Book Review: The Lean Startup

One of the greatest challenges in managing a start up is knowing how to meet the needs of customers. The sole purpose of a business is to be able to meet the needs of customers. The ability of a business to adapt and evolve with the changing customer needs is key to enjoying competitive advantage. The Lean Startup by Eric Ries shows you how. The Lean startup is a book about how to start small and scale your business in small steps. Basically, the Lean Startup is about two main questions ‘why do businesses fail?’ and ‘ how can startups prevent failure ? It brings a whole new dimensions about how to build great companies.

the-lean-startup-bookThe Lean Startup begins with insights about how to build a sustainable business through a method of validated learning which is a method of evaluating success through tests or experiments. In order to build a sustainable business, Lean Startup advocates for entrepreneurs to conduct constant experiments instead of investing all the capital into product launch. One of the ways is through the method of Build-Measure-Learn. Start ups should avoid producing products that they think are market-worthy even without testing what customers really want.

Most businesses have a alluring plans with great ideas and maybe some market research about their ideas. These aspects are mainly used as indicators of whether a business will succeed or not. However, they are not enough indicators in the modern day competitive environment. Even with market research, start ups may not have the correct information about what customers really need. Start ups can successfully execute their plans and still fail. This is because they were unable to respond quickly to customers needs or worse still failed to correctly predict future customer needs. So how can startups know what the customers really wants? The Lean startup model suggests launching products/ services even before they are ‘perfect’ in order to gauge customer reaction and then constantly make product improvements based on customer needs. This is different from the old model whereby a start up generates a concrete plan and undertakes all planning, build products and then conduct a mega launch. What if no customer wants the products and services you are launching? Startups can reduce failure rate through constant product testing instead of relying purely on previous studies on market research and so on. One line goes like this “It is easy to kid yourself about what you think customers want. It’s also easy to learn things that are completely irrelevant”. Therefore with lean startup methodology, you constantly test your products at various stages of development in order to minimise the cost of producing large volume of final products that no customer wants.

The lean startup methodology works like this- First begin with a simple product with aim to answer one question ” is there really demand for this product/ service?”. As you sell the product, ensure high level of customer engagement in order to gain views and perceptions of customers. With time, you are able to gain insights into customer needs using a real product. This is different from the other method which would go like this- Go to the field with hypothetical questions and no real product and ask customers what they think. Of Course this method is bound to give you some answers but sometimes customers do not like making scenarios and they may have a problem knowing what they really want unless they have a real product. Therefore when using a real product, an entrepreneur is able to know the real customer feedback and make improvements on the products at a faster rate. The next step in the Lean Startup methodology is to create a minimum viable product (mvp). Unlike the traditional product development process that involves taking long period of time to make a perfect product/service before launching, the mvp way ensures a product is released to consumers before it is perfect. This does not however mean making a product that is not usable and then adding parts. It means making the simplest version of the product and then making improvements with time while interacting with customers. The following images can help explain how to build a mvp.

MVP 1

As shown in the above image, the goal is not to make a dysfunctional product, but a simple, version of a product and then continue improving it. The goal is to begin the process of learning. This model aims at avoiding a scenario whereby a business makes a product than nobody wants. Or invest too much time and money making a product that nobody wants because it has not been tested. To avoid, this, the mvp ensures customers get to feel and experience the products and give feedback along the way.  Using this approach a business can be able to understand customers at a faster rate and can even change the business model depending on the market dynamics. In the long run, a business can even be able to predict what customers might need in the future and make products that customers even never thought they needed. This is facilitated by constant testing of products in small batches and getting feedback as soon as possible.

MVP 2

 

MVP 3

If you want to get into doughnuts business, how do you know which flavours to add?

MVP 4

There is a very good example that i found interesting and applicable even on a personal level. Compare two small businesses. The first business sets out clear options on how to improve a product and then conducts various experiments designed to test how customers perceive the product. The second business sits around in boardroom and starts debating what would improve the product and implements several of those strategies at once and then celebrate if there is anly positive increase in numbers. Which business is more likely to be doing effective work aimed at achieving long lasting results? There is another quote i saw somewhere that goes like this ” Don’t make a product/service and then go out to look for market. Instead, be in the market, interact with customers in order to know the demand and then create supply”. who said that?  Or maybe ‘if there is no demand, then create demand and be the supplier’. LOL.

Finally, the book also gives the example of Toyota and the way it started. Let me try and summarize the ‘Toyota Way’. After WWII, the war-ravaged Japanese economy was in poor state. There was not capital for massive investments and therefore Japanese automakers such as Toyota could not compete with powerful American manufacturers who had the latest mass production techniques. Car manufacturers in American could spend huge amounts of money to buy machines that would produce car parts in thousands and by keeping the unit costs down, the manufacturers were able to produce inexpensive cars in large batches as long as they were completely uniform. Japanese manufacturers could not compete with this. Their market was fragmented and therefore faced intense pressure from mass producers. It is against this backdrop that innovators such as Taiichi Ohno, who is considered as the father of lean manufacturing at Toyota, designed new production strategies. Instead of producing thousand of parts at a time, Toyota used smaller machines that would produce smaller general purpose parts that led to production of wide variety of parts in small batches. With constant improvements in the system, Toyota was able to produce large number of more diverse products. It was no longer the notion that economies of scale can only be achieved by producing large batches of products that are exactly the same. Over time, this capability enabled Toyota to become one of world’s largest car makers  serving fragmented as well as mass markets. In 2012, Toyota was the world’s largest automobile maker (by production) in the world well ahead of GM and Volkswagen. The good thing with working in small batches is that problems are identified sooner. I believe such insights from the Lean Startup can be employed by small businesses that have massive challenges in competing with big companies. The aim is to start small, test the product as early as possible,make improvements and design your own system that works for your business.

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