I still remember when ‘lean’ was a buzzword in manufacturing industry years and years ago. Lean concept was originally based on production process optimisation principles invented in Toyota for automotive industry back in early seventies. Now the idea of lean has been turned into a workable philosophy in general management and other business arenas. Some time ago I was listening Ola Sundell, the CEO of Hub Helsinki, telling about the logic behind the lean market strategy. He gave a presentation in Laurea University of Applied Science based on the ideas of lean startup as an innovation method developed by Steve Blank and Eric Ries and his own experiences as lean entrepreneur.
Ola Sundell is explaining the essence of lean philosophy.
‘Lean’ is maximising value and minimising waste
The lean business culture have been evolving since view years aiming at solving business problems in the early phase of business set-up by using a service design approach. According to Sundell the startups mostly fail due lack of market and customers or because of a wrong mindset. Now lean thinking is challenging the old ways of thinking and doing. Lean startup methodology has evolved from customer development method highlighting the lean aspects of both product/service design and customer development. It focuses on customer value creation: everything that does not provide value for customer is considered as waste. By using lean startup methodology it is possible to maximise value and minimise waste.
As startups are considered being temporary project organisations creating new products and services under extreme uncertainty, it is learning that matters – and learning fast.
The process applied in lean startup methodology is based on a build-measure-learn cycle with six steps: What is built it based on a problem or solution hypothesis. Testing the idea is the intended learning step requiring the testing metrics to be defined. For generating metrics and testing hypothesis, the experiment has to be built.
The six step cycle of lean development process.
What does it mean to go for lean?
Steve Blank has identified three key principles for the lean method:
- create hypothesis of your new business idea
- validate your idea with customers
- develop product or service concurrent with the customers
First, business ideas as hypotheses are basically just good guess until they have been tested. Finding customers is the biggest challenge for most of the businesses. As we all know it is waste of time and money to build something that does not interest customers. The traditional way of developing business plan and executing it does not help, if you have not been able to see what really is in people’s minds. And that is hardly the case when even customers have troubles to know for a fact what they really want. So instead of spending a lot of resources writing a business plan, hypothesis formulated will be fitted as components into business model canvas framework.
Business Model Canvas developed by Alex Osterwalder and Yves Pigneur illustrates the value delivery for both the company and for its customers in one page format including value proposition, distribution channels and affordable customer acquisition strategies as well as key resources, cost structure and revenue streams illustrated. Lean startups are working on the level of business model development searching for best possible product-market fit.
Second, lean method is based on customer development approach to test the hypotheses. Potential customers and other stakeholders are asked for feedback on all elements of the business model. When developing a startup there is no existing proven strategy for execution until it is tested. And the best way to success is to develop and test a market strategy before building a solution. This is something that startups have noticed. They do understand that ideas as such are worth of nothing unless there is value for customers involved. Lean startups work fast, cut about half of the time to market when building and launching a minimum viable product, test their visions and ask for feedback from prospects. And most valuable feedback is delivered by those who are enthusiastic in the topic, innovators and early adopters.
Third, agile development works hand-in-hand with customer development. Products or services are built-in iterative process in co-creation with customers. In the end customers are those validating the business. Thus, lean is all about people and learning. After quick rounds of experimentation the feedback gathered will be used as an input to revise assumptions for developing and testing offerings again, and again. If customer feedback reveals that business hypotheses are wrong, they are either revised or pivoted to new hypotheses.
Learning to market
Minimum viable go to market step means learning to market one experiment after another tackling down the risks and problems one after another. Developing dialogue with the customers makes it possible to find out the viable business model. When the model is proven, and only then, it is time for executing formal organisation building for the business.
It is not essential here to be the first one in the market but working fast to learn from experiences. Entering market the lean way makes it possible to fail fast. It is also a way of looking forward: uncertainties can be dealt with lean strategies and focusing on one problem at the time. It is all about making hypothesis, focusing on practical problems and testing ideas from a day one.
Lean method is not for startups only but gives a lesson for all of us. Instead of hit-miss proposition when launching or developing business there is also another way – and less risky one. Lean favours experimentation over elaborate planning, customer feedback over intuitive thinking and iterative development over traditional long-range up-front development processes.
Remembering the customer focus and settling down to the value delivery are essential for any business or professional. It has been widely reported that whether launching a new product or setting up a new business, the amount of failures in the market is up as high as 80%. So, maybe it is time to do things differently and move forward from the traditional formula of business planning. Business plan writing is aiming to figure out most of the unknown in the business in advance but do we really believe that it is possible to be plan everything ahead in these turbulent times? It might be uncomfortable, difficult and tough, but that is what lean is. Attitude matters!
Lean Startup Helsinki is the place for you, if you have the right attitude and want to learn for more about lean startup. Here you can see the schedule for upcoming meetings.
Written by Anna-Miia Suihkonen, design thinker and SID student
Resources: Blank, S. 2013. Why the lean start-up changes everything. Harvard Business Review. Brown, T. 2008. Design thinking. Harvard Business Review. Maurya, A. 2012. Running lean: Iterate from plan A to a plan that works. O’Reilly. Osterwalder, A. & Pigneur, Y. 2010. Business model generation: A handbook for visionaries, game changers, and challengers. Wiley. Ries, E. 2011. The lean startup. Crown Business.