The Lean Startup

I am on the topic of testing the viability of entrepreneurial opportunity. In the previous delivery I looked at “The Lean Startup”, popularised by Eric Ries. The Lean Startup is a “methodology” to rapidly build a Minimum Viable Product (MVP) with a minimal set of features that is enough to deploy the product and test key assumptions about customers’ interactions with the product.
Understandably not all products and services are prone to a “Lean Startup” approach, but I feel it is worthwhile to delve more into this methodology, especially for start-up entrepreneurs. Hence, with this delivery I want to look at a case study of a very prosperous business which followed the Lean Startup route and show that this method can indeed be applied to grow a successful enterprise.
There is a lot of information available on the Lean Startup method on the Internet and you can buy the similarly named book (which is an excellent resource for entrepreneurs in any case) as well, but just to quickly recap, the Lean Startup method can be summarised as follows: Release your product/service early. Iterate quickly and often. Keep the founders actively engaged with the product and customers, not locked away in the boardroom. Evolve your product and business model over time to meet real needs of customers.
As an example of a very successful business that followed the Lean Startup route, I want to use Airbnb. Put simply, Airbnb is a room letting website which works like any holiday booking site. Prospective travellers go online, select the dates they wish to travel and pick from a list of options. But there’s one major difference – the properties on offer are not professionally run hotels or apartments, they tend to be the flats and houses of ordinary people looking to make some extra money. I like to think of it as the Uber of travel accommodation. At present, Airbnb is offered in 190 countries and 34,000 cities. More than 40 million people have booked a trip using the site. It has been credited with changing the way people book holidays, and is valued at around US$25.5 billion.
How did the Airbnb Lean Startup journey work? I can not tell the whole story here, I just want to share some of the highlights to illustrate the touch points with the Lean Startup. It started with two guys in San Francisco who could not pay rent. They came up with an idea to rent out three air mattresses on their apartment floor and serve breakfast. They made a very simple website, basically a blog and a map to their apartment. Their first customers were three people who paid US$80 for this accommodation. They realised that their idea had potential and decided to pursue the opportunity. They raised funds (by selling cereal among other things…), and started a proper business –, but they still did not make money.
So, they decided to travel to New York, their biggest market, to meet their users. They discovered the main problem was that the pictures of most listings were not good. They bought a camera and went door-to-door to take better pictures of the listings. After their New York visit, they finally got some traction. The name was shortened to, and the site’s content expanded from air beds and shared spaces to a variety of properties including entire homes and apartments, private rooms, castles, boats, manors, tree houses, tepees, igloos, private islands and many other properties.
This story is an excellent example of how a simple idea of renting out mattresses at first, expanded into a billion dollar business that includes all types of accommodation, not through an intense market research exercise, but through evolving constantly by changing offerings, testing the market and finding out what customers really need.Next Time
Continuing with the topic of testing the viability of opportunities, I want to look at prototyping. I conclude with a quote by Dee Hock: “You learn nothing from your successes except to think too much of yourself. It is from failure that all growth comes, provided you can recognize it, admit it, learn from it, rise above it, and then try again”.
Reis, E., 2011. The Lean Startup. New York: Crown Business.