Why lean startup changed everything?

Starting a new project, whether it's a tech startup, a small business or a joint venture in the form of large Corporation is always the project is one of those "sink or swim". In accordance with the ancient formula, you write a business plan, touted it to investors, assemble a team, bring product to market and start selling as intensely as possible. And most likely somewhere in this sequence of events you are waiting for the inevitable failure. The advantage is not in your favor: a new study conducted by Shikhar gosh from Harvard Business School shows that 75% of all startups fail.

Recently, however, there were important counter force that can make the process for launching a company less risky. This methodology called "lean startup": the development of the project research takes precedence over the detailed planning, feedback to the user over intuition, and iterative design over traditional "big preliminary design". Despite the fact that this methodology only a few years, concepts such as "minimum viable product" and "turning" — pivots quickly entrenched in the world of startups, and business schools have already begun adapting their curricula.

However, the lean startup movement has not yet become mainstream, and we have yet to feel its full impact. Mostly it is about in the same condition in which it was the movement of big data five years ago – consisting mainly of terms that are not yet understood to a sufficient degree, and whose implications companies are just beginning to understand. But with the introduction, they radically changed the conventional concepts about entrepreneurship. New enterprises of all kinds, trying to improve their chances of success by following the principles of "fail fast" and constant learning. And despite the title of the methodology in the long term, dividends can obtain and large companies associated with these principles.

In this article, I will offer a brief overview of the methods of lean startups and how they evolved. More importantly, I will explain how, in combination with other trends in the business sphere, they can start a new entrepreneurial economy.

Schema of your hypotheses

Canvas business model gives you the opportunity to look at all nine components of your business on one page. Each component of the business model contains a series of hypotheses that you need to check.

the the the the the the

Key partners	Key work	Suggested values	customer Relationships	Target group
Who are our key partners? Who are our key suppliers? What key resources we receive from our partners? What key activities do our partners?	What are the key work required by our proposed values? Our distribution channels? Customer relationships? Sources of income?	What value we give to our customers? What kind of problems our customers we help to solve? Which set of products and services we offer for each target group? What customer needs are we meeting? What should be the minimum viable product?	How we form, and withholding and increase your client base? What kind of relationship we have established with clients? How are they integrated with the rest of the items on our business model? How much they cost?	For whom are we creating value? Who are our most valuable customers? Portrait of the consumer?
	Key resources		Channels
	What are the key resources required by our proposed values? Our distribution channels? Customer relationships? Sources of income?		Through what channels our target consumers want to have a relationship? As of this moment contact them other companies? Which channels work best? Which channels most cost-effective? How do we integrate them in the already established order of work with the consumer?
cost Structure		Sources of revenue
What are the most important costs must be considered in our business model? Some of the key resources most expensive? Some of the key works are the most expensive?		For what value are our customers really will pay? For what they pay at the moment? How does the revenue model? Which of the pricing policies applicable?

*Outline of Russian picture
*Outline of the original authors in English

the Idea in brief

Over the last few years a new methodology for launching companies called "lean startup" began to supplant the old regime.

Rather than implementing business plans, functioning in the stealth mode and release fully functional prototypes, young enterprise testing hypotheses, early and often collect feedbacks of consumers and demonstrate a "minimum viable product" to potential customers. This new method dictates that the search process of the business model (which is the primary task facing a startup) is entirely different from the process of implementation of this model (that's recognized by the company).

Recently, the business school began to teach the methodology, which can also be found on the events such as Startup Weekend. Over time, lean startup techniques could reduce the failure rate of new businesses, and in combination with other trends that are spreading in the business world, launch a new, more entrepreneur-oriented economy.

Error the perfect business plan

In accordance with the generally accepted opinion, the first thing must do every entrepreneur is to write a business plan is a statistical document that describes the scope of the problem you want to solve and the solution that will give the new venture. It typically includes five-year forecasts of revenues, profits and cash flows. A business plan is in essence the study, written at a Desk alone, before the creation of the product, because it is possible to consider a large portion of all business is unknown in advance, before you will find the money and make the idea a reality.

Once the entrepreneur with a convincing business plan obtains money from investors, he or she begins to develop a similar product in a limited style. Developers spend thousands of man-hours to prepare it for launch with little intervention or even without the participation of the consumer. Only after the establishment and launch of the product, the company receives feedback from customers – when the sales Department tries to sell it. And often, after months or even years of development, entrepreneurs learn that consumers don't need or they don't want most of the characteristics of the product, which is very hard to accept.

