Lean and Lean Approach¶
Lean is a business methodology that originated in manufacturing, particularly from the Toyota Production System (TPS), developed by Toyota in the 1950s. It focuses on maximizing customer value while minimizing waste, thereby improving efficiency, productivity, and quality.
The Lean approach involves identifying and eliminating waste in all aspects of operations, including processes, resources, and time. Waste, known as "muda" in Japanese, can take various forms such as overproduction, waiting times, unnecessary transportation, excess inventory, overprocessing, defects, and underutilized talent.
Key principles of the Lean approach include:
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Value: Define value from the customer's perspective, focusing only on activities that add value to the end product or service.
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Value Stream: Identify and map the value stream, which encompasses all the steps and processes required to deliver the product or service to the customer.
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Flow: Optimize the flow of work through the value stream, minimizing interruptions and delays to ensure smooth and efficient operations.
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Pull: Implement a pull-based system where work is initiated based on customer demand, rather than pushing products or services through the system regardless of demand.
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Continuous Improvement: Encourage a culture of continuous improvement, known as "kaizen," where employees at all levels actively seek ways to improve processes and eliminate waste.
The Lean approach has been widely adopted beyond manufacturing, including areas such as software development, healthcare, services, and startups, where its principles have been adapted to improve efficiency, innovation, and customer satisfaction.
The 5 Key Principles of the Lean Startup Model¶
1. Entrepreneurs are Everywhere¶
A huge part of the folklore of Silicon Valley is the rags-to-riches story. Entrepreneurs like Apple’s Steve Jobs and Google’s Larry Page and Sergey Brin started their companies in garages and built them into international powerhouses. But this isn’t most entrepreneurs, and many startups are not even young tech ventures. In reality, Ries notes, anyone who owns a business is an entrepreneur: a musician, an accountant, a software developer, an e-commerce business owner. He goes further to say he believes “‘entrepreneur’ should be considered a job title within all modern companies”—applicable to even, say, managers of new products or initiatives within large companies.
2. Entrepreneurship is Management¶
A startup isn’t just a product or service. It’s a human institution designed to have a scalable business model for long-term market success. Management needs to be specialized and appropriate for this purpose, including being comfortable with experimentation and pivots.
3. Validated Learning¶
A startup’s point is not simply developing products or even serving customer interests. Rather, they can help entrepreneurs build a business that is successful and sustainable. However, many entrepreneurs fall into the trap of relying on what Ries calls “vanity metrics” such as page views or message volume. Instead, to ensure metrics are relevant and applicable to learning, he calls for metrics to follow the “three As,” which he detailed in a Harvard Business Review article: - Actionable: Metrics should demonstrate that cause and effect is real, not random, and can be replicated. - Accessible: They can be read and understood by everyone in the company. - Auditable: The data can be verified and is credible. This lets the startup test fundamental business hypotheses and feel confident in the results.
4. Innovation Accounting¶
Ries recommends creating three dashboards that display data in a clear way to track progress. The first displays customer-focused data, including what percentage of reviews are negative versus positive, the number of existing customers who contacted the company that week, and more. The second is “leap of faith” assumptions to assess whether the product fits a market need and can grow sustainability. The third is determining products and services' net present value (NPV).
5. Build-Measure-Learn¶
One of the most crucial lean startup principles is the build-measure-learn feedback loop, which combines many lean principles. In this loop, the startup first determines the problem that needs to be solved and develops a minimum viable product (MVP) in response. Then, the company’s managers focus on learning as much as possible as quickly as possible by measuring appropriate metrics, soliciting customer feedback, experimenting, and changing the product or business model as needed.
Lean Startup Methodology¶
The Lean Startup methodology is an approach to developing businesses and products that aims to shorten product development cycles, rapidly discover if a proposed business model is viable, and iterate based on feedback. It was developed by Eric Ries and is based on the principles of lean manufacturing and agile software development.
Key components of the Lean Startup methodology include:
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Build-Measure-Learn: Emphasizes the importance of quickly building a minimum viable product (MVP), measuring its performance, and learning from real-world feedback to iterate and improve the product.
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Validated Learning: Focuses on testing assumptions and hypotheses through experiments and real-world data, rather than relying solely on intuition or predictions.
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Minimum Viable Product (MVP): Refers to a version of a product with the minimum features required to satisfy early customers and gather feedback for future product development.
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Continuous Deployment: Advocates for frequent and small releases of product features to gather feedback and make improvements incrementally.
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Pivot or Persevere: Encourages startups to be flexible and willing to pivot their business model, product features, or target market based on validated learning and market feedback.
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Innovation Accounting: Emphasizes the need for measurable progress and actionable metrics to track the success and effectiveness of startup initiatives.
Overall, the Lean Startup methodology provides a systematic and iterative approach to startup development, enabling entrepreneurs to validate their ideas, reduce risk, and build successful businesses more efficiently.
Lean Culture¶
Lean culture is a type of company culture that focuses on continuous improvement, which refers to the regular optimization of an organization's protocols and processes. When the members of a company embrace this concept, they can develop a collective commitment to learning and improving that focuses on the needs and expectations of customers. Many companies encourage this type of culture when they plan to adopt lean business operations, which centre on achieving optimal value while minimizing resource waste.
A lean culture emphasizes the roles that all employees play in this cycle of continually optimizing the efficiency of internal procedures. Employees at all levels and in all departments come together in a business with a lean culture to reduce organizational waste and create the best possible product for the customer.
Lean Startup vs. Traditional Startup Approaches¶
The ideas contained within Lean startup contradict long-held principles about how entrepreneurs should approach launching a new business. Traditional approaches entail that entrepreneurs develop a multiyear business plan and then use that plan to raise money to fund product development activities. Moreover, traditional principles advise entrepreneurs to build their products in "stealth mode," keeping their product ideas unknown to anyone beyond the startup workers and their investors.
On the other hand, the Lean startup methodology calls for entrepreneurs to start their business ventures by searching for a business model and then testing their ideas. Feedback from potential customers is then used to adjust their ideas as they move forward.
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