LEAN STARTUPS & PIVOTS
THE LEAN STARTUP METHOD EXPLAINED
The lean startup method aims to find and develop a business or product for which there is demand. You start with your idea, then you test and develop from the feedback you get, not according to your opinions or fixed ideas.
Eric Ries, founder and CEO of the Long-Term Stock Exchange (LTSE), popularised the lean startup method and wrote about the method in his book, “The Lean Startup”, but it’s worth to be noted that this new method was indeed the result of applying manufacturing principles that had previously been created in heavy industry, to the services sector in general and the startup ecosystem in particular. To be more specific, the automotive industry – with its Toyota Way – revolutionised industrial processes around the idea of lean manufacturing.
WHAT ARE THE PRINCIPLES OF THE LEAN STARTUP METHOD?
There are five basic principles to the lean startup:
- Entrepreneurs are everywhere
- Entrepreneurship is management
- Validated learning
- Innovation accounting
Once you apply these five principles, your enterprise functions as a lean startup. Your business will have a close connection with and a data-driven understanding of your customer base. Taking the lean startup approach will enable your business to stay agile and responsive to changes in the market as you scale and power your growth.
ENTREPRENEURS ARE EVERYWHERE
We often think of entrepreneurs as an exclusive, privileged breed. They have miraculous moments of inspiration that lead them to business success. However, Eric Ries argues that anyone can be an entrepreneur and there are opportunities everywhere.
ENTREPRENEURSHIP IS MANAGEMENT
Every business needs a manager, or more than one. But managing in the style of the lean startup means taking a flexible, fluid approach. Managers learn. Nothing is fixed. Lean startup managers have hypotheses which they test and act on.
In a lean startup, actions are taken based on data. A product won’t get put into the market without first testing the market’s response to said product. The business begins with an MVP (minimum viable product) and then research assesses user needs and their response to the product. The business then uses the feedback they’ve collected to improve on and refine the idea/product.
An established company uses metrics such as market share, ROI, customers to track growth and success. However, in a lean startup, you have something new, and all those measures are effectively useless. Eric Ries developed three levels of innovation accounting. He designed each level to generate useful data for each stage of the startup’s growth.
The build-measure-learn concept lies behind every functioning aspect of the lean startup. Entrepreneurs must first build an MVP, then measure the consumer’s response. You must do this by collecting data from your customers. Finally, you learn and respond to the feedback you get. This helps the startup to respond better to customer needs, which in turn drives success.
THE ART OF PIVOT
A pivot is when a startup makes a calculated course correction to adjust their business’s targets and objectives. Before launching, any new startup should have a clear idea of what they want to achieve and how to achieve it. Having a detailed plan in place is essential for ensuring businesses remain on the right path.
But things don’t always go to plan. New information and unexpected events can force businesses to pivot from their original designs and aim for something different instead.
The concept of the pivot is a crucial one to lean startups. Many businesses start with an idea, then try to refine it over time. The lean method aims to reduce or eliminate uncertainty from the equation, but it isn’t a perfect solution. Lean startups often still need to pivot as they grow.
THE ZOOM-IN PIVOT
After launching, most startups have a pretty good idea of which aspects of their products and services they expect to be the most successful. However, post-launch, their metrics might reveal a different story.
If there is one feature or service that clearly stands out in terms of success with users, it makes sense to pivot towards it. Conversely, if there is an aspect of your product that isn’t generating much interest, the zoom-out pivot will move you away from it.
BUSINESS ARCHITECTURE PIVOT
Most, or all, businesses (depending on who you ask) come in two varieties: high-margin low-volume or low-margin high-volume. It is impossible to be both at the same time.
A startup that starts as one type can pivot to the other if its initial strategy isn’t working.
There are numerous channels that modern startups can use to sell their products and services. A channel pivot involves switching priorities from one channel to another.
The pivot is a vital concept for any startup; there are no certainties in the world of business. Diligent startups should be monitoring their KPIs from the very beginning and responding to the insights they provide. Pivoting is not without its risks, but it is better to pivot than to continue with an ineffective strategy.
MEASURE THE FAILURES AS IF IT WAS SUCCESS
When sailing into unchartered waters, it is important to remain objective: you are testing assumptions after all… That’s why it’s good to set in your calendar a day by which you’ll examine your results and decide if this is really the right way forward. It’s important to establish solid KPIs and avoid vanity metrics to inform your decision and use them to measure your progress. Tracking your results helps you in assessing your path forward, and each failed attempt informs your decisions and brings you closer to the success of your venture.