After decades of watching thousands of start-UPS follow the same scenario, we learned at least three things:

the
1. Business plans rarely survive first contact with the consumer. Boxer Mike Tyson once said about pre-game strategies of their opponents: "everyone has a plan until he got to the jaw."
the
2. to Anyone other than venture capitalists and the Soviet Union do not need a five-year plan that predicts a complete unknown. These plans are generally fiction, and their embodiment in life is almost always a waste of time.

One of the main differences is that while existing companies execute a business model, startups are looking for their. This distinction lies at the core of the lean startup approach. It forms the term "lean" startup: a temporary organization designed to search for a repetitive and scalable business model.

Three key principles of lean methodology

First, instead of spending months on planning and research, entrepreneurs recognize that all they have today is a collection of unverified hypotheses, essentially good guesses. So instead of writing complex business plans, entrepreneurs summarize their hypotheses in a framework called canvas business model. Essentially, this is a schematic of how the company creates value for itself and its consumers. (See table "Scheme of Your Hypotheses.")

Second, to test their hypotheses lean startups took the approach — "outside the office", called methods of development of the client. They go out and ask potential users, purchasers and partners to give feedback regarding all elements of the business model, including product features, pricing policy, distribution channels and affordable strategies to attract consumers. Emphasis is placed on sharpness and speed: New ventures rapidly create minimum viable products and immediately collect feedbacks of consumers. Then, given the comments of the consumers to revise their assumptions, they start the cycle over again, testing a modified version of and making small adjustments (iterations) or more significant (rotary) adjustments to the ideas that don't work. (See the table "Listening to Consumers.")

Third, lean startups practice something called agile development, which was first applied in software development. Flexible development methodology works hand in hand with the methods of development of the client. Unlike conventional annual cycles of product development, which presuppose knowledge about the problems of the consumer and product needs, agile development methodology eliminates the waste of time and resources through repeated and incremental product development. This is the process by which startups create the minimum viable products they test then.

fast, responsive development

unlike the traditional product development process, where each stage starts in accordance with a linear sequence and lasts for months, agile development methods create the product through short, repeated cycles. A startup produces a "minimum viable product" that meets the critical characteristics, and then collects from the consumers on this feedback, and then starts all over again, but with a modified minimum viable product.

When Jorge Heraud and Whether Redden founded Blue River Technology, they were students in my class at Stanford. Their vision was the creation of a robotics for business needs. After interviewing more than 100 customers in 10 weeks, they realized that their initial target customers – the Golf course, did not appreciate their decision. However, later they began to communicate with farmers and found that there is a high demand for an automated way to eliminate weeds without the use of chemicals. The satisfaction of this demand became their new target, and within 10 weeks Blue River had built and tested a prototype. Nine months later, the startup has attracted more than 3 million dollars in venture capital investments. Nine months later, the team had planned to begin mass production.

the Fading popularity of stealth mode

Lean methods are changing the language in which startups describe their work. In the period of the dot com boom startups often worked in "stealth mode" (to avoid attracting attention from competitors), demonstrating prototypes to customers only during the well-orchestrated "beta" tests. The lean startup methodology forces us to reject such concepts, as she argues that in most industries the consumer feedback is more important than secrecy and that constant feedback yields better results than a gradual disclosure of secrets.
These two fundamental rules ingrained in me during the work as an entrepreneur. (I've participated in eight high-tech startups, sometimes as a founder, sometimes as an employee.) When I switched to teaching ten years ago, I proposed a formula for the development of the client, as described earlier. By 2003, I mentioned the process on a course at Haas School of Business at the University of California at Berkeley.

In 2004 I invested in a start-up founded by Eric Rice and will Garvey; a condition of my investments was attending my course. Eric quickly realized that the waterfall development model, traditional in the tech industry, linear approach to product development should be replaced by iterative agile methods. He also noted the similarity of the escalating start-up courses, Production System Toyota, which has become known as "lean manufacturing." Eric combined the methods of customer development and agile methods "lean startup".

Methods have been popularized through the publication of a series of books. In 2003, I wrote Four steps to the Epiphany, where he first pointed out that startups are not smaller version of larger companies, and also described the development process of the client. In 2010, Alexander Osterwalder and Eve's Tower in his book Business Model Generation (Generator Business Models) gave the entrepreneurs an authoritative framework for canvas the business model. In 2011, Eric has published a review of The Lean Startup. In 2012, Bob Dorf and I summarized everything we learned about lean techniques in a step-by-step guide, the Startup Owner's Manual (Startup: Handbook of the founder).

