The Lean Startup Methodologyâ€A Movement Transforming Business

By Anna Svedberg – an intern with Hult Labs. Currently pursuing a Masters in International Business at Hult International Business School.   â€Å"Lean Startup isnt about being cheap [but is about] being less wasteful and still doing things that are big.† Eric Ries, founder of the Lean Startup methodology   75% that’s the percentage of startups that fail according to new research by Harvard Business School’s Shikhar Ghosh. How come? And is there an approach that is less risky? I had the opportunity to interview Professor Mike Grandinetti, who was recently awarded for the third time in two years teaching excellence for Module D, about the Lean Startup methodology a methodology that allows for a product to develop through feedback from prospective users. In other words, a procedure that aims to discover a viable business model before any significant capital is invested in the product. That is, compared to the traditional startup, a much less risky approach.   Q: How does a Lean startup differ from a traditional one? A:   A traditional startup is based on the notion of creating a business plan that is generated from a combination of elaborate planning and intuition. The over-arching mission with the traditional approach is to execute against a business plan that is assumed to be rock solid but assumptions are just educated guesses without validation. So what happens? The execution of the original plan, which is typically backed by angel or seed stage venture capital, inevitably fails on the first attempt and with the expectations of the founding team dashed and a significant amount of capital already spent on the misguided plan, it’s difficult to get back on track. On the other hand, a Lean Startup is not centered around the immediate disciplined execution of the business plan – instead, its mission is to discover a viable business model, which can only become a reality if you carry out customer development that is market driven. The first step is to make business model assumptions within each of the 9 building blocks of built into the first iteration of on your business model canvas*, and then head out to the market to test those assumptions. The market will then provide you with essential feedback that you use to refine your initial business model. Next, you quickly get back out in the market with your revised ideas a process that’s repeated until you see a fit between your business model and market needs. In other words, until you have created a product that the market can’t live without known as product market fit. At this stage, you have created the â€Å"minimum viable product†, which is the smallest, leanest product that will achieve product fit as required by your first target customer segment. And another positive aspect of the Lean Methodology: you raise significant capital in order to be able to scale your business only after product market fit has been achieved, allowing you to be much more cash efficient throughout the early customer development stage. Q: So after hearing about this concept that clearly seems to outperform the traditional model, can you mention a few successful Lean Startups?    A: Yes, absolutely. One company that applied this concept successfully was Airbnb. The community marketplace started off with the notion of: â€Å"think big, start big.† Yet, this mindset did not take them anywhere. So what happened? Airbnb learned from its failed attempt to carry out its idea on too broad a scale by tackling numerous cities at once, and they came to understand that in order to grow fast and get big, they would need to start small. The first step was to go back to a single test market in this case, the Bay Area. In time, the company realized that it had validated its business model and began to scale up from there. To sum up: Airbnb was mentored to adopt a lean methodology by their own early failure. Dropbox, a Lean Startup success, has a different story. The founder of Dropbox, Drew Houston, realized from the very start that he needed to create a minimum viable product. Houston was hungry for feedback and leveraged mentors who knew about digital marketing and social media. In other words, he had the Lean mindset that would make his idea all the more likely to succeed he was aware of the fact that he didn’t have the answer to everything, and that getting rapid prototypes into the hands of likely early adopter users was necessary in order to create something successful. It was especially critical that the prototype got in the hands of users, because based on the inflated claims of a number of competitors, it was easy to confuse the primary value proposition of Dropbox with more traditional and well established backup products. Once the early users tested Dropbox, the prototype received a significant amount of feedback, which the team used in order to revise the product accordingly. Eventually, the product reached product market fit. Then, and only then, was significant capital raised. Dropbox continues to scale at breathtaking rates, managing petabytes of information and storing billions of new files on a weekly basis. Q: So Mike, this concept of Lean startups seems to solve many of the issues faced by traditional startups. Are there any downsides or challenges of which to be aware?    