A start-up company is no mean feat to tackle. The chance of high reward means risking the high loss probability, too.
As a start-up company, you’ve got the vision, the ideas, and the goals already; no one without ambition attempts a start-up. But unfortunately, we know that
many start-ups fail, and only a minority achieve the unicorn goal. Research shows 75% of start-ups fail.
So, how are YOU going to make it?
The lean business model is the best way to give your company a fighting chance to make it to the top 0.25%. Want to find out more?
In this article, I’ll provide a brief overview of the start-up techniques and how, in combination with other approaches, the model could revolutionise the
entrepreneurial world.
What is the Lean Model?
The lean start-up is a set of principles designed to maximise on the limited resources and unavoidable uncertainty of a start-up company. Simpler, it is a
set of strategies to allow start-ups to learn and grow effectively and confidently.
Confidence can be hard to come by when surrounded by the treacherous instability of a start-up company, but following this model offers you a clear
and proven way to approach the challenge.
The best meats are lean; so are the businesses.
Who’s Going Lean?
The lean start-up movement is still in its early stages. By turning traditional entrepreneurship upside down, the model is going to face a slow burn as companies grasp the concept. The model tells you to fail to succeed. Wild, right?
Everybody has a plan until they get punched in the mouth.
Mike Tyson
The lean model appeared after years of the traditional business strategy – create a business plan, a forecast, earn the funds etc – crumble and burn when put into practice. The truth is, you can’t plan for things you don’t know (or you could, but it would take so much time you’ll have no years left alive to actually create the business).
So, what was learnt about the traditional business model?
1. Business plans nearly always fail when in practice,
2. Nobody apart from Stalin requires a five-year plan to survive the decade,
3. Start-ups are unpredictable; they cannot be forecasted in the same way larger business plans can predict their future.
What Does it Do?
The lean business model aims to eliminate the ‘8 Kinds of Waste’:
DEFECTS
OVER-PRODUCTION
WAITING
NON-UTILISED TALENT
TRANSPORTATION
INVENTORY
MOTION
EXTRA-PROCESSING
Let’s take a closer look at DOWNTIME.
| DEFECTS | A product produced which is unfit for use e.g. damaged which costs the company money and time to make (and not sell) |
| OVER-PRODUCTION | A product made is made in excess without somebody needing it or it having a purpose. Products should ben made ‘Just-in-time’ in the Lean Model |
| WAITING | This involved delays between processing steps. It may be as a result of waiting for a superior’s approval, a defective machine or slow response times from customers. |
| NON-UTILISED TALENT | This refers to employees not being used to their potential. The main cause of this is the separation of management and employee, so no feedback, communication nor improvements can take place easily. It also means that the beneficial talents of an employee go unnoticed – perhaps skills you’re outsourcing unnecessarily. |
| TRANSPORTATION | This is the unnecessary or excessive movement of products, people, materials etc. Transport adds no value, can be expensive, and increases likelihood of injury or damage. |
| INVENTORY | This is an excess of products and materials that haven’t been processed. Often if the inventory process isn’t efficient then injury, damage, or loss of product (through expiry or naïve over-production) is likely to occur. |
| MOTION | This refers to the inefficiency of excessive movement. Walking between departments placed a long distance away wastes valuable production time. |
| EXTRA-PROCESSING | This is the act of doing more work than necessary, as this becomes inefficient. This may include double-entering data, having to regularly, unnecessarily report to supervisors, and non-fit-for purpose machinery being used. |
The Lean Values
Let’s take a closer look at these values:
| EXPERIMENTATION | A pretty good guess is a good enough reason to try something out, as opposed to exact surety |
| CUSTOMER FEEDBACK | Get out the building, stop imagining what people might want, and go and find out how people really think about your ideas. |
| ITERATIVE DESIGN | Iterative is sort of equivalent to ‘practice makes perfect’, so allow yourself to fail. This is sometimes also referred to as agile development. |
Not an Easy-Fix Guarantee
Whilst it may be claimed that the Lean Model is a revolutionary, definite, clear path to success, this isn’t the case. There is no guarantee that your start-up will
work out how you plan despite whatever practices you make use of. Something that has proved to be true, though, is that companies who implement some or all the lean practices face less failures than those who don’t.
The business economy needs a start-up based, innovation driven goal as this improves the flexibility of a business economy; something which is must needed, currently.
An Overview: What Do Lean Start-ups Do Differently?
| Lean | Traditional | |
|---|---|---|
| STRATEGY | Business Model Hypothesis-driven | Business Plan Implementation-driven |
| NEW-PRODUCT PROCESS | Customer Development Get out and Test Hypothesis | Product Management Follow a linear, step-by-step plan |
| ENGINEERING | Agile Development Build iteratively and incrementally | Agile or Waterfall Development Build iteratively, or fully specify the product before |
| ORGANISATION | Customer and Agile Development teams Hire based on learning, nimbleness and speed | Department by Function Hire based on experience and ability to execute tasks |
| FINANCIAL REPORTING | Metrics That Matter Customer acquirement cost, lifetime customer value, virality | Accounting Income statement, balance sheet, cash flow statement |
| FAILURE | Expected and encouraged. Fix and grow from it through developing ideas | Exception Fix by firing decision makers |
| SPEED | Rapid Operates on ‘good-enough’ data | Measured Operates on complete data |
A New Strategy?
Embarking on a start-up company is a risky venture and there is no fool-proof guide to making sure it goes well. However, the chances of success are improved by implementing these strategies. More than that, the lean model calls for intuitive, efficient and cost-effective business management and growth. Lean principles aren’t reserved only for start-ups.
Data from the US proves that lean methods are being implemented by some of the largest corporations. Obviously, these businesses aren’t using the processes to minimise the risk of uncertainty and low funds so there is something in the principles themselves which builds a good, attentive foundation for a business model. Whether you’re a hopeful start-up or a comfortable business, the lean methods can help you learn how to maximise your business’s potential.