How Small Business Entrepreneurs Can Develop New Revenue on a Small Budget
August 15, 2016
The Lean Startup (@leanstartup) by Eric Ries (@ericries) is a great book for any small business owner whether you are just getting started or have been long established. Small businesses are constantly reinventing themselves, improving their products and services to better serve their customers so they can keep growing their business. This book covers some important principles and techniques for staying ahead of the competition while being efficient with time and money as technology continues to change quickly.
The key is to use a “Build-Measure-Learn” feedback loop to chart actual progress and viability of a product or solution.
“Before building the prototype, the company might perform a smoke test with its marketing materials. This is an old direct marketing technique in which customers are given the opportunity to preorder a product that has not yet been built. A smoke test measures only one thing: whether customers are interested in trying a product. By itself, this is insufficient to validate an entire growth model. Nonetheless, it can be very useful to get feedback on this assumption before committing more money and other resources to the product.”
A concept called Minimum Viable Product or MVP, which can apply to physical products as well as services is a key to determine, on a small batch basis, whether your new product or service will succeed.
“…new technologies are allowing entrepreneurs to build small batches of products that are of the same quality as products made with injection molding, but at a much lower cost and much, much faster.” … “The ability to learn faster from customers is the essential competitive advantage that startups must possess.”
By using smaller batches and testing early and often the budget you spend is much lower than trying to reach economies of scale before you know what is going to sell. Also by testing in the real world you are generating new revenue as you test the concepts. You are not hiring a focus group, you are selling different versions of your product or service to bring in money while you figure out what is the most efficient and most popular version or features.
The author addresses a concept called validated learning. While you can learn a lot from your mistakes in business, mistakes typically won’t pay the bills. Validated learning is not after-the-fact rationalization or a good story to hide failure from employees or investors.
“…for every successful entrepreneur who was in the right place at the right time, there are many more who were there, too, in that right place at the right time but still managed to fail.” … “What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.”
If a business “builds something that nobody wants, it doesn’t matter much if they do it on time and on budget.” The goal of the small business owner should be “to figure out the right thing to build-the thing customers want and will pay for-as quickly as possible.”
The key aspect to keep in mind is to run real world tests of products and services both early in their development as well as throughout the improvement process, this ensures that your business is providing solutions to real life market demands. You don’t want to spend years perfecting a product or service only to find out there wasn’t actually any demand or a new product has already solved the problem and saturated the marketplace.
There are some good real world examples from business including Eric Reis’ personal lessons in business as well as other well-known businesses embracing these techniques. If you want to read the specific strategies, techniques and real-world examples then I recommend you read The Lean Startup; How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries.
I hope this information was of value to you, I would be glad to share more thoughts on this book and how it applies to small business. Please let me know if there are specific areas of this book, marketing or small business you want to learn more about in my future articles.