Startups

Transform Your Startup in 2023: Mastering the Lean Startup Methodology

By:
Andrew Logemann
January 16, 2023

Are you tired of wasting time and resources building products no one wants?

The solution you're looking for is the lean startup methodology. This approach, popularized by Eric Ries, emphasizes rapid experimentation and learning. With the lean approach, you can efficiently identify and solve the problems that truly matter to your customers.

And as a bonus, we've got some exclusive free templates created by Eric Ries himself to help you implement the lean method, as well as answers to common questions about lean methods.

In this guide, you’ll learn the following:

  • What is the lean startup method?
  • The danger of a rigid business plan
  • How lean startups are disrupting traditional approaches
  • Key lean startup principles
  • The distinctive strategies of lean startups
  • Access to exclusive free templates for implementing the lean startup method
  • Answers to FAQs about the lean startup method

What Is the Lean Startup Methodology?

Eric Ries, author of the Lean Startup Methodology

Lean startup practices prioritize testing hypotheses, gathering customer feedback, and developing products based on what you learn from these sources.

The goal of the lean startup methodology is to bring new products and services to the market quickly while minimizing waste and maximizing learning. It is particularly popular among startups and entrepreneurs looking to validate their ideas and business models at an early stage.

The lean startup methodology was created by American entrepreneur, Eric Ries. He developed the method while working with startups and later on he became an advisor and consultant for a number of companies. He popularized the idea in his book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.

Perfection Doesn't Exist: The Danger of Sticking to a Rigid Business Plan

One of the insights of the lean approach is that companies often hold onto business ideas and plans that aren't really working. Ries writes that “we must learn what customers really want, not what they say they want or what we think they should want.”

The belief that a perfect business plan is the key to a successful startup is a common fallacy. In reality, a business plan is only as good as the assumptions on which it is based, and those assumptions are often wrong. The lean Startup method encourages entrepreneurs to start with a business idea, a hypothesis, rather than a business plan. And then test that hypothesis by talking to as many customers as possible, as fast as possible.

This allows them to validate their ideas and ensure that they are building something that customers actually want. By focusing on customer validation, rapid experimentation, and the creation of a Minimum Viable Product (MVP), entrepreneurs can make informed decisions about product development and resource allocation. This accelerates learning as founders discover startup lessons and apply them to their nascent businesses. As Ries observes, “the only way to win is to learn faster than anyone else.”

This approach also emphasizes the importance of building a sustainable business, rather than just a successful product. By constantly testing and refining their ideas, entrepreneurs can quickly identify and address any issues with their product or business model, and make adjustments as needed. This allows them to build a business that is not only successful, but also sustainable in the long-term.

This nimble approach to products makes the lean startup method is a better approach than relying on what seems like a perfect business plan.

  • It allows founders to validate their ideas based on customer feedback and real-world data.
  • It helps entrepreneurs to build a sustainable business, not just a successful product.
  • It increase the chances of market success for new products in the long-term.

How Lean Startups are Disrupting Traditional Approaches

Lean startups and traditional startups have different approaches to creating and growing a business. The traditional startup approach, which is often associated with the software industry and venture capital firms, emphasizes rigid business plans and the need to scale quickly to attract investors. This approach is based on the belief that a scalable business model is the key to success, and that startups must grow rapidly to be successful.

On the other hand, the lean startup approach that has become more popular in the past few years, emphasizes the importance of customer development, rapid experimentation, and iterative product development. This approach is based on the idea that startups should focus on creating a sustainable business, rather than just successful products.

One of the main differences between lean startups and traditional startups is their approach to product development. Traditional startups often rely on elaborate planning and long product development cycles, while lean ones use agile development methodologies to shorten product development cycles and validate their ideas more quickly. This allows startups using lean methods to increase their chances of success by bringing new products and services to market earlier.

Another difference is the way both types of startups approach risk. Traditional startups are willing to take on more risk in order to achieve rapid growth and scale, while lean startups prefer to minimize risk by testing and validating their ideas based on customer feedback. Where a traditional startup develops a business idea in secret and waits a long time to release the first version of a product, a lean startup often builds in public and releases a product early so they can learn from customers about what is working and what isn't.

The lean startup approach is different from the traditional startup approach. A lean startup bases its operations on the ideas of validated learning, rapid experimentation, and iterative product development. Traditional startups, by contrast, base their operations on elaborate planning and bet everything on rapid scaling, which can lead to an increased risk of failure.

By applying lean startup practices, young tech ventures are able to create products faster than more established companies while validating their ideas with target customers earlier and measuring progress consistently with actionable metrics. All of this reduces the risk of failure and increases their chances of success.

The Five Key Principles of The Lean Startup Methodology

Lean Startup Methodology

1) Entrepreneurs are everywhere.

For Ries, anyone who works who is creating new products and services is an entrepreneur. Entrepreneurs leverage human creativity to pioneer new business models, agile development, and innovation processes.

