The typical way to start a new business or venture is to first get started with a clear cut business plan, then pitch the idea to potential investors, gather a team, introduce a service or a product and finally start selling as hard as you can. Well, according to a new research done by Harvard Business School, 75% of all start-ups fail, because most of them experience a setback somewhere in the sequence of above events. Things like running out of cash flow, or lack of a proficient team are typical reasons why start-up do not succeed.
In the last couple of years, a new methodology has started appearing, popularly known as the “lean start-up” and it favors experimental approach over elaborate planning, customer feedback over intuition and iterative design over traditional development. The term “lean startup” was first coined by Eric Ries in the year 2011, it originally generated from the philosophy based on lean manufacturing, which is the streamlined production methodology developed in the 1980s by a Japanese auto manufacturing company.
According to the theory, the lean methodology seeks to eliminate wasteful business practices and increase value producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.
So while following a lean startup method a founder or owner doesn’t begin with a business plan, they would begin with the search of a business model. The other notable element of lean methodology is – quick and responsive development. In comparison to traditional product development, where each stage occurs in a leaner sequence and has timelines attached to it, agile development builds products in short and repeated patterns. So for example a manufacturing company following the lean methodology would produce a “minimum viable product” that would contain only the critical features, gather feedback from its customers and then start with the revised and improvised version.
Many big companies are going the lean starup way as they see the tremendous cost advantage in adapting this new methodology. For example, companies such as GitHub, and cloud based services, such as Amazon Web Services, have minimized the cost of software development to millions of dollars. Even hardware companies no longer have to build their own hardware setups, since off-shore manufacturing is so easily accessible.
If we look at the history of management education, we can see it was solely focused on helping students build strategies and tools that formalized execution and efficiency of existing business. With the introduction of the lean startup method, the focus has changed to searching new business models as we launch startup venture. This new methodology is here to stay and would eventually help business owners meet challenges with a new perspective, innovate rapidly and transform the way we do business.