the lean startup movement. That said, let’s break down this cycle.

Build

The first step in this process is to be entrepreneurial and create a minimum viable product, which is a product or service with just enough functionality to make clients happy while you test your idea that the product would be successful on the market.

Keep in mind that not all of your customers should get an MVP. Instead, you should target a limited group of buyers from various demographics who can benefit from your offer.

This this the construction phase of the lean startup process. Since building is the initial step in this process, it’s critical that you start developing a basic product or service as soon as possible.

Measure

When it comes to the measure aspect of this process, it’s critical to successfully measure the results of your minimum viable product while you’re still developing it. You can utilize the input clients give you to fine-tune the product and make it more feature-rich.

If you discover that the MVP’s concept isn’t resonating with the clients to whom it was given, you should be able to get rid of the basic product without wasting too many resources.

You can evaluate the input you get in a variety of ways. If you’re starting a full online business (without any physical outlet), you can get feedback from clients by sending out surveys and looking at your website’s statistics to see what’s working and what you can improve.

Asking testers questions about the product they’re using can help you get feedback on the actual product being evaluated before it’s put on the market.

After you’ve collected data on your minimal viable product, the third component of the lean startup technique is to start learning from it.

Learn

Measuring the results of the products you’ve received and getting feedback from initial consumers isn’t enough. It’s critical to learn from the data and comments you’ve gotten if you want to finally build a market-ready product or service, which isn’t always an easy thing to do.

Some of the comments you receive, for instance, might not even contribute to the agile development of a successful product. On the other hand, this input is best utilized to figure out which components of the product aren’t functioning and which ones need to be improved.

You should be able to build a product that satisfies the demands of your target audience if you can successfully learn from the findings of product testing.

How Does the Lean Startup Differ from The Traditional Business Plan?

How Does the Lean Startup Differ from The Traditional Business Plan 

Did you know that there are two different types of business plans? More often than not, when we think of a business strategy, we usually think of a traditional format.

A traditional business model canvas is a long document (about 30 to 40 pages) drafted three to five years in advance that explains every element that might contribute to the success of the established companies.

On the other hand, a lean startup plan takes less time and effort to put together, but it must be able to describe the company’s future articulately.

Therefore, which kind of format should you use to prepare a business plan for your new venture? If you’re not sure whether you should for the lean startup plan or the traditional business plan, this section will come in handy.

Lean Startup Plan

Lean Startup Plan

A lean startup plan is the format of choice if you need to develop a business plan fast or if your business is very simple and straightforward to describe.

This is more of a brief overview than a detailed blueprint—sometimes no more than one page! A lean startup method should comprise the following aspects, regardless of how short and sweet it is:

Value Proposition

Your small business’s contribution to its target market summed up in a single phrase.

Key Partnerships, Resources, And Activities

More information about your business’s partners, strategies you utilize to achieve a competitive edge, and resources utilized to produce value for your target audience, such as cash or intellectual property.

Customer Segments, Channels, And Relationships

What is the demographic of your target market? What is the best way to contact them? How will you establish a long-term connection with each other?

Define your target market, as well as techniques for communicating with them and tactics for creating a positive customer experience.

Revenue Streams

Explain and identify the many income streams available to your company. Include a brief piece that explains your cost structure plan as well.

Traditional Business Plan

Traditional Business Plan

A traditional plan is longer and more extensive than a lean startup plan; it’s essentially a blueprint that gives you an idea with regard to how your firm will grow in the future.

You’ll need to address the following topics in a traditional business plan:

Executive Summary

In this section, in no more than two pages, you should be able to explain who you and your company are, what you do, what industry you’re in, where you’re situated (or will be located in the future).

Also, you need to explain when you’ll start doing business if you haven’t started already, how the business will generate revenue and profits, and why consumers will want the goods and/or services offered by the business.

Business Description, Idea, And Approach

This part offers further details about your goods and/or services, such as what they do, what makes them unique and different, where your business concept originated from, where you are in the dev phases, and the business’s goals and strategies, as well as a projected timetable.

Industry Breakdown

Who is your main rival? Here, you’ll look at your brand’s rivals and discuss their products, business history, and why customers should pick your services over theirs.

Market Breakdown

Who is your target audience now that you know who your competitors are? This section identifies your target market, their demands, and how your company will be able to attract, retain, and engage them.

Organization and Management

This section allows you to publish the biographies, histories, and primary roles of any executive or staff members you’ve hired in your company.

Monetary Projections

This offers readers an insight into your firm’s financial flow. It’s a table-heavy part comprising a 12-month income statement, an expenses budget, projected profit and loss, a sales projection, and a break-even analysis with the revenue required to cover your initial investment.

Funding Request

If you’re looking for venture capital from investors, this is the area where you’ll detail the amount of money you’re looking for and how it’ll be spent.

Appendix

Some of the documents to include in the appendix are: industry reports, letters of incorporation, partnership agreements, trademark licenses, etc.

Which Format Does Your Business Need?

The good thing about developing a business plan is that it can help you succeed. There’s still time to make changes, and you can continually update the document if you’re unhappy with the format or need to make adjustments.

You can also alter formats if you start with a lean plan and wish to transition to a more traditional plan or vice versa.

The important thing is to be brief and critical about your business from the start, regardless of the format. Your business plan aims to bring your team together behind a shared vision for the firm while also evaluating its viability objectively and critically.

Having a document like this adds to the company’s success and portrays you as a competent CEO.

The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation

Lean Startup

Entrepreneur Eric Ries initially proposed this concept in a novel he published in 2008. The main emphasis was on how to use innovation to build successful enterprises. He devised this process in order to reduce the risks that come with starting a business.