The lean startup methodology is now taught in more than 25 universities and through a popular online course on Udacity.com. In addition, almost every city in the world you'll find organizations like Startup Weekend, at the same time introduces lean methodology hundreds of future entrepreneurs. During such meetings, a few hours, a room full of startup teams can discuss half a dozen ideas regarding potential products. Although, for people who have never been to such events, it seems incredible, but in these meetings, some companies formed on Friday evening, began to bring real income to the noon Sunday.

table "Listening to consumers"

In development client, startups searching for a business model that will work. If feedback of consumers said that some of the hypotheses are untenable, then it is either revised, or "change" for a new one. Once the model is confirmed, the startup is launching the, the construction of formal organization. Each stage of iterative development client: the startup most likely will suffer a few setbacks until you find the right approach.

the the the

Search		Realization
1	2	3	4
Founders translate company ideas into hypotheses of the business model, carry out tests on the alleged needs of consumers, and then create a "minimum viable product", in order to test the proposed solutions on the consumers.	the Startup continues to test all other hypotheses and tries to find a confirmation of the interest of consumers through early orders or product usage. If interest is missing, the startup can "switch" by changing one or more hypotheses.	the Product is finalized enough for release. Using the confirmed hypotheses, the startup creates demand, quickly increasing the cost of marketing and sales, and then expanding the business.	the evolution of the business from start up mode, with the development team of the client who's looking for answers, for functional units that implement the model.

Building the Entrepreneurial Innovation Economy

Lower level failures can lead to profound economic consequences. To date, the impact of the destruction, globalization and stabilization shake the economy of each country. Successful industry quickly get rid of professions, many of whom never return. In the 21st century, job growth will have to come from new businesses, so we are all interested in creating an enabling environment that will help them succeed, expand and employ more staff. Never before has the creation of an innovative economy, driven by the rapid growth of startups, it was not necessary any more.

In the past, in addition to the failures, the growth in the number of startups has been slowed by five factors:

the
1. High cost of obtaining the first user and the high cost in the case of incorrect product.
the
2. Long cycles of technological development.
the
3. Limited amount of risk people are willing to Fund or work in a startup.
the
4. structure of the sector of venture investment, in which a small number of firms to produce important dividends had to invest significant amounts in a limited number of startups.
the
5. Concentration of knowledge about how to create startups that were in the regions East and West coasts in the United States. (Less of a problem for Europe or other parts of the world, but even abroad there are geographic entrepreneurial hot spots.)

Lean approach reduces the influence of the first two constraints, helping new businesses to launch on the market a product that consumers really want, much faster and cheaper than traditional methods; and the third factor, making start-UPS less risky. And it came at a time when other business and technology trends in a similar way destroy the barriers to startup formation. The connection of all these forces makes changes in the business landscape.

Today, open source software, like GitHub, and cloud services such as Amazon Web Services, have reduced the costs of software development from millions of dollars to thousands. Startups hardware no longer need to build their own factories because offshore manufacturers are very easily accessible. Indeed, to become quite commonplace to see young technology companies practicing lean startup methodology, offer the products that are delivered over the Internet or iron, assembled in China on the expiration of weeks from the time of its creation. Note Roominate, a startup created to enhance confidence and interest in science, technology, engineering and mathematics among girls. As soon as the founders had finished testing and re-test a draft set of Dollhouse, they send technical requirements to the contractor-manufacturer in China. Three weeks later came the first batch of product.

Decentralization of access to financing is another important trend. Once the venture investing (VI) was a private club consisting of firms, which are clustered around Silicon Valley, Boston and new York. In today's entrepreneurial ecosystem-the new super angel funds, smaller than traditional multimillion VI funds, may invest at the initial stage of development of the company. Worldwide, hundreds of business accelerators such as Y Combinator and TechStars, started to implement seed investment. And crowdsourcing sites like Kickstarter provide another, more democratic method of financing start-UPS.
Immediate access to information is also a boon for today's new businesses. Before the Internet, the founders of new companies could receive advice only during a personal meeting with experienced investors or entrepreneurs. Today the biggest problem is sorting a huge quantity of tips. Lean concepts suggest a framework that will help you to distinguish good advice from bad.
Initially the methods of lean startups was designed to create fast-growing tech enterprises. However, I am convinced that the principles are equally effective and to create a so-called small business "main street" that forms the backbone of the economy. If the whole world of small businesses adhered to these principles, then I am sure that this would accelerate growth and improve efficiency, which in turn would have a direct and immediate impact on GDP and employment.

