When you hear the word “startup”, what comes into your mind? You probably picture a garage where a group of friends develop a new product. It’s a very exciting venture, with a promise of earning big. That is how most dot com companies in Silicon Valley started. In fact, as you probably know, that is how Apple started.
But did you know that there can be a startup even within an established company? You will learn that and a lot of other interesting ideas in this book. The world of business is changing. And so, the traditional approach must be changed as well. The Lean Startup presents a modern approach in business.
There are startups which have very good planning. They have a well-thought of product and marketing strategy. They have a team of intelligent members. But, after investing so much time, money and effort, why do these startups still fail? What could be missing? Is the planning not enough?
You may want to start a business of your own. Or you may already be an entrepreneur looking for a new venture. Either way this book is for you. If you’re curious on how startups can become multi-million companies, let’s begin.
What is the Lean Startup?
The Lean Startup is essentially based on experimentation. The main idea is learning from mistakes. You don’t spend years on perfecting the product. You don’t spend years on thinking whether the product would sell or how the customers would respond.
Using the Lean Startup method, you create an early version of the product in small amounts. Then, you make the necessary changes along the way. The term is continuous innovation.This prevents new products from getting wasted and pulled out from the shelves.
True enough, the Lean Startup became a global movement. It was adopted by many organizations worldwide. It created a renaissance in the world of business. Not only new companies applied the principle, but also the most elite businessmen and the Fortune 500. Interestingly, Eric Ries’ company, the IMVU, earned $50 million total in 2011.
What are the principles of the Lean Startup?
There are five key important ideas in the Lean Startup method. Number One is you don’t have to be in a garage to start a new business. It doesn’t matter where you are. You can choose to be an entrepreneur.
- A startup is defined by uncertainty. Any organization that wants to create a new service or product is a startup, that is if they are faced with extreme uncertainty. The Lean Startup can apply to companies of all sizes, no matter the industry or sector
- Number two is management. When you say startup, you are not only referring to a product. You are also referring to the people behind the product. The people or the institution needs to be managed. A special type of management is needed, especially that they are dealing with great uncertainty
- Number 3 is validated learning. Validated learning is a series of experiments where entrepreneurs can test what works for their business. It is familiar with testing a scientific hypothesis. This is important because the goal of startups is to make the business sustainable. It is not just to make profit
- Number 4 is build-measure-learn. The primary tasks of a startup are tobuild products from the ideas, measure the feedback of customers and learn from the feedback, if it is better to pivot or persevere. To pivot means to turn and try a different approach. To persevere means to go on and continue. You need to pivot if the feedback is not good, persevere if the feedback from the experiment is positive.
- Number 5 is progress. The startup must get used to the build-measure-learn cycle. It must learn more from the feedbacks in a shorter amount of time. The startup must know which process to persevere in order to achieve
How “Zappos” did a Lean Start-up?
Zappos is an online shop for shoes. It’s better that open the website now and see what it really is!! Its best asset is being customer-friendly. Zappos is one of the largest e-commerce businesses internationally. In fact, it is the most successful with annual sales of up to $1 billion. But like all startups, the company has a humble beginning.
The founder of Zappos is Nick Swinmurn. Years ago, he got frustrated because there was no single online site which showcases all kinds of shoes out in the market. He wanted customers to have the best buying experience.
Swinmurn could have spent a long time planning. He should have figured out everything first starting from the warehouses, to distribution partners and the potential sales. That was the trend for the pioneers of e-commerce.
However, Swinmurn began Zappos with an experiment. He had the hypothesis that people are already confident of buying shoes online. What he did was to ask the local shoe brands for permission to take pictures of their products. In exchange, Swinmurn would upload the photos online. He would go back to the stores to buy the shoes if customers ordered.
Zappos began as a simple functioning site. Swinmurn was set to answer if there is really a demand for online shopping of shoes. By interacting with actual customers, he was also able to derive the best payment, returns and customer support system.
Doing this experiment is very different from market research. If Swinmurn had conducted a survey, he would have got what the customers wanted. By building the site, he learned so much more.
First, by having real customers, he got more accurate data than made-up situations on a survey. Second, he learned the actual needs of the customers. He learned that Zappos might need to have discounted pricing. Third, he was able to deal with customer behaviour. He learned how to react with return issues.
Zappos gained a lot from Swinmurn’s experiment. Though the company started small-scale, it yielded good results. Swinmurn learned best what needs to be included in the online store. Zappos became an established brand. In 2009, the company was bought by Amazon for $1.2 billion.
The story of Zappos proved the efficiency of Lean Startup. The experiment saved the company time, effort and money. Instead of having stocks of shoes, Swinmurn was right to ensure the orders first. In this way, he didn’t have shoes in the inventory which no one wanted to buy.
It also prevented the need for a customer survey. Actual customer interaction was more accurate. He was also able to deal with actual problems and achieve customer satisfaction. Swinmurn started with a raw product. But through experiment, Zappos became the perfect customer-friendly site.
The simple functioning site he made is called a Minimum Viable Product. An MVP is an initial version of the product. It is cheap, easy and quick to develop. It would evolve into a perfect final product through the results of experimentation.
Based on the Lean Start-up principle, we can see that Zappos began with a lot of uncertainty. There was no existing online shop for shoes. Besides, Swinmurn wasn’t sure if there is evena demand for one.
But he applied validation learning.Swinmurn tested his hypothesis by launching the experiment site. Then, he applied build-measure-learn as he dealt with real customers. Swinmurn learned which approaches to pivot or persevere, like discounts and return system. Eventually, Zappos became a sustainable business.