Lean startup explained in 15 words
| Sieuwert van Otterloo |
Lean startup is a new, agile method for developing new products. The method is used by most technology startups and accelerators but also applies to corporate innovation teams. This article summarizes the Lean Startup jargon as a refresher for people who attended a Lean Startup workshop.
Lean Startup – Lean startup is the name a set of best practices for a startup that is recommended by most accelerators.
Startup – An organisation formed to search for a repeatable and scalable business model. A startup is thus not a business yet, but merely a team trying to learn. This definition comes from Steve Blank’s blog, one of the ‘inventors’ of Lean Startup.
Business model – An overview of how a startup will make money. The recommended way to display a business model is on a business model canvas: a one page poster that lists customers, sales channels, unique selling points, partners, revenue streams and costs.
Assumption / Hypothesis– A statement that can be true or false and should be true in order for the business model to work. Assumptions should be concrete enough to be testable. “People like flowers” is not a good assumption, but “Fathers spend more than 100 euros a month on flowers” is.
Experiment – A small project (days or a week) to test whether a certain hypothesis is true. A typical experiment would be to make an offer to a selected group of customer and see if they buy or sign up, e.g. “get all the flowers you need for 100 euros per month”.
Customer development – This name is a play on product development. In customer development one tries to find a group of people with a specific need that will buy a product once it is developed.
Problem solution fit – The point in time when a startup has found and validated with experiments the following: a specific customer group with a specific problem, willing to spend a certain amount on a solution with certain properties. Startups should reach this point first before starting to develop a product.
Mom test – A test whether you are asking the right questions when interviewing customers. According to the mom test, you should ask factual, not hypothetical questions, for example “When was the last time you went to the gym” instead of “Do you like going to the gym”.
Minimum Viable Product (MVP) – The simplest product that has real value to customers. In Lean Startup, startups are encouraged to make simple, minimal products and launch these early in order to learn from user feedback.
Product market fit: The point where the startups has built a product for which there is demand in the market. This can only happen after problem / solution fit.
Pivot – Literally the word means a change of direction. A pivot means that a startup is changing their assumptions and business model. They can change the target customers, the product, the channels or pricing model.
Burn rate – The amount of money the startup is spending each month. Many startup costs are fixed (e.g. salaries, rent) and the burn rate is therefore very predictable. Using the burn rate one can estimate the runway.
Runway – The time remaining (in months or weeks) before a startup runs out of money and needs a new funding round.
Pirate metrics – A set of five metrics with the acronym AARRR that can be used to measure whether a product and business model are working. The five metrics are Acquisition, Activation, Retention, Referral, Revenue. Together these form a funnel and enough customers should go through all the steps in order to grow the business.
Growth hacking: all activities intended to speed up the rate of customer acquisition of a startup. Growth hacking consists of online marketing tricks, measurement, analytics and creative content creation.
If you know all these words, you have probably read enough books on Lean startup (our recommendations are Lean Startup, Running Lean, Business model Canvas and value proposition design). Just find a team, start interviewing and build your MVP. If you would like to know more about Lean Startup in practice, ICT Institute organises workshops on request where experienced entrepreneurs share their Lean Startup experience. We do this together with StartupJuncture.com, Growth Tribe, Best3minutes and proudly represents. If you have comments or additional words to include, let us know.
Image: Wright flyer (first airplane) from Wikimedia Commons
Dr. Sieuwert van Otterloo is a court-certified IT expert with interests in agile, security, software research and IT-contracts.