Lean Startup: How to Build a Successful Business with Near-Zero Capital

Lean Startup: How to Build a Successful Business with Near-Zero Capital
  • Many startups fail due to growing too fast or too early, coupled with dwindling funds.
  • The lean startup methodology focuses on minimising wastage in time and resources.
  • It continually improves your product or service based on customer feedback, so you can provide exactly what people want.

 

“Startup” must be the buzzword of the 21st century, making entrepreneurship fashionable and putting entrepreneurs on a pedestal today, many whom are respected for their risk-taking and multi-tasking abilities.

Although I am not trying to discourage anyone, you should give yourself a reality check, if you too are bitten by the startup bug. According to ground-level research by the Startup Genome Project, up to 70% of startups scale up too early.  They even go to the extent of claiming that they can nail down precisely the reason why for 90% of failed startups. According to a Fortune.com research, nine out of ten startups fail, which should be a warning to budding entrepreneurs.

This may sound like a gut-wrenching fact, but it is not shared to demotivate ambitious people, rather this should serve as an eye-opener to avoid making the same mistakes made by other startup founders. For any business to succeed, three elements play a cardinal role – profitability, scalability and marketability. I am sure each of these terms are self-explanatory.

However, with today’s easy access to angel funding and venture capitalists, the profitability factor seems to be relegated to the background. Older businesses could only survive if they were profitable, but today, what counts is the market capital your business, its future potential and importantly, how much investor funding it has been able to attract.

Popular startups like Uber, Flipkart, Paytm, Zomato or Tesla that have not broken even or turn a profit yet, are still thriving as they continue to attract investor funding, thereby boosting their market capitalization. But if you take a close look at their balance sheets, these companies are swimming in debt. Entrepreneurs need to understand that in the long run, running a successful business is not a sprint, but a marathon.

Being profitable is one of the truest measures of success. Although some people taste it early and some later, entrepreneurs need to be careful to allow their businesses enough incubation time to avoid tanking prematurely due to dwindling funds.

This where lean startup methodology is critical to your startup. It’s a method I’ve embraced in my business and have seen success. Being a state level topper and double gold medallist, I had landed plush corporate job offers during my college placements. But after almost five years of working at leading IT companies, I wanted to call the shots.

There was this strong desire to build something of my own. To be honest, I did not have enough seed capital to launch a sophisticated startup. I took up freelancing for two years to understand the business in my field and save up towards my dream. With the responsibility of raising two little kids post marriage, I did not want to toy with the idea of borrowing any fund to fuel my startup. The only tools I had were my skillsets and the passion for solving a prevalent problem.

What is the Lean Startup Methodology?

The Lean Startup methodology revolves around a create-evaluate-improve feedback loop. