What is lean startup methodology and how can small business owners use it?

The traditional business plan has many virtues. Completing a plan prompts a new entrepreneur to initially consider all the components of a successful business operation, from the legal structure to the marketing plan to financial projections, giving the venture a higher likelihood of success.

strategy, plan, innovateBut going the route of a traditional business plan to launch a venture also has its problems. Common complaints are that business plans are often based on unproven assumptions, the process is quite time-consuming and often the traditional plan isn’t nearly as customer-focused as is needed to set someone up to be truly competitive from the start.

A completed business plan may also instill a false sense of confidence and in certain cases, may lead to the founder(s) over-investing in an unproven and untested business model. Over-investing may especially be prevalent in brick and mortar or main street businesses, as these ventures usually require significant upfront investments in equipment, insurance policies and physical space.

I often apply the old adage, “How are you going to get there if you don’t know where you’re going?” when speaking to business owners on planning a business. But the traditional business plan isn’t the only way to think through a business model.

In the SBA’s Office of Entrepreneurial Development, we’ve been closely watching the rise of an alternative method to launch a business venture, a collection of processes and terms known as lean startup methodology. So what is lean, and why do we think this approach could empower more main street business?

True to its name, lean is rooted in minimizing costly inputs and time-consuming planning processes. Lean turns the business planning process on end and starts from a customer-centric standpoint. And while lean methods have gained popularity among tech startups, many of the principles have huge potential for business owners in other sectors.

A few of the hallmarks of lean methods are:

  • The business model canvas. This is a template for visualizing and analyzing a business model and evaluating whether fundamental change is necessary. It is often presented as a more focused, efficient alternative to a traditional business plan. Among other things, it forces firms to outline their cost structure, opportunities, key assets and threats. Perhaps most critically, it requires they develop a deep understanding of who their potential customers are.
  • The Minimum Viable Product (MVP). An MVP is a sort of pilot product, a version of a new product that allows the team to test its assumptions about market interest and demand with minimal upfront investment.
  • Customer interviews and pivoting. The lean firm should be in a constant state of reevaluating its offerings to ensure they meet marketplace needs. This involves extensive customer interviews before and after the launch of a product or service. The firm should be oriented towards quickly adapting its product lines and business models, and must be willing to quickly pivot if market research so deems.

Recently, the SBA launched the Lean for Main Street Training Challenge to expose businesses outside the high-technology sector to lean methodology. Members of the SBA’s resource partner network (Small Business Technology & Development Centers such as the MO SBTDC, Women’s Business Centers, SCORE chapters and Veterans Business Outreach Centers) are competing to adapt National Science Foundation’s highly regarded Innovation Corps (I-Corps) Program to the needs of small businesses across America.

Tameka Montgomery

Tameka Montgomery, Small Business Administration

We’ll be announcing the winning partners soon. Once they adapt the I-Corps curriculum, they will pilot modified lean training programs in their respective areas. Our goal is to make quality lean training resources available to all and help America’s small businesses excel.

The MO SBTDC is implementing an I-Corps curriculum in several centers, introducing this methodology and lean principles into training. For information, see the MU Extension Business Development Program training calendar.

– Contributed by Tameka Montgomery, SBA associate administrator for the Office of Entrepreneurial Development.