Faster, better, cheaper, safer: the lean startup method
Who is this blog and website for?
In a broad sense: it is for anyone who has or plans a business.
In a narrower sense: it is for SMS-s (even solopreneurs), who want to build or rebuild a web-based business. Especially, if they want to decrease the risk of failure to a fraction and don’t want to rely much on external capital – perhaps want to build a business capable of exponential growth using bootstrapping. In this case the main source of growth is the income already generated.
Now let’ see how to do that! This is no secret since 2011, when the ground breaking book, The Lean Startup was published, and the worldwide lean startup movement has started.
Conventional entrepreneurs start with developing a product or purchase products to resell. Unfortunately that may be a bad move. What if the prospective customers don’t want that product? Or the need for the product is meager, and sales cannot cover the expenses?
In that case spending a lot for product development or stocks may prove to be a fatal mistake. It is no wonder, that less than 25% of startups survive their 5th birthday.
Most startups fail and can easily consume years of your life.
Life is too short to build something nobody wants.
/Ash Maurya, author of the books Running Lean and Scaling Lean/
What can be an alternative approach? Here comes the lean startup philosophy and the minimum viable product (MVP) concept. The savvy entrepreneur tests the market before making investments in development and/or stocks.
Let’s suppose, you want to open a webshop for a particular product line. Before filling the garage with goods, make sure you can actually sell that product. Some people go as far, that they launch a low cost webshop and start to advertise the product. If there are orders, they drive to the nearest shop, where they can buy the first few pieces (profit is not an issue at this phase). Only after that they invest in purchasing stocks from wholesalers.
Another example. You want to develop and sell a virtual (downloadable) product. Instead of investing in development it might be enough to write a white paper about the concept. The next step can be a low budget advertisement on, say, Facebook. Are there downloads or any other positive feedback?
Of course, the concept of minimum viable product (MVP) is a bit more complicated. However, it is widely discussed in our eBook: In Search of the Lean Startup, which you can download for free (click here) from this website.
Even before launching the MVP it is highly recommended to do some preparations, mainly research and planning. Is your business idea in line with your strengths and middle term life goals? Are there similar products easily available on the market? Who are your competitors? Do you have a unique selling proposition or any other angle to distinguish you from your competitors? How can you characterize your typical, what is more, your most desirable customer?
Building a profitable business is much faster, easier and safer, when you use professional tools
Without tools and know-how it is easy to get lost and lose momentum. That is why we developed a 25 step process (also explained in the eBook) which takes you from the very beginning till the full blown and profitable business. In case you don’t want to spend days, or rather weeks with developing the necessary tools (in most cases spreadsheets), you can download the first few tools for free (available in different formats, not only in the desktop version of Microsoft Excel). The full toolkit is available in the shop.
Some people have difficulties at deciding which idea to pursue. A well thought out, robust and flexible idea evaluation tool is also included in our Lean Startup Toolkit (even in the freely downloadable Lite version).
After you have finished the initial research (should not take more than a day), it is time to draft your business model. In fact, that is the replacement of a traditional business plan (which is obsolete at this point). You may be surprised that all the important aspects of your business model can be summarized in one single A4 or letter size paper. We call this tool the business model canvas, more specifically, the Lean Canvas (a printable version is included in the Lite version, and an electronic one in the Standard version of our toolkit).
Even though we advise you against wasting time for a financial plan, we cannot neglect finances. That is why we included an intelligent spreadsheet in the toolkit, called cash flow calculator. Based on your estimates regarding customer acquisition, the performance of your website and advertisements it estimates the growth of customers base and sales (traction). The simulation starts with a fairly small advertisement budget you will set, then you set the percentage of net income you reinvest every month to acquire new customers. However, it is a fairly simple simulator for the initial (although very critical) part of occupying your market. A much more sophisticated Cash Flow Forecaster and Traction Simulator is available in the shop. That is an innovative tool containing VBA programs and covers a wide range of businesses, such as physical and digital products, SaaS, cancellations, subscriptions, renewals, commission based new customers, viral effect, etc.
You can play with the tool for free, if you download the Demo version. To run the simulator currently you will need the desktop or 365 version of MS Excel. In case you don’t have Excel on the computer, in most countries you can use the Office 365 version for 30 days free.
However, even the best plan may fail. At least initially. That’s why the lean tool set includes tools to plan and execute experiments (for example advertisements with different subjects, in different formats and in different platforms) and know-how to modify your plan based on the experiments. Major changes to the business model and plan are called pivots in the lean startup terminology. The core tool included was developed based on the famous A3 tool by the Toyota Corporation.
The whole systems works like a guided missile: in case it is developed and assembled well, it will hit the target! And you will have a business, which will serve you with positive cash flow and profit for several years.
Final words
In summary the lean startup method is almost bullet proof, as it develops products and customers in parallel (rather than sequentially). That is the core method to eliminate, or at least reduce risks.
Another advantage of the approach is that it usually requires little capital. In most cases you can bootstrap your business, i.e. you can achieve even exponential grows without external investors (who could easily take over control of your business).
By using the lean startup approach one has a much better chance to become successful. The risks of a misaligned product not satisfying real customer needs or solving important problems is greatly reduced. The same principle refers to running out of cash before sales ramp up.
What are you waiting for? Start that long planned business or revitalize the existing one!
We wish you all the best on your journey to financial independence.