In the conventional way, businesses generally spent their whole time on building the perfect drawing for the new development process. Thus, new research of Harvard Business School’s Shikhar Ghosh, 75% of all start-ups fail which implied that this was not appropriate approach to use anymore.
Instead, the lean business model is experienced and successfully conducted by many startups. According to Eric, “Using the Lean Startup approach, companies can create order, not chaos by providing tools to test a vision continuously,” which ultimately means you have to work more efficiently, no matters the company size. In order to comprehend this concept, go on the following sections for deeper insights.
What Is Lean Business Model?
The lean business model is described as a business’ endeavor to diminish waste in production process as well as maximize customer requirements. In that way, the tendency that customers return positively increases, sales and goodwill do likewise. A positive return from customers is the end goal of a lean business model.
By coordinating thoroughly lean concepts into firm’s operations, the result is likely to be a reduction in demand for cash, less faults, higher qualified products and faster deliveries to customers. This business model is effectively used for launching a new enterprise regardless it’s a tech start-up, a small business, or an initiative within a large corporation, which are limited by investment on cash.
The Right Implementation At the Right Time
When lean business model is used appropriately? Far from the maturity, this business strategy is significantly applied when the new product launched to the market which belongs to the development and introduction stage in the product life cycle. It’s operated when a product is conceptualized and first brought to market. The goal of any new product introduction is to meet consumers’ needs with a quality product at the lowest possible cost in order to return the highest level of profit.
Whereas it comes to the growth stage, which means the product has survived its introduction and is beginning to be noticed in the marketplace. At this stage, an organization can choose whether it desires to go for expanded market share or profitability. This is the blast time for any production. The increased in production lowering unit costs. Sales are enhanced as advertising campaigns focus on mass media audiences instead of specialized markets. Competition raises as awareness of the product builds. Minor changes are made as more feedback is collected or as new markets are targeted. Therefore, lean business model is used for continuous improving in this stage.
Lean Business Model: Key Concepts
In general, lean business model favors experimentation over expand arranging, customer feedback over instinct, and iterative plan over conventional “big design up front” development. Despite the fact that the strategy is at the new age, its concepts — such as “minimum viable product” and “pivoting” — have immediately flourished in the startup world and business colleges have just started adjusting their educational programs to instruct them.
Minimum Viable Products (MVPs)
It’s quite a long time for the MVPs concept has existed in varying forms. However, it was promoted by Eric Ries in a lot of standards regarded to his book, The Lean Startup. Ries expressed the term in this way: “the minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” In other words, it is a product with just a fundamental set of traits enough to catch the consideration of early adopters and make your solution unique.
This is a vital concept in new product development. Regardless of whether in a startup or professional workplace, genuinely innovative products regularly meet the narrow funding. Fast, low-cost proof of concept techniques like MVPs provide stakeholders the validation they need while learning information about your customer.
MVPs’ is a smart problem-solver for lean business model:
- Release your product to market within short amount of time.
- Diminish execution costs.
- Acquire valuable insight on what works and what doesn’t work.
- Directly deal with your customers and break down their practices and preferences.
- Collect and improve your user base.
- Test the interest for your product – before releasing a completely-developed product.
- Keep away from failures and huge capital incurred.
- Additionally, you may find out more problems you can solve or hit on new ideas and exclusive offerings, that means more chances to drum up your business.
The golden rule of MVPs
The MVPs concept sounds simple but not easy at all. Some entrepreneurs still misconstrue its idea due to the pursue of perfect product. Some organizations lose their emphasis on the core value and attempt to incorporate every single feature to be included in the product. MVP gets over-burden with features, an organization loses its financially investment and fails to succeed.
Another fault is to misuse filtering process which over cutting out product core function. It’s critical to comprehend that “a fundamental set of traits” doesn’t mean you can launch out an unrefined item. You ought to give your clients a possible and working item that will enable clients to finish the entire experience and obtain their objectives.
Subsequently, it’s possible that additional features are gradually supplemented. The rule of thumb here is that every additional element or each new release of your MVP should offer a superior answer for your clients: take care of their issues quicker and better.
Dropbox case study for a successful business that started as MVP
Before this essential file-sharing services was constructed, Dropbox cofounder and CEO Drew Houston knew there were huge amounts of cloud storage start-ups whereas Dropbox would offer something distinguish and more sufficient, progress wouldn’t be simple, since a product that works through platforms and operating systems is innately tricky. The question would be whether users sign up if Dropbox build up the application?
To seek for the answer, Houston posted a three-minute video on Hacker News in April, 2007, showcasing users the best way to utilize the product on his desktop. The video played to the correct group of spectators: users had lots of helpful comments and feedback, likewise they point out potential issues, Houston gathered 70,000 email addresses in a single day. The green light was given from users — not engineers, investors, or advisors — that the product was desired.
According to Steve Blank, Build-Measure-Learn approach is nothing more than “throwing incomplete products out of the building to see if they work”. To express in an easier understanding way, it means build up a product and launch it into the real world, measure customers’ reactions and behaviors, learn from experiences, and apply what you’ve learned to improve something better. Repeat, learning whether to iterate, pivot or restart until you have something that satisfy your customers.
