Lean startups can grow successfully
The lean startup in 3 steps: the perfect product quickly
Lean startup method to improve product market fit
Did you know that 80 to 90% of all start-ups fail? This rate is significantly higher than that of the classic start-ups who, for example, open a retail store or a restaurant. But what are the causes of the frequent failure of start-ups?
Start-ups differ from traditional business start-ups in two main features that are responsible for the higher failure rate:
If you become self-employed as a management consultant or if you open a restaurant, these are business concepts that are already widely represented on the market. It has been proven that there is a need for these products or services; the chances of success depend mainly on people, but not on products.
Start-ups, on the other hand, operate in a much uncertain environment: their idea is innovative and usually not yet tested on the market. Due to the rapid pursuit of growth, decisions with many unknown variables must be made in the shortest possible time. Often neither the exact target group is known, nor can the needs of the customers be specifically predicted. In the end, it is not uncommon for a product to be sold that nobody wants: The product-market fit is missing. The fact that many start-ups fail here is also in the nature of things.
The lean start-up method addresses this problem and offers innovative start-ups an efficient way to optimize the product development cycle and thus achieve product market fit in a quick way.
Implement the lean startup method in 3 steps
The product development cycle of classic start-ups and established companies usually provides for a long planning phase until the product or service is finally launched on the market. With this method, start-ups are often doomed to failure, as the product-market fit is often not given and the product does not find sales with the customer.
The lean startup after the American entrepreneur and author Steve Blank has a completely different approach: By quickly entering the market with a "lean" prototype, the suboptimal product can be improved on the basis of customer feedback and through several development cycles then mature into a product that is accepted in the market.
The lean startup method can therefore be divided into three steps:
- The "lean" product development based on an initial hypothesis
- Gaining feedback from customers through early market entry
- Feedback analysis and preparation of new hypotheses
This cycle is repeated several times in lean startups until the product is accepted by the customer on the market, i.e. a product-market fit exists.
The advantage of this methodology: Due to repeated intensive feedback from the customer, the product cannot be developed past the market. Millions of euros in development budget for a product that nobody wants in the end are unlikely with the lean startup method. Due to the close contact with the target group, customers can be won right from the start and a customer relationship can be maintained.
The lean start-up method offers innovative start-ups the opportunity to cost-effectively test the suitability of a business idea on the market and to advance product development quickly. The detailed procedure of the lean startup method is described below, starting with step 1.
Step 1: Lean product development based on initial hypotheses
With a lean startup, as with any other business start-up, one problem should be in the foreground that needs to be solved. As a founder of a start-up, you think about which product or service could be suitable for this. This product development process is initially based on various assumptions that will later have to be confirmed on the market.
In order to keep product development as lean as possible, the creation of a business model canvas is often sufficient. A complex business plan is usually not necessary for a lean startup.
Once the concept has been created, thought through and found to be conclusive, the next step is to create the product or a corresponding prototype. This should already offer added value in itself, but be reduced to the most essential functions and properties. For example, less emphasis can be placed on the appearance and unnecessary additional features can be dispensed with. In the case of services, on the other hand, the individual process steps are simplified as much as possible.
Such a product in its minimal form is called a Minimum Viable Product, or MVP for short.
Step 2: The early market entry and quick feedback from the customer
As soon as the MVP - based on the initial hypotheses - has been implemented, the next step of the lean startup method leads to the road: the prototype is presented to the potential target group and the first customer opinion is obtained. However, the positive feedback from a survey should not be weighted too highly - in the end it is the actual buying behavior that counts, which can differ significantly from the survey results. Therefore, the first version of the prototype or the service should be offered to potential customers for sale so that the interest in the product can be assessed even better.
By varying the product price, the willingness of customers to pay can also be checked. If there is still no agreement on the optimal distribution channel, small tests can also be carried out here. Because with a lean startup, not only the product itself, but also all other unconfirmed hypotheses on the market side should be checked.
