The lean startup by Eric Ries has revolutionized the global perspective. According to a New York Times report, the business model for lean startups has been applied by several individual entrepreneurs and large corporations from all around the world. By embracing the lean startup initiative, companies have recorded impressive results. Eric Ries is a beacon of innovation and collaboration with an equity and diversifying-based mindset.
He has stellar experience being a CTO of the social network called IMVU, being the co-founder of Fast works, Long-Term Stock Exchange’s founder and Chief Executive Officer, Harvard Business School along with IDIO, and Pivotal’s entrepreneur-in-residence. Business Outreach Magazine is nothing awestruck by the reputation Eric Ries have earned over his years of professional and personal growth.
Eric has moved into categorizing his books into three parts that includes the vision explaining the new path of entrepreneurial management, steer showcasing the deep dive into the lean startup business model, and accelerate detailing the amount of speed required to pass through the loop of ‘Build-Measure-Learn’ in the most effective manner.
Lean Startup- Where does it come from?
Eric Ries lean startup has picked up its name from the manufacturing brilliance of Toyota which was forwarded by Taiichi Ohno and partnered with Shigeo Shingo. Both Taiichi and Shigeo transformed Toyota to be a global name and they followed just a few principles to do that.
They started by piecing together the creative collaboration of each employee followed by reducing the numbers to a single batch. After that Shigeo and Taiichi perfected the production time and control over the inventory and thereby expediting the cycle times.
Such a method created a clear difference between a pattern that indicates value with waste and this is the baseline throughout the entire context of modern entrepreneurship. Ries stresses the fact that in order to excel in a venture does not necessarily mean having a great idea and being at the right market at the right time but ensuring the efficient process of the business.
Lean startup is made of :
- Quick cycle times.
- Customer needs without having to ask them.
- Using scientific methods to curate decisions.
We can say that a lean startup has products that come with quick iteration, customer demands, a creative approach, and a sizable objective.
Validated Learning in Lean Startup :
The ‘Validated Learning’ approach by Eric Ries is an accurate, faster, and more precise method than the traditional systems of corporate planning and market evaluation. In this method, recognizing the efforts that are oozing value and the ones that are turning to waste is necessary. Anything and everything that is of no use to the customer is eventually considered to be waste.
In order to understand the needs of the customers, it is advisable to introduce a prototype of the product to gain some form of data from the product’s existing market. Validated learning works after this when the data is obtained and not from any superficial survey or any feedback. The lean startup should learn from the behavior of the customers from the prototype product and assemble the data to move forward with the needed updates.
Freedom in the experiment :
From the lean startup standpoint, experimentation is more than theoretical attributes and actually is the debut version of the startup’s product. Ries has always advised making the product interact directly with the customer’s needs as this will always give clarity towards the future the product might have.
Eric Ries drew inspiration from Nick Swinmurn, who is the founder of Zappos. Zappos is currently the biggest online store for shoes. This is before the online shopping trend became existent in the market. Nick wanted to experiment with the idea, of whether people will buy shoes online.
What he did was that he went to local stores selling shoes and asked them if he can click pictures of the inventory. Later, Nick posted those photos online and asked the internet whether anyone is interested in buying shoes online. Upon positive feedback, Nick came back to the local store and bought shoes at full retail price, and shipped those to the customers.
Brilliant! Isn’t it? Well! This is what lean startup with the experimenting is and concludes no hassle of inventory, distributors, and other verticals to run a business. Zappos was later bought by Amazon for $ 1.2 billion.
Minimum Viable Product Initiative :
Any idea of a lean startup depends on MVP or minimum viable product. This is because the validated learning is further taken ahead by MVP. They are the fastest approach to go through the ‘Build-Measure-Learn’ trajectory. Sometimes MVPs tend to create a bit of complexity by either coming as fresh prototypes or by a simple advertisement.
Entrepreneurs tend to draw customer attention by instilling too many features in the MVP. Eric Ries wants to indicate that MVPs must be simple and look directly into customer needs. Companies may also fall into a bit of a dilemma knowing that a quick introduction of MVP into the market might show a lack of professional outlook towards a team and a company.
But MVPs should be introduced to make a clear pathway for the upcoming times of a product. Employees and teams should always be prepared for criticism as MVPs can be a parachute to a business venture. In case of failure, the team should work towards a better product by learning from the key data from the market.
While getting the freedom to draw data on the MVP, the team should constantly work on progress and create a product design that is aligned with the customer’s mindset. At first, the demand might be less from the market. But relevant projections of a future market should be drawn with the help of three A’s, which are Actionable, Accessible, and also Auditable.
Leaving no undetermined area of improvement, reports must be simple and accessible to the entire team. The report must record real data from the market and customers to make the right tweaks.
Successful Entrepreneurs aiming for a lean startup should accept any failed initiative and direct their action based on the feedback that is real rather than the ones that are fancied to learn. Pivot is an important factor and companies should be aware of any updates needed to make.
Do you want to succeed in a Lean Startup? Just reduce the batch size and think big :
The counterintuitive method here lies that the lesser the batch size, the more efficient can a company work on a product and bring out its optimum value. Any unforeseen issues with quality can be readily identified and rectified. By this, the company can save a lot of time in the process and ultimately avoid any wastage.
Eric Ries says that large batches tend to mend any errors 5 to 6 times more than a small batch. Traditional managers often consider small batches to be less productive and as a result of a mistake blame the employees rather than the faulty system. Smaller batch size also equates to less fees for the warehouse space. While on the other hand, larger batch sizes can never be fast due to the volume of products.
Sustainable Growth from Lean Startup :
When the MVP turns out to be a success and the startup emphasizes on the smaller batch size, the quality product seems to be imperative. Eventually, through word of mouth and returning customers, the value of the product also increases. The ‘sticky’ engine of product growth tends to put out the churn rate and the acquisition rate.
A higher acquisition rate means that the customers have retention on the product, which is unlikely when the churn rate is higher. The ‘viral’ growth is directly aligned with advertising which markets the product to the right customers. The ‘paid’ growth explains to either limit the cost that is spent to get new customers to increase the returns from the customers.
Eric Ries’s lean startup explains the ‘five whys’ to figuring out any failure in the process :
- Why did the equipment stop working? – Due to being overloaded.
- Why was it all overloaded?- Due to poor lubrication.
- Why is the equipment not lubricated properly? – As the pump is not working properly.
- Why is the pump not in optimal condition? – Due to the worn out of the internal shaft system.
- Why is the shaft in such a condition?- As there is no expert assigned to check it regularly.
In order to be the most successful startups needs to secure limited capital in spite of any budget requirements. A startup team needs to have complete autonomy in order to work to their fullest creative potential. Entrepreneurs need to have an emotional stake in the success of the product.
According to Lean Startup, a clear cohesive pattern shows that failure can be rectified if it comes to light under proper vigilance. It is not true that employees working hard can only increase productivity and not be smarter and more efficient. By adapting to the lean method, employees will put in their effort to create a vision full of optimism. Any failure would be considered an opportunity to learn.
