Lean Startup Methodology: A Guide to Smarter, Faster Growth

Every business and every company starts with an idea. Some – with the idea to make money, some – to help people and make this world better. However, the survival rate of new businesses fluctuates from 30% to 50% over the initial five-year period. Without a clear business model, business plan, and vision of what is expected in the end, the chances of succeeding are quite low.

To cover all these aspects, different startup methodologies exist. They enable entrepreneurs to assess market risks, select an effective business model, and optimally streamline all working processes, often using a business model canvas.

Waterfall methodology (often considered to be the traditional one) advocates for a linear, sequential process where all requirements are defined upfront and development proceeds through rigid, non-overlapping phases. Agile methodology, conversely, promotes an iterative and incremental approach, aiming to deliver continuous value through short development cycles and rapid adaptation to change. The Lean Startup methodology guarantees the smoothest and step-by-step transition from a small minimum viable product to something bigger and more meaningful based on the customers’ feedback, not business requirements. This article will focus on the latter, covering its strongest aspects, stages, and comparing it to others.

What Is a Lean Startup Business Model?

Lean Startup methodology is an approach that focuses on the main question for any business or product: can it be viable and profitable? It can also be called a customer-centric approach, as the development process is reduced to the minimum, and the customer feedback becomes the foundation for further planning and decision-making.

“As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.”

Eric Ries, Talks at Google about Lean Startup

Cornerstones

The Lean Startup method is based on five fundamental principles that enable it to be effective for new and emerging businesses, which are not constrained by large teams and budgets.

1. Minimum viable product (MVP): A product with minimal functionality aimed at the target audience is the central premise here. It is developed with two main goals in mind: to understand whether it will be in demand and in what direction potential customers would like it to develop
2. Validated learning process: Consideration of the customer feedback, further research, and improvement of the business model are valued more than a non-stop stream of newly produced features
3. Pivot or preserve: Taking into account the experience and feedback. The current strategy can be changed completely (pivot) or maintained with minor tweaks (preserve). The main goal is to increase productivity and customer satisfaction
4. Innovation accounting: The learning process becomes a new focus of the company. Instead of revenue streams, measuring progress is all about new knowledge and product improvement using specific metrics
5. Fail fast: If practice shows that the product is not viable, fail quickly and before your expenses spiral out of control. It is better to call it earlier and switch to something else than to spend everything you have for nothing

The Lean Startup approach, with its main principle,s was first formulated by the entrepreneur Eric Ries in 2008, but its roots are found in the ideas developed by the Toyota company in 1930. Thus, one could say the Lean Startup method has been forged over decades.

Stages (steps) of Lean Startup methodology

Lean methodology has 3 main stages that allow for achieving maximum efficiency with minimal expenses for the business.

• The Build stage is all about fundamental hypothesis formulation and delivering products. It is required to clearly identify whether the product is valuable to customers (value hypothesis) and how customers will know about it (growth hypothesis), as well as to start selling it (present MVP to the public)
• The Measure stage is about getting the customer base’s reaction and evaluating it. It is important to answer 3 questions here: “How do people find the product?” “How do people start using the product?” and “How do people create value with the product?”
• The Learn stage is needed to analyze the received data, get new experience, and decide what to do next. The main question here is: “Did our initial hypothesis work out, or do we need to change something?” Based on the answer, the team can either decide to change the direction completely or keep moving in the same direction, but with the required changes

These three stages cycle until the end of the project. The entire process is not simply about creating products but about understanding which products to develop for success.

Benefits of the Lean Startup Approach

Companies of any size can use the Lean Startup methodology. It shifts the traditional method, focused on revenue, to a more cognitive approach that eliminates the uncertainty many businesses face by embracing experimentation and learning. Here is a more comprehensive list of benefits you and your business can get if you try it.