The main objective of Build-Measure-Learn model is not to establish a finalized product or even its a prototype, but to optimize learning through additional and repetitive engineering. The “build” term refers to building an MVP. As mentioned earlier, an MVP is not the product with fewer features. Rather it is the most basic thing that you can show to customers to get the most learning at that point in time. As more is learned, the MVP’s quality goes from low to higher, but the goal go on maximizing learning not to build a fully featured prototype of the product.
Product market fit
Another component of the Lean Startup is product-market fit which also is the most significant factor in a product’s success determination. A research from CB Insights suggested that the typical matters of startup (product) failure was lack of product-market fit which accounts for 42%.
You may own an intelligence team with master production but none of it matters if the market doesn’t exist. It is the top goal for a startup by achieving the product/market fit, yet it is also one of the least understood concepts which expresses whether a product satisfies a strong market demand.
A vivid illustration of what product/market fit feels like in Marc Andreeson post: “you can always feel product/market fit when it’s happening.” The amount of using demand is growing, news is spreading via word of mouth, demand is hard to catch up with, etc. To improve this, choices must be sponsored by measurements — which is simpler said that done in the beginning periods of product development. The following are assets on measurements to explore and communicate product-market fit:
- Sean Ellis Test
- Net Promoter Score
- Retention Rate.
6 Handy Tips to Move Your Entrepreneurship Journey in a More Professional Manner
While wasting your time to deal with an old business model approach, you can simply get through these steps to craft a new lean business model with a more efficient and time-saving outcome.
#1: Copying is undesirable
Entrepreneurship and building a startup aim to provide genuine and unique product which add in additional value to customer’s lives. Rather than repetition another startup’s business model, design thinking is suggested to be used to generate innovative business ideas that are inventive and disruptive.
#2: Foreseen the change
As an entrepreneur, change is your greatest buddy so you should be able to predict its manner and be adaptable with it. Yet time is your constraint, so don’t waste it on your perfect version for first business model. In fact, your business model changing will get along with you till the customer acquisition phase. Keep this rule in mind: never fall from grace with your first business model.
#3: Repete frequently
First idea is the starting point with what you think it might work. Hence, note it down and draft your first version, accomplish the building block for your model, and progress further the initial business model. As it is completed, get work with testing the outside of the building first by collecting customer feedback then iterate frequently to improve the best. It’s surprising that at the end up developing, it might be something completely different compared to your initial idea.
#4: Consider customers’ opinions
The common fallacy of businesses is that attempt to invest tons of money in market research but tend to forget or not consider the core valuable factor to their customer acquisition and product development cycle which is customer’s opinion. Without the customer point of view including in the development process, it’s nothing for further processing. If you are limited with narrow R&D budget, conducting low-cost market research is being processed by the time you get to know your potential customer’s feedback. The more you understand your customers, the better your position.
#5: Utilize an empathy map.
Regardless of how great your business idea is, or how stunning your product looks, the business model focuses on how you can utilize it to touch your customer’s heart. It is achieved by designing both your business model and your product/service to emphasis on your customer pain points. Answer these questions:
What does she like to do during weekends?
What influences her the most?
What do you know about her attitude in public?
What she cares about?
#6: Agile development
The trick is to be able to develop your business model and move to product development as quick as possible. Next thing to do is to test your model and your prototype with your customers, and finally, adapting to market demands or pivot whenever necessary.
Things Should Keep in Mind for Lean Entrepreneurship
Technology is often at the heart of a lean business model
Technology facilitates sophisticated processes and automating more tedious, manual ones. It measures what’s working and adjust new and more complicated applications as they become available. But Chakraborty showed that software alone can’t drive a lean approach.
“The secret to lean business model success involves business professionals leveraging the right software in daily business processes, perfecting business process flows, creating market pull and scaling to grow the business.”
As such, it’s indispensable for a lean entrepreneur to catch up the technology age and learn how to leverage it well achieve the business goal efficiently. Having flexible, learning oriented management makes for a successful lean startup.
A lean entrepreneurship must have this spirit
According to Joseph Schumpeter, an entrepreneurial spirit is someone who is willing to convert creative ideas into innovative activities. Lean entrepreneurship creates an “innovative elimination” across markets and industries, creating new business and business models, eliminating old and outdated models which is insufficient anymore. At the same time, Frank Knight and Peter Drucker said that entrepreneurship is about taking risks and challenging to do it. Further, in the long run, entrepreneurship creates a fast and solid economic growth.
The Bottom Lines
To sum the whole paper up, a lean business model can help simplify the operation so organizations can adjust market change rapidly. Utilizing such a model into your business may assist you with beginning tending to your client’s needs progressively. However, nothing is absolute, everything is relative, so does a business model. As so, you are required to comprehend how to apply the right model into the right business status and context. If you’re ready to reach new heights and embark to the new market with your growing business, don’t hesitate to leave me a text for the consultant from our dedicated team.