Incorporating Lean Startup Methodology into your Business

I want to make one thing perfectly clear: I believe that too many good ideas fail to spawn into successful businesses. Take a look at these stats . . .

  • Only 30% of businesses continue to exist beyond year five
  • Only 1 in 58 ideas move on to become products
  • 80% of startups overestimate projected returns

As an entrepreneur, these numbers are disheartening and downright discouraging. But, allow me to make another point, I believe that startup success can be engineered.

Consider this:

Harvard Business Review found that entrepreneurs who fail in a venture are statistically more likely to succeed than the first-time entrepreneur. They also found that, "Of those businesses that succeed, over two-thirds drastically change their business strategy. "

These statistics illustrate two key factors of successful businesses: experience and agility.

But, what if we didn't need to fail to increase our chances of success? And, what if, we could proactively make changes to our business strategy before incurring a significant drain on time, money and energy? These are the questions that lean startup methodology (LSM) attempts to answer.

LSM was pioneered by Eric Ries as a result of his amazing success in creating products -- products that absolutely no one wanted. As a reaction to the unmarketable products, he and his team would turn toward throwing good money after bad ideas, seeking further investments to revive the products and meet investor milestones.

Eric soon realized the fundamental flaw for startups was that they are tied to the wrong metrics, "vanity metrics" as he calls them. He realized that, for startups, when uncertainty is at its greatest, being tied to vanity metrics like number of users or revenue can distract from the most critical business problems. Instead, businesses should be focused on validation of key assumptions about customers, products or services, and the business growth model.

After studying both lean manufacturing and agile development, Eric adapted those concepts to fit the uncertainty of startup environments. LSM is based on the "Build, Measure, Learn" cycle of continuous empirical experimentation to validate key assumptions about your product or business, which serve as small wins toward eventual success, helping to build a scalable foundation for your business. He created the idea of a "Minimum Viable Product (MVP)" as a lightweight way to discern assumptions and quickly pivot if the given assumptions are invalidated. Through this process, startups are able to answer key concerns and validate that the product will be successful before investing significant resources into the project.

Admittedly, I am skipping the nitty-gritty of LSM theory (if you're looking for details, I definitely recommend buying the book). Instead, I want to guide you through the "Build, Measure, Learn" framework so you can begin engineering the success of your startup.

Below is the Validated Learning Canvas, which was developed by Eric Ries and the founders of the Lean Startup Machine. I will briefly go through each step here; however, for more information you can find a detailed explanation and a few examples in my webinar: Lean Entrepreneurship: Rapid Ideation, Validation and Iteration For Success.

validated Learning Canvas

Before we begin going through how to use the Validated Learning Canvas, there are a few things you should know.

  1. Create a physical version of this framework. You should draw this on the whiteboard, use a chalkboard, or laminate it on a poster board, make it physical and make it LARGE. Doing this digitally just won't cut it.
  2. As you go through the process, use sticky notes and write in big black marker and in all caps. It seems trivial, but when you've been staring at your canvas for hours, you will thank me for not needing to squint.

Ok, let's begin:

Step 1: Write your problem hypothesis.

Develop a 5-7 word hypothesis describing the problem you believe your customers face. Make sure to be as specific as possible with your problem.

Step 2: Write your solution hypothesis.

Develop a 5-7 word hypothesis describing your solution for solving the problem hypothesis. Again, be as specific as possible. Try using analogies of similar companies in your solutions. Example: "We are the insert analogous company of insert your industry." This will help clarify your solutions for everyone involved.

Step 3: List and prioritize all assumptions.

Consider what assumptions are being made in order for your business to succeed. What are you assuming about your customers and the problems they have? What are you assuming about your solution and customers' interaction with the product? What questions will keep you up at night?

It is critically important that you prioritize your assumptions at this point. By prioritizing in the beginning of the process, you will save time and effort when you revisit this step to test additional assumptions.

Step 4: Determine your riskiest assumption.

Of the assumptions listed in box 3, which, if false, will eliminate chances of success? Move riskiest assumptions from box 3 to 4.

Step 5: Determine your MVP.

What is the amount of effort you can put in to test the most assumptions? Many times this test will be a survey. Other times, you may create a product without full functionality. You may even manually do something you plan to automate in the future. Regardless of how you choose to test your assumptions, make sure you focus testing on your target market.

See a guide on MVPs here.

Step 6: Set Success Criteria

Make sure that you define what success looks like. If you create a survey, understand how many positive responses equal validation. If you are showing a product, does the fact that someone uses a feature signify validation? Do not skip this step. If you do not define criteria up front, you will have no way to decide whether a test was successful and your results will not be as valuable.

I do realize that these questions will be hard to answer for startups that do not have a baseline. That is okay. Guess in the beginning and use the results as a baseline for future iterations.

Step 7: Validate or Invalidate

Based on the results of your test, place the post-it notes from boxes 4, 5 and 6 in the validated or invalidated column. Combining the notes will be extremely helpful in keeping track of past tests as you continue to iterate and pivot.

Step 8: Pivot or Persevere.

At this point you will have completed a full loop of the Build, Measure, Learn process. It's time to decide whether to continue testing additional assumptions (persevere) or re-evaluate your problem and solution hypothesis (pivot).

If you persevere and continue testing assumptions, you will move on the next most critical assumption and develop another MVP and success criteria.

If you need to pivot, you will move to box 1b and begin the process over again. At this point you will need to reassess your assumptions. Do they still make sense? If not, combine those assumptions and move them between box 1a and 2a.

Step 9: Iterate, Iterate, Iterate.

You should start to see this process as a lightweight way to test whether your product or business can be successful through validation of key assumptions that hinder success.

Over the past 3 months, I have used this process to evaluate every idea under the sun and I'm confident that I've saved myself both time and money that would have been wasted developing products with no market. I truly believe that by using the "Build, Measure, Learn" process entrepreneurs no longer need to fear the statistics of a previous generation. LSM should be de facto strategy for all startups looking to build a scalable product. And I believe that if you use LSM to help build your startup, you too can engineer the success of your business.

Matt Reilly, Junior Consultant

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