Launching a new business is risky. For this reason, lots of startup founders err on the side of caution. They try to plan everything, relying on their intuition to assemble elaborate five-year plans.
But here’s the thing: You can’t run a startup the same way you would a Fortune 100 company. You don’t have the same resources or market share, meaning that you have to take a more adaptable approach.
That said, a startup is still a business, and it’s not going to succeed if you have no business model at all. We’re big fans of the lean startup model — which relies on actual customer feedback to inform incremental changes over time.
Don’t waste time on an ideal business model
Many startup founders obsess over their theoretical business models. Sure, a five-year plan is helpful for focusing your efforts, but you can’t predict business developments while working at your desk by yourself — so don’t waste too much time simply dreaming.
Don’t big, more successful companies use fixed business models?
Startups simply can’t follow the same business plans as established companies with millions of dollars in revenue. Big companies have already figured out what works for them, and need that bureaucracy to keep the machine running smoothly.
Startups are different: They’re still searching for a sustainable business model.
But that’s not an excuse for letting your internal processes run wild. A startup is still a business that needs to be effectively managed — but how that’s done has to be tailored to the context.
Why do startups need a different business model?
One common misconception about startups is that their main goal is to create a product, or generate profit, or even meet customers’ needs.
But a startup’s actual goal is to build a sustainable business. The previous three factors can be true, but only if it’s in service of creating a business that lasts.
To promote sustainability, a startup must have a business model that enables them to efficiently change up ideas and learn from failure. That’s where the lean startup model comes in.
The lean startup model: Get straight to customer development
The product or service development process can take a long time. Typically, there are five stages to the lean startup model: idea generation, research and development, testing, analysis, and rollout. With this process, it can take months or even years for a new offering to hit the market.
So what if you find out that users don’t like a feature — after you’ve already sunk all these resources into making the product? If you go back and revise the product, your eventual time-to-market could be unreasonably extended: By the time you introduce version 2.0, the market may have moved on, or you may have run out of cash flow to sustain the business.
At the beginning, all any startup has to work from are untested hypotheses. The lean startup model aims to make you test your hypotheses in the shortest amount of time possible.
What’s a minimum viable product (MVP)?
The lean startup model focuses on building an efficient cycle of “build-measure-learn.” It’s based on two simple questions:
- “Should this product be built?”
- “Can we build a sustainable business around this set of products and services?”
To address these, you’ll want to get crackin’ on developing a minimum viable product. Your MVP isn’t just a basic product with enough features to satisfy early adopters; your MVP is a basic product with enough features to enable users to provide useful feedback on whether they’re interested.
Why is the MVP so important?
You need an MVP to start testing your assumptions in the real world. It’s your basis for collecting customer feedback on every aspect of your business model, from product features and pricing to your marketing and sales approach.
Based on that feedback, you can adjust your product and business model as needed. A small change is known as an “iteration;” a big change is called a “pivot.”
Many small businesses fall into the trap of premature scaling — devoting excess resources to developing something that nobody wants. But by incorporating market lessons into your development strategy early, you’re putting your customers’ needs first and maximizing use of your scarce resources.
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