As he defines it, “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” This broad definition of entrepreneur and startup is intentional, as lean startup principles is not limited to traditional startup companies, but can be applied to any organization that is looking to create new products or services, regardless of the size or industry.

This is why the lean startup approach can be utilized by employees and founders alike, at organizations of all sizes, across a variety of industries.

2) Entrepreneurship is management.

Startups require an innovative kind of management because of their inherent uncertainty. They set out to create something new, often in an uncertain market or industry. Although their founders hope for tremendous success, predicting the outcome of new startup ventures is very difficult.

“The big question of our time is not Can it be built? but Should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.” - Eric Ries

Traditional management techniques, which are often based on past experiences and proven models, may not be effective in the startup environment. Therefore, startups need an innovative approach that can help them navigate this uncertainty, measure actual progress, and build a sustainable businesses. According to Ries, “Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.”

3) Validated learning.

One of the key principles of the Lean Startup methodology is the idea of customer development. This involves actively seeking out and engaging with potential customers early on in the product development process, in order to gain a deeper understanding of their needs and pain points. By doing this, startups can validate their ideas and ensure that they are building something that customers actually want.

As Ries explains, “the goal of a startup is to figure out the right thing to build — the thing customers want and will pay for — as quickly as possible.” This goal is achieved through frequent experimentation around each element of the startup’s vision. “What if we found ourselves building something that nobody wanted? In that case what did it matter if we did it on time and on budget?”

4) Build/Measure/Learn.

At the heart of the lean startup methodology is the Build/Measure/Learn feedback loop in which startups “turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.”

To do this, startups using lean principles focus first on creating an MVP. This is a minimal, functional version of a product that can be released to customers early on in the development process. The goal of an MVP is to test key assumptions about the product and gather feedback from customers, so that the startup can make informed decisions about how to move forward. For Ries, “Success is not delivering a feature; success is learning how to solve the customer’s problem.”

5) Innovation accounting.

In order to drive growth and ensure successful innovation, startups need to maintain a focus on the “boring stuff: how to measure progress, how to set up milestones, and how to prioritize work.” This requires an innovative accounting specifically calibrated for startups.

The Distinctive Strategies of Lean Startups

Strategies of lean startups

Lean startups are not afraid to challenge the status quo and question the traditional approach to business model generation. They understand that startups fail not because of a lack of funding or resources, but because they build something that customers don't want.

The lean startup model is based on the idea that startups should focus on creating a sustainable business, rather than just a successful product. By focusing on customer development and creating an MVP, startups using lean concepts can validate their ideas early on and make informed decisions about product development and resource allocation.

The lean startup process is not only effective for managing successful startups, but also for how large companies can innovate and measure progress. This approach is not limited to software development but can be applied in any industry.

The core basic principles of the lean startup movement are to focus on customer development, rapid experimentation, and iterative product development. By following these principles, startups can bring new products and services to market quickly and efficiently, and increase their chances of success in the long-term.

The Lean Startup Templates

Below we've collected templates provided by Eric Ries, the person who literally wrote the lean startup book. These templates will help you implement the lean startup methodology at your own company, whether you work at a brand-new startup or an established organization.

Template #1 | Build/Measure/Learn Feedback Loop

Lean Startup Methodology Templates - Build/Measure/Learn Loop Worksheet

This overview template gives you a breakdown of the entire Build/Measure/Learn process, as well as a worksheet you can rely on to track your cycles through the loop as you:

  • Make leap-of-faith Assumptions
  • Formulate hypotheses
  • Build minimum viable products (MVPs) to test those hypotheses
  • Assess the results of your MVP experiments
  • Determine whether to persevere or pivot

As you work through the Build/Measure/Learn feedback loop — making assumptions, formulating hypotheses, building MVPs to test those hypotheses, assessing the results of your test, and ultimately deciding whether to pivot or persevere — it can be helpful to track your progress.

Template #2 | Developing Your Value Hypothesis

Lean Startup Methodology Templates - Determining Your Growth Engine

Crafting a value hypothesis is a vital first step in the process of developing the product or service your startup will provide. Here you’ll find a templated structure for such a hypothesis, as well as a series of questions aimed at helping you develop each component of that structure.

The general structure of a Value Hypothesis looks like this: This type of consumer (target customer/client) will pay (cost) to buy/use/etc. (product or service) to help with (problem). At its root, a value hypothesis takes a handful of assumptions about your product/service and structures them so as to be verified or rejected.

Template #3 | Determining Your Growth Engine

Lean Startup Methodology Templates - Determining Your Growth Engine

Once you’ve identified your value hypotheses, you will need to determine your engine of growththe verifiable assumption of how your startup will achieve a sustainable growth feedback loop. This template gives you an overview of the three engines of growth, along with a series of questions to help you determine which engine is right for your startup.

As the venture capital investor Shawn Carolan, puts it: “Startups don’t starve; they drown.” There is always an endless stream of new ideas about how to make a product better which ultimately only makes a difference at the margins. Startups have to focus on the big experiments that lead to validated learning.