A: First of all, it’s a different method that requires a great amount of discipline, intellectual honesty and humility. You just can’t do it halfway. It’s necessary for you to re-frame your mindset in order to be able to say: I don’t know the market knows. Also, the traditional mindset is all about using financial ratios to measure the success of an idea something you can’t do early on with your venture because you have no meaningful financials at this point. You are trying to validate the assumptions in your business model canvas. Rather than financial ratios or traditional accounting metrics, you should use something known as innovation accounting a term that refers to the process of measuring the progress of your new venture through actionable factors such as customer retention, usage patterns, customer satisfaction ratings and customer engagement, among other things. (For a definition of Innovation Accounting, please see Professor Grandinetti’s contribution to the Financial Times lexicon at http://lexicon.ft.com/Term?term=innovation-accounting) Q: So for those who are interested in learning more about Lean startups, what resources do you recommend? A: One excellent source for further learning is material by the creator of the Lean Startup methodology himself, Eric Reis. He is the author of the book The Lean Startup – How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, and he also has a blog Startup Lessons Learned.   Other good sources are different Lean Startup groups or meet-ups that meet regularly in different cities around the world, or online courses from educational organizations such as Udacity. Q: Thank you, Mike! A: My pleasure Anna! In our next post, we’ll cover Professor Grandinetti’s thoughts on two of the Lean Methodologys biggest challenges: the mindset you need to have in order to be successful, as well innovation accounting. Wait, you ask, accounting? Yes—it turns out that the Lean Methodology includes a new philosophy on what businesses should regard as the most important elements to measure in business. As you’ve probably guessed by now, they’re not necessarily the traditional ones businesses usually consider to be the most important. We’ll dig a little bit deeper next time. *The business model canvas is a strategic management tool in the form of a graphical template that consists of 9 different components: customer segments, value propositions, channels, customer relationships, revenue streams, resources, activities, partnerships, and costs. Hult offers a range of highly skills-focused and employability-driven business school programs including a range of MBA options and a comprehensive one year Masters in International Business. To find out more, take a look at our blog Future thinking: Taking your Bachelor degree beyond business. Download a brochure or get in touch today to find out how Hult can help you to learn about the business world, the future, and yourself. 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We look for diverse students with a wide range of experiences, perspectives, and interests—students who will thrive in our unique educational atmosphere. Are you ready for a truly global experience? 📠¸: @iambrunadiniz . Each year, Hult seeks to enroll a talented and ambitious incoming class from all over the world. We look for diverse students with a wide range of experiences, perspectives, and interests—students who will thrive in our unique educational atmosphere. Are you ready for a truly global experience? 📠¸: @iambrunadiniz . We’re excited to start 2020 on a ranking high! Hult is proud to have been placed #28 in Poets Quants 2020 rankings for Best Undergraduate Business Schools in the US. Taking a huge leap of 32 places from our 2019 position, we’re also very happy to have secured top positions in key categories like: life-changing experience, practicality of the degree, and global immersion. . With five global campuses, a student body of over 130 nationalities, and a learn-by-doing approach—Hult offers a student experience like no other. . We’re excited to start 2020 on a ranking high! Hult is proud to have been placed #28 in Poets Quants 2020 rankings for Best Undergraduate Business Schools in the US. Taking a huge leap of 32 places from our 2019 position, we’re also very happy to have secured top positions in key categories like: life-changing experience, practicality of the degree, and global immersion. . With five global campuses, a student body of over 130 nationalities, and a learn-by-doing approach—Hult offers a student experience like no other. . â€Å"I’m from an engineering background and needed a whole new skill set for the industry I wanted to switch to. I learned a lot about myself and how I deal with being out of my comfort zone. I learned both soft and hard skills, from how to work in very diverse teams to key accounting metrics