1. Focusing on the minimum viable product development cycle reduces the risks and costs associated with developing a full-featured product that no one needs in the end. Moreover, it allows a more efficient resource allocation, which can be a key factor for startups
2. MVP allows companies to start gathering real-world feedback and adapt to it faster. This leads to increased agility and adaptability of businesses. Running smaller and more specific experiments helps entrepreneurs to get better insights into what their customers need and lack
3. It is a common problem for many business owners to have their own perception of customer needs, which can often not align with the real ones. The Lean methodology focuses on customer needs and market fit. Constant feedback from the users allows businesses to keep improving the actual product with every development cycle

In short, the Lean Startup concept puts businesses and customers closer and allows them to communicate more directly. Companies get a chance to adapt to the people’s needs, and customers influence the product development process in a certain sense. In other words, the customer development paradigm is built up.

Recommendations on When to Use the Lean Startup Approach

No methodology can suit every business, and Lean Startup is no exception. This is an iterative approach that works at its best in situations of extreme uncertainty. It can involve launching a business in an unfamiliar niche or expanding into new locations to attract more potential customers.

It is also great for testing new business models. This process is often associated with changing something and adapting to the newly acquired knowledge, which can be troublesome in more traditional approaches, chained by formalities and strict financial expectations.

At the same time, it is highly undesirable to work in a Lean approach paradigm with radically successful businesses, where the price of the MVP is exceptionally high. One of the key ideas in the Lean Startup methodology is to accept and learn from failures; however, this approach becomes ineffective when the price of failure becomes too high. Additionally, there is little sense in adhering to it for well-established projects with established processes and clear strategies that have proven to be effective.

Lean vs. Waterfall vs. Agile

Importance of Lean Startup Methodology Now and in the Future

The word “startup” was once associated with garage-based projects launched by individuals with limited financial resources and skills, but who are driven by their dreams and enthusiasm. Nowadays, it is more akin to traditional business building. It is a human institution designed to address a specific problem and meet particular needs, not to create radically successful businesses with a pre-defined cost structure. Startups are often created by skilled professionals with some savings and, sometimes, even with a small team. Failure to deliver an in-demand product often leads to the closure of such projects.

A new company that follows Lean Startup principles minimizes the risk of failure after delivering the final product, which typically requires massive investments and a significant amount of time. It also allows people to diminish the gap between the business owner’s vision and customers’ expectations by creating a feedback loop.

According to Microsoft, around 50 million startups launch every year, and they must operate in a highly competitive environment. They lack key resources for trial-and-error approaches. The systematic and scientific approach offered by the lean methodology helps startups eliminate wasteful practices, giving them a chance to survive and capitalize on their product or change their strategy and niche if the chances for success turn out to be low and they cannot generate customer interest. In other words, cost efficiency plays the key role in this approach.

There is no indication that the situation will change in the near future. The number of new startups will only grow; new niches are constantly emerging in various industries, so today’s entrepreneurs must adapt to this reality and find ways to thrive. Customer relationships are also growing in importance for any business. This is precisely what the Lean Startup methodology will give them.

Lean Startup Methodology Success Stories

Here are some of the projects developed by Glorium Technologies following the Lean startup process that have already proven successful with the MVP, passed the customer validation stage, and are in further development or have already been fully released.

A medication costs comparison application for Exponential Health

The initial request was to create a web application that would operate with large scales of data from multiple databases and conduct complex calculations in short time spans. As for MVP, an online environment was created that can operate with the data sets uploaded to the system and calculate the optimal pricing for the chosen medicine, which helps medical brokers a lot. It has already received approval from the application users and has moved to the stage of continuous improvement.

An application for the early diagnosis of cognitive abnormalities

An MVP version for a music-related application has been developed, aimed at early diagnosis of dementia and MCI. It is capable of collecting sensor data from the user (finger responses), features visuospatial and motor encoding, and is integrated with PACS archives and VNA compatibility resources for improved diagnosis. The app’s value proposition was accepted and appreciated by users. The next expected step is cooperation with Philips and the creation of a medical device to enhance the app’s performance and function.

Churn prediction system for the real estate sphere

The core principles of the Lean methodology were applied to create a pipeline for an American client operating in the real estate sector, utilizing an ML model. Its main aim is to analyze the probability and reasons why tenants can churn from the company and suggest what influences this probability. The MVP was delivered, and after the product was proven to satisfy the chosen customer segments, the team had to deploy the server, finish training the ML model, and develop additional features.

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