Take care of your business from a young age or how to create a lean startup

So, you created your own small IT company, and maybe even call it a startup. Typical mistakes of growth immediately begin: risks, misunderstanding on the part of customers, unwillingness of the market to let you in, the feeling that you have made another bike and generally depression, despair and the desire to quit. Alas, this happens with almost everyone, but this does not mean that it is worth updating the resume and returning to work. You must be able to manage the situation - and preferably not on your own cones (although you still have to).


Recently, we attended the Lean Startup professional conference in Las Vegas and decided to talk about the lean startup methodology, which for many years has been very popular among entrepreneurs and innovators around the world.

What is Lean Startup / Lean Startup?

The lean startup methodology was developed by Eric Rees, who is known in Russia for his book Business from scratch. In general, this methodology is aimed at understanding the preferences of the client before you begin to create a product and start a business. You make a product with minimal iterations and approaches. The main slogan is “create, measure and study until you make the perfect product”, and as you know, the ideal is not achievable. Therefore, Lean Startup is a whole methodology, a whole philosophy of creating a product that really meets the needs of consumers.

One of the important criteria for success is to remove the pink glasses. Very often, when testing the main hypotheses that guide companies in creating their product, the source data is incorrect. It is important for businessmen to have the strength to accept the truth in order to understand that the basic assumptions were initially incorrect. After this, breakthrough changes can be made. The main thing is to look at your product soberly and work with the client based on his needs.

4 common truths by Eric Rhys

Eric Rees calls an entrepreneur any person who has his own startup.

1. A startup, in fact, is any enterprise with the goal of developing new goods and services in extremely dynamic and uncertain conditions. Thus, this approach can be applied to companies of any size, regardless of sector or sector of the economy.
   
2. An important thing in any company is the management of a new type, which should be able to work in ever-changing conditions.
   
3. The main task for any startup is to profit, and not just produce goods. Any startup needs constant training using scientific hypotheses.
   
4. A successful startup should work on a “create-evaluate-learn” model. At the stage of creation, a minimally workable product is formed. Then, the consumer’s reaction is evaluated, and at the next stage it is decided whether to take the intended course or change the vector of doing business.
   

Basic concept

The Lean Startup methodology is based on six cyclically interconnected elements.

1. Ideas and analysis. When creating a product, remember that it is designed to solve the problems of specific people. It is important to analyze an existing solution and how the product you created will make a difference.
2. Studying the audience. Connect with potential customers. You may have ideas that you have not previously considered.
3. Product creation. From the most risky ideas, a basic minimally viable product is created. Trial your product on a small scale. At this point, create an approximate financial model. In this model, costs and potential sources of income will be laid.
4. Testing. At this stage, you get feedback from your audience. It is important to understand that data must be objective in order to create a viable product.
5. Work with data. When working with data, you should answer a few questions. How useful was your product? Are there any unexpected problems? Was the product price too high for customers? If the test data says that the idea is not working, then you need to abandon it and start thinking about a new project.
6. Scaling. The results were good - excellent. Use the data and proceed to create a full-fledged product.

Hypothesis testing

To test hypotheses, one or more business model options should be prepared. You need to choose the most attractive model based on the cost of money and time. Highlight the most risky hypotheses, for example - “Client” and “Problem” and then develop an experiment. Establish criteria for its success and various limitations on indicators and terms. The experiment itself can take the form of an interview, observation, advertising campaign, etc. At the end of the experimental stage, the data are analyzed and the hypothesis test begins again. This verification cycle must be carried out until you are convinced that the product is suitable for the market.

An ideal model for the growth and transformation of a startup into a successful, scalable business should consist of four main points.

1. Search for ideas and clients.
   
2. Determining the correlation between problem and solution.
   
3. Customer verification and product compliance with the market.
   
4. Business scaling.
   

The emergence of Lean Startup - the result of their own mistakes

The founder of the concept is American businessman Eric Rice. He created a company that made virtual avatars for gamers. The company received quite good funding, but after they spent time and received as much money as they invested, they realized that users did not like their product and it wouldn’t shoot.

Then the company decided to conduct the first interview study to understand what went wrong. It was discovered that many of the original hypotheses were false. If Rice’s company first tested them, a lot would have gone differently.

The initial false hypothesis was that they decided that users would invite their friends. The study found that gamers do not want to invite friends, as this is a risk to their own reputation. The teenagers reasoned like this: “if I invite a friend, and he will tell me: these avatars are garbage, then I’d better not do it.”

As a result, Rice created a product that does not make sense without inviting other users. If he initially checked his ideas, then perhaps a product would be obtained that would be valuable for independent use.
It was a sad experience for Rice, but thanks to this, the company changed its business model and became successful in the market.

As part of TalkToChef, we also in practice were faced with similar problems and used the Lean methodology to completely transform the company. Based on experience, perhaps the most difficult thing is to say goodbye to your own illusions about your potential and the genius of your original idea. It took about 150 personal interviews with potential users, which were conducted by all the main participants of our startup. It really helped to work out the first three pounds using Lean Canvas and dozens of experiments online, working on the 4th. We can say that this methodology helped us how to attract money for the development of the project in Silicon Fill, and later sell it to one of the players in the online education market.

Lean Startup - suitable for startups and large corporations

Eric Rhys shared his case, wrote the book “Business from scratch”. 80% of the book is dedicated to his personal experience as an entrepreneur and the creation of his company. Based on its methodology, many accelerators around the world have been built. All of them help startups save money on a huge number of things.

This concept allows you to test your hypotheses for the shortest possible time, for example, within one day.

Lean Startup is effective for both startups and huge corporations like Apple or eBay. Rice introduces it into corporations, where millions of dollars go into the pipe. Lean Startup adapts well among large corporations, and for young startups this is not even a methodology - it is the meaning of survival.

The eBay online store also makes several thousand experiments a day to test hypotheses-assumptions about what functions will be in demand by people and how to increase their sales by a fraction of a percent. eBay actively uses the methodology like many other successful IT companies.

“To be honest, I can hardly imagine how to make a successful company without using the Lean Startup methodology. No, probably there are geniuses who can come up with a concept and it will work from scratch. Perhaps this is Steve Jobs with his innovative Apple. But to be honest, I haven’t met such geniuses with more than 2000 entrepreneurs as part of the monthly Lean Startup Circle event, ”says Daniil Brodovich, international IT entrepreneur, mentor in startup accelerators and co-organizer of Lean Startup Circle in San Francisco

Learning from experience is a step towards success.

It is always interesting to “check the clock”, look at other successful Lean entrepreneurs, find out what they think about the methodology, how the industry is developing, what works, what doesn't work, what new life hacks, what new ways to create products and improve existing products.

For such meetings, the Lean Startup Conference is organized. The last such event was held in Las Vegas (USA). Exchange of experience is the main goal of such events. It is important, of course, to get acquainted with potential partners and customers.

The Lean Startup Conference in Las Vegas brought together keynote speakers and opinion leaders in this direction. For example, Tony Shay, founder of Zappos and Brent Cooper, founder of Moves the Needle and author of a book on Lean methodology.

By the way, a conference on Lean Startup was also held in Russia, where Brent Cooper, the author of the famous book Start-Up Around the Client, was invited, and with whom we had already recorded a podcast.

We hope Lean Startup inspires you to test your own hypotheses about your business or your startup idea. And if you wanted to immerse yourself in the atmosphere of the Lean Startup conference, then we recorded a video there especially for you.