Eric Ries derived this concept from case studies of two prior business failures and the streamlined automobile manufacturing process (Toyota) that existed in Japan after WWII. Ries believes that the only way for a firm to succeed without wasting money is to be efficient.

As mentioned in the novel, these risks can be reduced by developing minimal viable products, continuously learning during the development process, and experimenting.

Vanity Metrics and Engine of Growth

Vanity Metrics

Vanity Metrics

The build-measure-learn feedback mechanism is an integral part of the Lean Startup process. The first phase is to identify the problem that needs to be solved, followed by the creation of a minimal viable product (MVP) to jumpstart the learning process as rapidly as possible.

Once the MVP is in place, a business can focus on fine-tuning the engine. This comprises measurement and learning, as well as actionable metrics that can illustrate the cause and effect relationship.

One of the most common mistakes business people make when trying to use the feedback cycle concept is measuring vanity metrics rather than meaningful KPIs.

Vanity metrics are those that make you appear good in the eyes of others but don’t help you analyze your own performance in a way that helps you plan for the future. These indicators are exciting to point to if you want to appear to be improving.

However, they are often unactionable and unrelated to anything you can control or replicate in a meaningful way.

On the other hand, Actionable Metrics are essential for making decisions and adapting our strategy since they are tied to things we can regulate and repeat.

Engine of Growth

Engine of Growth

The term ‘engines of growth’ refers to a powerful feedback loop whereby current and new consumers bring in even more new customers to the organization. According to the lean startup hypotheses, there are three primary engines that businesses can focus on:

The Paid Engine of Growth

This is what most business owners are acquainted with, and it comprises all types of marketing. You’re purchasing clients whether you utilize Super Bowel advertisements or yellow pages.

Each customer needs to give you a profit when using this engine. If you spend $0.5 to gain a customer, you better be producing enough money to pay the $0.5, your other expenditures, and leave some profit.

As long as you’re generating a profit on each consumer, you can invest those gains into more advertising to expedite expansion.

The paid engine of expansion includes things such as buying commercials, hiring salespeople, and leasing pricey real estate for foot traffic.

The Sticky Engine of Growth

The Sticky Engine of Growth

The sticky engine of growth is based on the reality that it’s difficult for customers to move to a new product or quit using it once they’ve started using it; thus, they make repeat purchases.

Databases are a good example of such products. In this situation, startup success is influenced mainly by how rapidly a startup wins new consumers and loses old ones.

Compared to the churn rate of existing customers, the sticky engine of growth is built on maintaining a significant number of consumers.

The client acquisition rate must be higher than the churn rate in order for this engine to grow. Customers that quit or no longer desire to utilize the product are referred to as churn.

The Viral Engine of Growth

This is the realm of word-of-mouth marketing and allowing your goods and/or services to sell themselves. Your clients will conduct promotions for you by informing their friends or simply using your products.

The most important aspect of this engine is ensuring that every consumer refers at least one associate to your company. If five of your clients refer ten of their friends to you, your new business will expand quickly because those ten will refer 15 or 20 people to you.

Every new group will be larger than the previous one, resulting in compounding growth.

Be cautious about depending on this growth engine; it’s really tough to construct purposefully. Your product must be absolutely brilliant and tailor-made for your target demographic to rely on viral marketing.

If something goes wrong and you dont have any other promotion, the viral cycle will come to a halt, and you’ll run out of clients.

Can You Utilize More Than One Engine of Growth?

Yes, you can, and many companies, especially bigger ones, do. As a small business owner, though, it will be much better to concentrate on just one engine at a time.

It will be challenging to find out what’s working if you’re trying to go viral, make your product appealing, and pay for clients.

A Successful Lean Startup Needs to Follow These Steps

Find The Business Idea

Find The Business Idea

When deciding which business concept to pursue using the Lean Startup Methodology, think about whether the problem your product will address is significant enough for customers to want to buy it.

Finding a company concept might be difficult; therefore, it’s crucial to pay attention to the challenges individuals face on a daily basis.

In order for your product to achieve momentum, clients must be actively looking for a solution to a problem. It’s time to execute or implement your company plan once you’ve settled on a business concept.

Execute or Implement the Business Idea

Execute or Implement the Business Idea

After that, you’ll develop your MVP (Minimum Viable Product). The MVP is a version of the product you want to develop that allows your team to quickly collect as much info as possible about your potential clients and their feedback on the product.

Some proponents of the Lean Startup Methodology advise using a ‘Kickstarter Methodology‘ while developing a product/market fit.

That is, start selling your product before it is done being manufactured to raise revenue for your Lean Startup while building brand recognition and driving interest in your product. It’s time to validate your company idea after it’s been implemented.

Validate The Business Idea

Validate The Business Idea

In order to establish a successful Lean Startup, you must first validate your product. Now it’s time to put your company idea to the test in the real world.

To evaluate if your idea is practical and collect data that you can analyze, test your MVP with real clients in the marketplace – early adopters or not.

Use this info to determine if you should continue to develop your product, alter it, or reorient your company approach.

Continue to create your product using your original approach while incorporating input from testers if the results from testing your MVP in the marketplace are supposedly good.

If your MVP market testing findings are both favorable and unfavorable, persevere and make changes to your product to better fulfill the desires and requirements of your clients.

If your MVP’s market testing results are primarily unfavorable, it’s time to rethink your product and/or company plan.

This will necessitate a significant change in your approach and the adaptation of your vision to match the demands and expectations of your clients.

In some circumstances, overwhelmingly negative feedback can indicate that a Lean Startup should withdraw from the market entirely.

Final Thought

All in all, most startups fail in their initial stages. So, if you want to become one of the few successful ones, you need to adopt the Lean Startup Methodology. Discovering what potential clients want prior to embarking on full production saves you a lot of time and cash.