If you haven’t read about The Lean Startup, you are missing out. The old formula of writing a business plan, pitching it to investors, assembling a team, producing a product then selling as hard as you can is archaic. The Lean Startup method favours experimentation over careful planning, customer feedback over intuition and continuous development over a “big design up front”.

Why the business plan is dead

A business plan is future-focused, describing the size of an opportunity, the problem to be solved and the solution that the startup will provide. It shows forecasts of income, profits and cash flows. All these are developed based on the assumptions that founders are able to foresee the unknown variables of the business, like a clairvoyant.

However, business plans often get thrown out the window within weeks after launching. Many startups spend a lot of time developing their products based on these assumptions without ever validating their ideas with their prospective customers. Eventually, they learn the hard way that customers do not need or want 90% of the product’s feature set.

What is the Lean Startup methodology?

The Lean Startup methodology was developed by Eric Ries in 2008. It is an experimental approach to developing a business, teaching you how to “drive” a startup – how to start the engine, how to steer, when to turn and when to grow with maximum acceleration. The basic premise behind the methodology is to build a product as soon as possible in order to gather customer feedback that will help you revise and improve your business.

Adopting the Lean Startup methodology for your marketplace

Photo credit: Lean Startup.

The Lean Startup method is built on the core concept of “Build-Measure-Learn”. At the end of each cycle, the startup should be able to answer the question: “Should this marketplace be built?”

Build

Starting off, instead of dealing with stacks of business plans and research, Lean Startup founders develop a set of untested hypotheses. Using the Lean Canvas, they summarise the company’s value proposition: what they can offer and why customers should patronise them.

For marketplaces, it is important to identify the point of interaction that you wish to facilitate between the provider and consumer. This will help you to see the tension or pain points that you wish to address with your marketplace.

Measure

Once you have a minimum viable product (MVP), you can start measuring the feedback on all aspects of your marketplace; features, pricing, distribution channels and payment are just some examples. It is important to define the Key Performance Indicators for your marketplace and include actionable metrics that can show the causes and effects of different components.

Learn

Photo credit: Eric Ries.

Lean startups practice agile development; unlike traditional long product development cycles, this method focuses on development iteratively and incrementally, eventually building towards a commercially-viable product.

With the data collected from your measurements, keep asking yourself “Why?” to validate the effects of your revisions. Each answer and iteration allows you to focus on figuring out the right things to build a marketplace that people want and will pay to use. These ideas will then be implemented into the next “build” cycle, developing on the MVP.

Customer feedback outweighs secrecy

Traditional businesses often operate in secrecy, opting to keep key practices and products a secret and exposing them only to controlled “beta” testers (think Apple and their products). However, the Lean Startup methodology renders these ideas obsolete because customer feedback almost always outweighs the benefits of secrecy. Getting constant feedback from actual users of your marketplace will yield better results than the unveiling of a product that surprises people but no one uses.

Adopting the Lean Startup methodology can help your marketplace anticipate challenges, meet them head-on and innovate rapidly to transform the industry. The emphasis is on staying nimble and speedy, rapidly revising assumptions, assembling the MVP and testing the redesigned offerings in order to elicit customer feedback.

Next, we’ll look at how to develop a minimum viable product (MVP). This will require you to “get out of the building” and interact with potential users, producers and consumers, as well as partners.