Lean Startup Magic: How it Works
Tatyana Tsukanova, PhD
Bridging academia and business l Driving impact, fostering connections
Welcome to my LinkedIn Newsletter to get your dose of entrepreneurial inspiration! I will share some intriguing facts, captivating stories, research insights, and ideas on entrepreneurship that I personally find fascinating and inspiring. Who knows, it may also spark your curiosity!
The Rise of Lean Startups
The Lean Startup methodology has been around for over 15 years. Since I first encountered the term, I have watched it evolved into a full-fledged movement. The term itself can be described as an approach to developing a startup that efficiently delivered a desired product or service to customers, eliminating wasted time and money. This innovative idea was proposed by Eric Ries and detailed in his book The Lean Startup. He was motivated by his personal experience with traditional startup methods, which often led to failure. And often the reason was that a significant amount of time and financial resources went into building products without any validation of whether they actually solve a real, not imaginary, customer problem.
What is remarkable is that the roots of the term “Lean Startup” can be traced back to lean manufacturing. Have you ever heard of Toyota’s lean manufacturing system? It is a system that places a strong focus on waste reduction and continuous improvement. Toyota also pioneered a technique of the Five Whys aimed at uncovering the true root cause of any problem. This philosophy was seamlessly integrated into the Lean Startup methodology.
The popularity of this approach in the startup world accelerated significantly after Steve Blanks’ article in HBR published in 2013. He stressed the importance of shifting from traditional to lean mindset. Over the years, we have seen numerous success stories of “lean unicorns”. You may be wondering who are those “magical creatures” are… Real-world examples of successful Lean startups include Dropbox, Airbnb, Uber, and Spotify, among others. But don’t be discouraged into thinking you can’t compete with these market giants. Just remember how they started their journey. Dropbox originally started with a video explainer with no real working product, and Airbnb literally offered its guests inflatable beds in shared rooms. But look at what they have achieved now – they are a living proof that the Lean Startup methodology works in practice.
A Lean Path to Unicorn Status
How is this methodology different from others? First, we acknowledge that a startup is not just a smaller version of a large corporation. A startup is a unique creature in search of a sustainable business model that will facilitate its further growth. As a result, conventional business development strategies often fail to meet the specific needs of startups. In this dynamic and highly competitive environment, startups require a different approach to overcome adversity, uncertainty, and resource constraints.
To address these challenges, the Lean Startup methodology emphasizes on understanding and solving customer problems. It easily integrates with the Customer Discovery phase of the Customer Development Model and uses simple tools such as the Lean Canvas, Value Proposition Canvas, and Business Model Canvas to systematically organize all?assumptions. When a lean startup launches a minimum viable product (MVP), they actively gather customer feedback and data, measure customers’ responses and reactions – positive and negative – and iteratively refine the product. They follow a “Build-Measure-Learn” process with the ultimate goal of turning their MVP into a thriving and scalable business. The recent book What a Unicorn Knows by M.E. May and P. Dominguez, underscores that ventures in pursuit of a scalable product/market fit or go-to-market strategies, often referred to as ScaleUps, are more likely to achieve unicorn status.
It’s also worth noting that the costs of creating a startup today are much lower than they were two or three decades ago. The Lean Startup methodology helps to navigate common pitfalls and build a startup in a modular fashion, starting with a product or service version that delivers the most value to customers by addressing their problems in a better way. I always encourage my students to follow this approach as they embark on their entrepreneurial projects.
When AI Enters the Room
The presence of Artificial Intelligence (AI) cannot be ignored in this game. Startups can harness AI to gain in-depth insights into their customers, conducting real-time research by analyzing customer behavior when it occurs. In a recent TechCrunch article, Steve Blank acknowledged that “we are collectively underestimating the potential of generative AI”.
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Investors are pouring significant funds into AI projects, sometimes without sufficient scrutiny. As time goes on, we will see which ventures emerge as winners in this race! What is important to note today is that AI is becoming an invaluable instrument for all startups, providing them with the means to create and develop their ideas in a more efficient way. In other words, there is a beneficial synergy between the Lean startup methodology and AI tools. There are three primary ways to integrate AI into a lean startup:
What Research Tells us about AI and Lean Startups
An increasing number of startups are emerging in a digital space, and a recent study by Raneri et al. (2023) looks at how AI-based models can help digital entrepreneurs in their day-to-day operations. Relying on AI-based predictive technology and using the logic of the “build-measure-learn” principle of the Lean Startup methodology, a new “build-measure-predict-learn” algorithm was developed and tested on real data.
What is really amazing is that this algorithm was actually able to predict the desirability level of new product design decisions. Of course, this study has limitations, but it shows the huge potential of AI to contribute to reducing the “unknown” element in entrepreneurship. We are entering a new era! It is likely that in the nearest future, AI-powered models will be able to guide and empower entrepreneurs in their daily hustle and bustle.
To sum up, I think this methodology has value beyond the startup world. It is easily adaptable and we can use it creatively in different scenarios. For example, when launching social projects, including those aimed at solving global challenges. By applying the build-measure-learn principle and an iterative strategy, we can greatly increase the chances of designing, implementing and developing a truly impactful intervention.
I can also imagine experimenting with this approach in education. Why not use this Lean Startup methodology to design our educational programs and courses? By collecting feedback from students and other stakeholders and measuring outcomes, we can finally bridge the never-ending gap between “what we teach” and “what the industry wants and needs”. As stated in “The Lean startup” book:
“The only way to win is to learn faster than anyone else”.
It’s time to learn.
Until next time!