Navigating the dynamic business environment is challenging for both established and startup companies. For the latter, it is especially difficult because there is much to learn. Some lessons come at a costly price, which may result in the demise of the business in some instances.
Qarib research on startup failures sheds light on interesting responses which include a lack of market understanding, poor timing, cash flow issues, and black swan events.
According to the source, 21.5% of startups will not make it past the first year, and 30% close shop in the second year. After this period, startups still aren’t safe. 50% fail in the fifth year, and by the 10th year, that number rises to 70%.
Many entrepreneurs don’t realize that some of the challenges they face are due to poor business models. They may have the right ideas, but executing those ideas and scaling processes while resonating with the target audience doesn’t work well for everyone. This article focuses on how to prevent these issues and gives the reader a framework to follow.
Understanding Business Model Innovation
Business model innovation is about working through the value creation process while making it work for the target audience and the business. It focuses on making changes to the value proposition and operating model.
It may include product or service offerings, revenue models, and target segments. Other areas are competitive advantages, profitability drive, and value creation and delivery.
Business model innovation helps understand how the offering meets the target market’s needs. The clarity leads to a change or adjusting of the processes to deliver value to customers and one of the methods in gaining traction in business innovation is the lean startup.
Understanding Lean Startup Processes
The lean startup is a method of iterating products, services, or business models in a rapid cycle to perfect them at each iteration. The feedback loop with the end consumer is the centerpiece of a lean startup and the product, service, or the business model must evolve through this process. It does away with the “normal way” of running a business. The Harvard Business Review sheds light on some of these new phenomenon, such as:
- Replacing elaborate planning with experimentation.
- Placing greater emphasis on customer feedback instead of total reliance on intuition.
- Doing away with the traditional, upfront, big design development for iterative designs.
One can describe the lean startup process as disruptive because it does away with the conventional ways of working which have less chance of success.
Companies and startups wishing to embrace this model must invest in lean startup coaching. Management and staff must see the value in adopting such a radical business model because they undergo a complete paradigm shift in their thinking and processes.
Companies were dependent on thorough planning before executing any decisions but the lean startup says to throw away the rule book and experiment with new options.
Companies have a greater chance of achieving long-term success when everyone is on the same page and proper coaching equips the teams with the skills necessary to adapt. They will learn how to embrace change by shifting their mindset and get comfortable exploring opportunities outside of what they know.
Why Lean Startup Business Innovation Model Works
Entrepreneurs tend to follow the same pattern when starting a business: They will research the market and target audiences before writing a business plan. This section draws from what other companies have already done.
The business owner will then pitch to investors, or if it is self-funded, then the owner will launch the company. Those in product development push final products into the market and the hope is that customers will love and buy their products.
The developers will use the feedback from users to guide their decision-making going forward and could include improving the product or withdrawing it from the market.
There is a challenge with this strategy is that there is no one-size-fits-all business model. What may work well for one company may not for another and business plans include assumptions. The business owner, for instance, may have developed a five-year plan, but In five years, changes may occur that throw the assumptions out of the water.
Launching mass products and waiting for feedback is not the best approach because total product recalls due to an ineffective or faulty design may occur. The lean approach suggests taking customer feedback for an iterative or agile development.
Lean Startup Business Model Innovation Framework
Iterative development is a continuous cycle of building, measuring, and learning. This section focuses on a simple framework that product managers or entrepreneurs may follow to make their business model work.
- Build a minimum viable business model based on the hypothesis that it will be a success.
In this stage, you should come up with a business model based on primary research, secondary research, data, and initial customer conversation.
- Launch the initial version to early adopters.
Prepare a document or a prototype that shows the business model and make it available to potential customers or early adopters. It is important to include must-haves, nice to have, and unique features and functions of the business and/or product. This is to ensure that the feedback loop works and that it is a representative model of the full-scale product or model.
- Collect feedback.
In this step, start collecting data that will help you decide on the model’s future. Data can be both quantitative and qualitative. Quantitative data allows product managers or entrepreneurs to ensure that the model in motion works for a wide range of customers and qualitative feedback gets to the depth and helps understand the deepest emotional goal of the customers towards the business model.
- Learn from the insights you get from the feedback and iterate.
The best part of the lean way of iterating a business model is the data-driven decisions. While experimentation plays a role, there is no guesswork in the processes because you analyze the feedback, put it together, and get insights from it. You may then convert those insights into actions that drive the next iteration of the business model.
The above framework can help companies and startups save time and money because instead of going straight into a mass launch, this framework releases incremental value to a small sample of customers. If the product does not meet customer needs, then the company does not incur heavy losses.
Final Thoughts
Modern businesses must keep up with innovation to grow their business and gain a competitive edge. The solution may lie in business model innovation and lean startup processes. Developing products, services, and business models based on customer feedback deliver more value to the target market.
The lean startup model helps bring up innovative ideas you receive from your customer’s reactions to a viable product in the market. The idea you make is analyzed and your company decides whether to execute or shelve the idea.
What makes this model so exciting is the emphasis on experimentation because the move away from the normal way of doing business opens avenues for innovation. Each step considers customer feedback, so the chances of success increase.