and strategy. I was surprised by how weak I was at certain tasks in English or how strong I actually was in other areas. Hult gave me opportunities to try new things and meet people from places I never thought I would have friends. . My internship experiences gave me the chance to broaden my view of different cultures and different companies. I had the opportunity to work and live with people whose values differed from people in my home country. I thought that this would be difficult, but it gave me the chance to reflect on my own values and assess if they were a result of my home country environment or if they were intrinsically mine. . Diederick ter Kulve (@diederick.terkulve) Netherlands Masters in International Business . â€Å"I’m from an engineering background and needed a whole new skill set for the industry I wanted to switch to. I learned a lot about myself and how I deal with being out of my comfort zone. I learned both soft and hard skills, from how to work in very diverse teams to key accounting metrics and strategy. I was surprised by how weak I was at certain tasks in English or how strong I actually was in other areas. Hult gave me opportunities to try new things and meet people from places I never thought I would have friends. . My internship experiences gave me the chance to broaden my view of different cultures and different companies. I had the opportunity to work and live with people whose values differed from people in my home country. I thought that this would be difficult, but it gave me the chance to reflect on my own values and assess if they were a result of my home country environment or if they were intrinsically mine. . Diederick ter Kulve (@diederick.terkulve) Netherlands Masters in International Business . Say a big hello to our Bachelor of Business Administration program cover star, Elisa Orus Plana âÅ" ¨ . â€Å"I’m excited for the future—especially that I cant predict whats going to happen. Maybe Ill end up in Mexico working for a trading company or maybe in Africa, developing my own business. Everything is possible, and the options are constantly changing. I love the idea that Im never going to be stuck doing the same job until the end of my life if I dont want it to be like this. . Hult really supports me and my ambitions and truly believes that we deserve to be considered as professionals as well as students. Here, I get to express not just my opinions but all elements of myself. From my creative side with the Fashion Society to my finance and business sides in Trading Club and the Management Consulting Club. We get a different type of learning here. Not just essential knowledge and theory, but practical skills and mindset. The school is always evolving. We’re encouraged to innovate and to always look for new ways of doing traditional things. We learn how to be more confident and become aware of how we can impact our environment. The school aims to help you become a better version of yourself and to stand out from the crowd.â€Å" . Elisa Orus Plana French Bachelor of Business Administration Class of 2021 Say a big hello to our Bachelor of Business Administration program cover star, Elisa Orus Plana âÅ" ¨ . â€Å"I’m excited for the future—especially that I cant predict whats going to happen. Maybe Ill end up in Mexico working for a trading company or maybe in Africa, developing my own business. Everything is possible, and the options are constantly changing. I love the idea that Im never going to be stuck doing the same job until the end of my life if I dont want it to be like this. . Hult really supports me and my ambitions and truly believes that we deserve to be considered as professionals as well as students. Here, I get to express not just my opinions but all elements of myself. From my creative side with the Fashion Society to my finance and business sides in Trading Club and the Management Consulting Club. We get a different type of learning here. Not just essential knowledge and theory, but practical skills and mindset. The school is always evolving. We’re encouraged to innovate and to always look for new ways of doing traditional things. We learn how to be more confident and become aware of how we can impact our environment. The school aims to help you become a better version of yourself and to stand out from the crowd.â€Å" . Elisa Orus Plana French Bachelor of Business Administration Class of 2021"> During the final days of 2019, you probably reflected on what you’ve accomplished this year—and even this decade—and what you’d like to achieve in 2020. Let us know in the comments below. During the final days of 2019, you probably reflected on what you’ve accomplished this year—and even this decade—and what you’d like to achieve in 2020. Let us know in the comments below. â€Å"The first time we did group work on the program, I went head-to-head with a colleague. It taught me a lot about how I see people, how people see me, and how conflict can be resolved in a kind and productive way. The best feedback you get, when delivered constructively, is the most critical because it really feeds into