There are prerequisites that it can really happen. In 2011, the national Science Foundation began using lean methods to profit from basic research in a program called Innovation Corps. At the moment all eleven US universities are teaching methods hundreds of teams comprising senior researchers.
MBA program is also adopting these techniques. For many years they taught students to apply for start-UPS approaches, suitable to large companies, such as accounting procedures to track income and cash flow, and organizational theories relating to management. Although startups are faced with totally different problems. Now business schools are aware that new businesses need their own management tools.

As soon as the business school understand the difference between the realization and the search for business models, they began to abandon the use of the business plan as a template course in the fundamentals of entrepreneurship. And competitions on writing a business plan, which was an important part of the MBA course of many decades, were replaced with contests search business model. (Harvard Business School became the last who made such changes, namely in 2012) Stanford, Harvard, Berkeley, and Columbia are the top universities in the field of training of the lean startup. Today my training course Lean LaunchPad for teachers, attended by more than 250 teachers of colleges and universities.

Methodologies lean startup approach is not just for young tech ventures. Large companies such as GE and Intuit, have already started to apply them.

What lean startups do differently?

The founders of lean start-UPS do not begin the process with a business plan; they begin with search of a business model. Only after a short test cycles and feedbacks will help to find a model that works, they proceed to project implementation.

the the the the the the the the the the the the the the the

Lean	Traditional
Strategy
Business model, driven by the hypothesis	Business plan led implementation
the Process of new product development
Customer Development To leave the office and test hypothesis	Product Management Preparing proposals for marketing, following a linear, step-by-step plan
Engineering
agile development methodology Iterative and step-by-step product creation	agile or waterfall development methodology The creation of the product of an iterative method or offer complete specifications before the creation
Organization
Team Development Customer and agile development Requirements for employment: learning, wit, speed	Division into functional departments Requirements when applying for a job: experience and diligence
Financial statements
Only what is necessary The costs of consumer involvement, the value of lifetime of the consumer, turnover, viral approach	Accounting Statement of profit and loss, balance sheet, statement of cash flows
Failure
Expected	Exceptional Is corrected by dismissal of governors
Speed
High Work with "suitable" data	Slowly Work with "complete" data package

a New strategy for corporations of the 21st century

It becomes obvious that the methodology of the lean startup approach is not just for young tech ventures.

Corporations have spent the past 20 years to increase efficiency by reducing costs. However, it is not enough to focus on improving existing business models. Almost every large company understands that it also needs to cope with the ever-increasing external threats by continuously introducing innovations. In order to ensure the survival and growth of corporations must continually implement new business models. Such tasks require completely new organizational structures and abilities.

For many years experts in the field of management, such as Clayton Christensen, Rita McGrath, Vijay Govindarajan, Henry Chesbro, Ian MacMillan, Alexander Osterwalder and Eric von Hippel have developed ideas of how large companies can improve their innovation processes. Despite this, we see that over the last three years large companies, including General Electric, Qualcomm and Intuit, have begun to apply the methodology of lean startup.

For example, a division of GE Energy Storage, applies the approach to change their innovation processes. In 2010, Prescott Logan, General Manager of the division, realized that the newly developed subdivision of the battery can disrupt the entire industry. Instead of preparations for the construction of a factory, increase production and launch of a new product (named in the end, Durathon) as a traditional product extension, Logan applied lean techniques. He began to look for a business model, and became interested in the study of the consumer. He and his team had reviewed dozens of global scenarios in search of new markets and new applications. It was not a commercial calls from the crew abandoned the PowerPoint slides and just listened about the problems and dissatisfaction of the consumers associated with the use of batteries. They conducted a thorough research on how consumers acquire industrial batteries, how often they are used, and operating conditions. With this feedback, they made an important change regarding your target consumer. They excluded one of the target group, data centers, and found a new group of utilities. In addition, they have narrowed the broad consumer group "telecommunications" to suppliers of mobile phones in developing countries with unreliable electricity. In the end, GE has invested $ 100 million to build a factory of world class battery manufacturing in Schenectady, new York, which was opened in 2012. According to news sources, the demand for new batteries is so high that GE is already no time to process incoming orders.

The first hundred years of teaching about management focused on building strategies and tools that set the order of implementation and describes the efficiency of the existing enterprises. Now when you run a startup business, we have the tools to search for new business models. This also happened at the right time, in order to help the existing companies to cope with the constant changes. In the 21st century such influence makes people from different kinds of organizations — startups, small businesses, corporations and government, feel the pressure of rapid change. The lean startup approach will help them meet him face to face, change rapidly, and transform the production, as they are ready.

the Translation is done in the framework of the summer school startups Tolstoy Summer Camp.

Article based on information from habrahabr.ru