Incidentally, as part of the sales process, as with product development, you should proceed as "lean" as possible:
Step 3: Analysis of customer feedback and creation of new hypotheses
After you have carried out your first market test, you now need to analyze the collected customer feedback in detail. The evaluation of all data should in particular serve to confirm or even refute the hypotheses made at the beginning of the lean startup method. For example, the following questions should be able to be answered with a greater or lesser degree of accuracy after the first test:
- Does the initially defined problem even exist?
- Is it big enough to get people to act - that is, to spend money on my product?
- Have I even addressed the correct target group?
- Is the distribution channel the right one?
- Does the selling price still have to be adjusted?
Some of the assumptions you made at the beginning of the Lean Startup Method will probably turn out to be wrong. But this is by no means a broken leg and should rather be seen as a success, as you can now formulate new, improved hypotheses.
As a lean startup, don't make the mistake of taking this step and make decisions based on insufficient or invalid data. Nothing is more annoying than to refute a hypothesis that turns out to be valid in a later market test.
And how do you proceed with the lean startup method? On the basis of your analysis of the customer feedback, you can now confirm or reject your assumptions or create new hypotheses. You have to test these on the market and wait for customer feedback. The process at a lean startup is repeated several times until you get the desired feedback from the market: The optimal product has been created and can now be sold in large quantities on the market.
Make use of a start-up coach who will support you in developing the concept.Continue reading
The lean startup method: an example
In order to better understand the concept of the lean startup method, we describe the procedure below using a practical example.
The idea: project management app for craftsmen
Computer scientist Markus has an idea for a mobile application. He wants to offer tradespeople an easy way to quickly and easily document the hours worked on a construction site and the materials used via smartphone and then automatically generate the invoice via an app. However, he is not sure whether the software will be accepted by the craftsmen and therefore, as a lean startup, would like to check this quickly and without too much effort.
Step 1: developing a prototype
Markus' assumption is that tradespeople have so far often carried out their project management in writing and so work very little efficiently. His mobile app should be the solution. He is developing an extremely simple Android-based prototype and posting it in the Google App Store for free download. The functions are limited to the minimum and the design is kept very simple, but the app offers a certain added value.
Step 2: Get your first downloads
As part of the lean startup method, Markus would like to find out whether there is any interest in the app and whether his target group will download it. So he advertises the app with a budget of a few hundred euros via Google AdWords and FacebookAds. At the same time, he calls some craft firms, presents his free app and asks for feedback.
The download numbers surprise Markus because they are pleasingly high. The feedback from the craft firms is sobering, however, as the range of functions is simply too small. This feedback is also reflected in the user behavior of the app: Almost 90% of all tradespeople uninstall the app within a week. However, the craft firms contacted tell him the functions that would make their daily work much easier.
Step 3: Analyze feedback and improve the app
For Markus, the use of the lean startup method has paid off: Based on the number of downloads, he recognized that tradespeople are actually interested in using such software. Thanks to the feedback from the craft firms, he also knows which functions are absolutely necessary.
Markus is adding essential functions to his app, putting it back in the Google App Store and placing online advertising. The significantly lower uninstallation rate of 30% proves him right and he is developing his app further. In the next version, it will integrate paid premium features and test different pricing models. The result is satisfactory: around 20% of active users take out a paid subscription for 12 months. With this, Markus has confirmed that there is a need on the market and is now having an iOS developer program an app for all iPhone users. Because he knows that this investment will be reflected in double sales.
Thanks to his lean startup, Markus was able to determine whether his idea was fit for the market without too much development effort. If he had developed two app variants at the beginning with possibly the wrong range of functions and an unsuitable payment model, he would probably have failed due to the high initial costs and the lack of product market fit.
Conclusion on the lean startup method
If you want to bring your innovative product to market quickly and as cheaply as possible and do not want to risk the lack of product market fit, you should definitely use the lean startup method as a guide. This is suitable for start-ups from most industries and can significantly increase the chances of a successful start-up.
Even if the market feedback is still negative after several test runs, a blatant change of direction - the so-called pivot - can still be a good solution for a lean startup. We wish you every success in reviewing your business idea!
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As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.
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