Meaning of Lean Startup
This term refers to the method used to establish a new company or introduce a new product. The lean startup approach encourages developing products that consumers already want, so that the market is already there when they are launched, rather than developing a product and waiting for demand to grow. This approach is based on the entrepreneur continuing to interact with the activity cycle represented by the theory of exploration and development, which allows him to test the idea among consumers in order to obtain their opinions on it, on which the product is then designed.
It is also based on iterative development concepts that are derived from the agile approach used in the world of software development. Instead of developing a long-term business plan, lean startups follow a business model built on rapidly-tested theories. Prototype the product quickly, bring it to market in order to measure its success without the need to use unnecessary additional resources at that point, and use the data generated from initial marketing tests to proceed to the next build phase.
The data does not have to be complete before proceeding with product development; it just needs to be sufficient. When customer interaction is not as desired, the business model can be quickly changed in order to avoid further losses and return to developing the product that the consumer desires. Failure here is the rule, not the exception.
The lean startup approach calls for the entrepreneur to develop a Minimum Viable Product (MVP). This means that the product is adapted based on consumer ratings; another concept in this approach is called “pivoting.”
Comparison of a soft startup and a traditional startup
- The idea behind the lean startup differs from the principles of traditional startups. Traditional companies develop a multi-level business plan and then use it to raise funds for product development activities. You also prefer that product development be done behind the scenes so that no one outside the startup and its investors can see product ideas. The lean startup approach calls for starting projects by looking for a business model and then testing ideas.
- Lean startups differ from traditional startups when it comes to hiring. Lean startups hire people who are able to learn, adapt, and work quickly, while traditional startups hire people based on their experience and capabilities.
- Lean startups use different financial reporting metrics, so instead of focusing on the income statements, the balance sheet, and the cash flow statement, they focus on the customer acquisition cost and customer churn rate and the expected spread of the product.
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