The internet has opened up all kinds of new opportunities for businesses in the last decade. At Less Annoying Software, we're taking advantage of a relatively new internet-enabled approach to business called "the lean startup." In this post, I'm going to explain what it means to me to be a lean startup and why I think it makes so much sense.
What makes a startup company "lean"?
No one single characteristic causes a startup to be considered lean, but most lean businesses have a few things in common:
- Your store-front is the internet - While this isn't always true, most lean startups are web-based. Because online communication and distribution are so widespread now, businesses no longer need physical locations to sell their products. Additionally, many lean startups choose to have employees work remotely so there isn't even a need for an office.
- Only raise capital if you really need it - Conventional wisdom says that it takes money to make money, but that's not always true anymore. By operating online, companies can significantly reduce the cost of getting started. It's also much easier to scale certain types of businesses (particularly software businesses) on the cheap. Even if a company does need funding to get started, they can stay lean by being very careful about how that money is spent.
- Keep your scope small - A big part of being lean is making sure that you don't bite off more than you can chew. We all hear stories about how people like Bill Gates and Mark Zuckerberg took over the world overnight, but lean startups need the discipline to start with something manageable and grow from there. It's almost impossible to stay lean if you aren't good at saying "no" because as you let the scope of your operation increase, so too will your overhead.
- Release early and often - This phrase refers to a popular software release methodology, but I bet it works equally well for other business models. The idea is that you should get a basic version of your product on the market as soon as possible, because that's the best way to test your ideas. Traditional companies can spend years planning and perfecting every little detail about their company only to realize after it's too late that the model was flawed to begin with.
This certainly isn't an exhaustive list, but I consider these to be four of the most important characteristics of a lean startup. But now the question is, why do all of these things?
The benefits of being lean
A lot of people will read the four characteristics listed above and immediately dismiss the lean startup methodology. By refusing to accept funding, you're increasing your risk. By limiting your scope, you're basically just lowering your ceiling. So what's the point? Well, there are a lot of great benefits to keeping your startup lean:
- Keep control of your company - As soon as you accept outside funding, you're basically giving up control. Even if you are still technically in charge, you suddenly have a responsibility to represent your investors' financial interests which might not always mesh well with your vision for the company. Basically, you become an employee. By staying lean, you can ensure that you have the freedom to take the company in a direction you believe in.
- Allow yourself to pivot - No matter how much planning you do ahead of time, everything will change once you launch. You'll realize that you made incorrect initial assumptions and your model needs to change. By using the "release early, release often" strategy and keeping your overhead low, you'll be able to identify potential problems as early as possible and make adjustments as needed.
- It's about profit, not revenue - For some reason the entire business world is obsessed with revenue, but that just doesn't make sense. It doesn't matter how much money your company brings in, it matters how much money you make. So even if you believe that the revenues of a lean startup won't be able to match those of a traditional startup (which is dubious to begin with), you'll own significantly more of the company, and your expenses will be significantly lower so you can easily end up making more money with the lean approach.
- You can always grow later - There's no rule preventing you from turning into a big company later. You can get your start using the lean approach, and then after you've found some success you can raise funding, and hire lots of employees. This approach may take a couple of extra years to execute, but it will allow you to negotiate much more favorable terms with your investors, and you'll probably be more likely to succeed in the long run because you were able to pivot in the early days.
- You'll be happier - Everyone might not agree with this, but I think that the lifestyle of a lean startup founder is much more pleasant than that of a traditional founder. Think of all the stress that comes along with going into debt before your company even has a product to sell, becoming an employee to your investors, and betting your entire company's future on a plan that you haven't had an opportunity to test. After you've tried the lean approach, you'll wonder why anyone does it any other way.
I know that none of these concepts are exactly new, but when you put them all together, I think you get a pretty cool approach to business. Let me know in the comments what you think, or if I left out any important requirements/benefits of the lean startup.