how you lead. I’ve completely reversed my leadership style—the result is so much richer and more powerful when you lead from behind and lead with strength. . Studying in tandem with working, whilst challenging, gave me the perfect platform to directly apply learning concepts into my business environment, the competitive landscape, and the real-estate industry as a whole. When I started the program, I was very happy in my corporate role. But my courage and aspirations grew to the point that I took on a whole new direction. Having my career coach, Joanna, as a sounding board allowed me to really be strategic and get to know myself. She coached me thro ugh all the interviews, the research, and the questions. It went in parallel with what I was doing academically and after six months everything just clicked. . I went into the EMBA knowing I had nothing to lose and I’ve come out with everything. Great strength, global friends, amazing learning, mentors from professors, a job I love, and the knowledge that I can set my mind to achieve anything and with the right support and resources I’ll get there.† . Kashani Wijetunga British, New Zealand Sri Lankan Associate Director Senior Strategy Consultant CBRE EMBA Class of 2019 . â€Å"The first time we did group work on the program, I went head-to-head with a colleague. It taught me a lot about how I see people, how people see me, and how conflict can be resolved in a kind and productive way. The best feedback you get, when delivered constructively, is the most critical because it really feeds into how you lead. I’ve completely reversed my leadership style—the result is so much richer and more powerful when you lead from behind and lead with strength. . Studying in tandem with working, whilst challenging, gave me the perfect platform to directly apply learning concepts into my business environment, the competitive landscape, and the real-estate industry as a whole. When I started the program, I was very happy in my corporate role. But my courage and aspirations grew to the point that I took on a whole new direction. Having my career coach, Joanna, as a sounding board allowed me to really be strategic and get to know myself. She coached me thro ugh all the interviews, the research, and the questions. It went in parallel with what I was doing academically and after six months everything just clicked. . I went into the EMBA knowing I had nothing to lose and I’ve come out with everything. Great strength, global friends, amazing learning, mentors from professors, a job I love, and the knowledge that I can set my mind to achieve anything and with the right support and resources I’ll get there.† . Kashani Wijetunga British, New Zealand Sri Lankan Associate Director Senior Strategy Consultant CBRE EMBA Class of 2019 . â€Å"It was now or never. I knew that I’d have likely stayed in my neighborhood for years to come if I didn’t take this opportunity. I’d not lived or studied outside of the U.S. before. So I left my job as a global strategist at an advertising agency and moved halfway around the world. I’ve come back a more culturally aware, well-versed person. I’ve realized that everything is a learning experience and an opportunity for growth. Ill definitely carry this mindset with me into the future. Technology and social media allow us to be different people in several places at once. Im excited to see how I can establish myself in whatever city Ill be lucky enough to call home and still maintain deep connections with people all over the world. I’m inspired by my classmates every day. Hearing some of their life stories and how getting this degree fits into their greater mission has been very humbling. My biggest challenge has been finding the ‘right’ path for me. There have been rooms Ive felt like I shouldnt be in, but now Im proud to feel as though I truly belong, wherever I am.† . Dwayne Logan, Jnr. American MBA Class of 2019 . â€Å"It was now or never. I knew that I’d have likely stayed in my neighborhood for years to come if I didn’t take this opportunity. I’d not lived or studied outside of the U.S. before. So I left my job as a global strategist at an advertising agency and moved halfway around the world. I’ve come back a more culturally aware, well-versed person. I’ve realized that everything is a learning experience and an opportunity for growth. Ill definitely carry this mindset with me into the future. Technology and social media allow us to be different people in several places at once. Im excited to see how I can establish myself in whatever city Ill be lucky enough to call home and still maintain deep connections with people all over the world. I’m inspired by my classmates every day. Hearing some of their life stories and how getting this degree fits into their greater mission has been very humbling. My biggest challenge has been finding the ‘right’ path for me. There have been rooms Ive felt like I shouldnt be in, but now Im proud to feel as though I truly belong, wherever I am.† . Dwayne Logan, Jnr. American MBA Class of 2019 . Happy New Year, Hultians! . Happy New Year, Hultians! .