Engines of growth are designed to give startups a relatively small set of actionable metrics on which to focus their energies. This template will give you a breakdown of the Three Engines of Growth and help you determine which Engine of Growth is right for your startup. Bear in mind, this process will require you to make a number of “leap-of-faith” assumptions, which will ultimately require rigorous testing for you to either validate or reject them.

Template #4 | Choosing the Best MVP to Test Your Hypothesis

Lean Startup Methodology Templates - Choosing the Best Type of MVP to Test Your Hypothesis

Once your hypotheses have been formulated, it’s time to either validate or reject them by building a minimum viable product (MVP). An MVP is a version of your product or service which allows you to collect the maximum amount of validated learning with the least amount of effort. Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.

MVPs can range in complexity from simple, easily executed tests to actual early prototypes. How complex you go with your MVP and what style of MVP you utilize cannot be determined formulaically. It’s ultimately a judgment call that greatly depends on the assumption you’re trying to validate.

Template #5 | Making the Right Pivot

Lean Startup Methodology Templates - Making the Right Pivot

After a few cycles through the Build/Measure/Learn feedback loop, you may find your core hypothesis has simply been rejected. In which case, it’s time for a pivota change designed to test a new fundamental hypothesis about the product, business model and/or engine of growth. This template helps you determine which type of pivot to pursue.

Template #6 | Root Cause Analysis with the Five Whys

Lean Startup Methodology Templates - Root Cause Analysis and the Five Whys

Once a baseline product or service has been established, the goal of a startup is to accelerate. Paradoxically, doing this safely requires adaptive processes that force you to slow down and invest in preventing the kinds of problems that inherently cause waste.

This worksheet gives you a template and guidance for executing the Five Whysa systematic problem-solving tool designed to diagnose the root cause of any problem your startup may be facing. Addressing the root cause directly, in turn, allows you to enable more competency, efficiency, and ultimately speed within your startup.

The Power of Lean Thinking: Corporations in the 21st-Century

The lean startup methodology is revolutionizing the way 21st-century corporations approach innovation and growth.

One of the key advantages of the lean startup methodology is its focus on customer development and learning. By gathering feedback from customers early on and testing assumptions about a product or service, corporations can make informed decisions about product development and resource allocation, rather than relying on elaborate business plans that may not reflect the realities of the market.

Another advantage of the lean startup method is its flexibility and adaptability. Unlike traditional approaches, which are often rigid and siloed, the lean startup method encourages experimentation and iteration, allowing companies to pivot and adapt as needed. This is especially important in today's fast-paced, ever-changing environment, where every successful entrepreneurial business is defined by its ability to adapt quickly to new challenges and opportunities.

Moreover, the lean startup methodology is not just limited to startups, but it can be applied to large corporations. By using the Build-Measure-Learn feedback loop, corporations can turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. This allows corporations to drive growth and ensure successful innovation.

Lean Startup FAQs

What is a lean startup?

At its heart, a lean startup is a company that emphasizes rapid experimentation, customer feedback, and iterative product development. The goal is to bring new products and services to market quickly while minimizing waste and maximizing learning.

What are the key principles of the lean startup methodology?

The key principles of the lean startup methodology include customer development, rapid experimentation, and the creation of an MVP: Minimum Viable Product. These principles are designed to help startups validate their ideas and business models early on and make informed decisions about product development and resource allocation in the new startup environment.

What is the difference between a lean startup and a traditional startup?

A traditional startup typically follows a "build it and they will come" approach, where a business develops a product or service and then attempts to find customers for it. A lean startup, on the other hand, focuses on customer development and validation early on in the product development process, and is more focused on building something that customers actually want. This allows it to build a more successful entrepreneurial business.

How can I use the Business Model Canvas to build a lean startup?

The Business Model Canvas is a visual tool that helps startups map out their business model and identify potential areas of risk. By using the Business Model Canvas, startups can gain a better understanding of the different components of their business and how they interact with one another. This can help them make informed decisions about product development and resource allocation, and increase their chances of success.

What is a Minimum Viable Product (MVP)?

A MVP is a minimal, functional version of a product that can be released to customers early on in the development process. The goal of a MVP is to test key assumptions about the product and gather feedback from customers, so that the startup can make informed decisions about how to move forward.

Why is customer feedback important in a lean startup?

Customer feedback is important in a lean startup because it allows the business to validate their ideas and ensure they are building something that customers actually want. By actively seeking out and engaging with potential customers early on in the product development cycle, startups can gain a deeper understanding of their needs and pain points and make informed decisions about product development and resource allocation.

How can I test my assumptions and hypotheses in a lean startup?

One of the best ways to test your assumptions and hypotheses in a lean startup is by creating a MVP. A MVP is a product that has the minimum set of features to be able to provide a solution to the customer and test the assumptions made in the business model. Additionally, feedback from customer can help you test your assumptions and hypotheses as well.

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