Will Using Lean Startup Allow You To Cut Costs?

Is the lean startup method about cutting the costs of development? Well: no. Not exactly.

The common notion is that “going lean” means cost-cutting. It’s not surprising: cost-cutting is the first thing we think of when we hear the phrase. Some entrepreneurs have made their cases against the lean startup based on this supposition. The list includes, among the others, Ben Horowitz (of Andreessen Horowitz). Although going lean (cost-cutting) can save you now, in the short term, he argues in his 2010 article, The Case for the Fat Start-Up, it may sink you later, especially if your startup operates on a crowded, highly-competitive market. Saving during the product development phase can either be good or bad, depending on the product, but far-sighted entrepreneurs should always keep their eyes on their competition and, more importantly, on the prize: winning the market.

And there would be nothing controversial about it… if not for the fact that Horowitz makes it into the case against the lean startup.

In reality, however, the lean startup has much less to do with cutting costs and much more to do with cutting waste expenses and increasing efficiency. And the later does not equal the former; at least not always.

Cutting Waste Expenses

The lean startup method was developed for those who can’t afford to wait for the launch of their product to see if it finds its audience or not.

The product development can sometimes be long and expensive. Ries’ designed his method to allow entrepreneurs to incorporate a series of customer validation tests into the process — so that when the product is launched, they can not only be sure that it will find its users but that it already has them. In short, the method has entrepreneurs launch very early versions of their products, dubbed MVPs, for Minimum Viable Products, to see if they are also the Minimum Desirable Products. The information gathered based on how these early customers adapted to the product can later be used to change the direction of its development. If the method is implemented properly, the result is the product that answers its customers’ real needs and, thus, finds its audience easily.

But where is cutting waste expenses here?

It is hidden in plain sight. Releasing MVPs, we risk that our customers don’t like the product, but we avoid the risk of investing a lot of money in developing the features that will never be used (or won’t contribute to the final success of our product in any relevant way). Normally, all the features are added before the product is launched or introduced later on (as paid add-ons or free patches). The producer has no way to test their appeal. He may think that they are necessary; he did a market research or, maybe, saw the same features introduced by his competitors. In truth, however, he has no way to determine whether or not adding or removing this particular feature will be important to the product regarding finding its customer base.

Developing a product according to Eric Ries’ method allows entrepreneurs to add the features in answer to a real early customer demand. It allows them to narrow the path that they’re going to take while the product is being developed to a thin line — a line that, ideally, leads to success (or, in many less fortunate cases, allows the entrepreneurs to at least avoid going bankrupt after the final product is released).

Cost-Cutting?

So. Cost-cutting. Does going lean — the lean startup way — mean cost-cutting? Yes — in a sense that the resources that would otherwise be used to develop unnecessary features are re-located to other, more important development-related tasks. But not always — because it doesn’t necessarily mean releasing our product cheaper (nor cheapening the development process itself). In fact, it may make the development even more expensive (as we can never be sure how long will we have to customer-validate our product to make it “just right”). Going lean doesn’t affect our development budget: we still have what we had. We still have to make do. What it does affect are the chances of our product to find its users. Which rarely is the same as cost-cutting, truth be told.

Conclusion

Implementing Eric Ries’ method properly will allow you to cut waste expenses. It won’t necessarily allow you to cut costs in general, however, as the method is not about decreasing costs as much as about increasing efficiency. Although in the perfect world increasing efficiency can result in cutting costs, in reality, it rarely is so (the reasons for this are numerous and varied and include the impossibility of eliminating waste expenses completely). Also, implementing the method can sometimes lead to the emergence of some additional costs (e.g. the budget for experimentation). And these can be either small (in software startups) or very big (in high-tech startups).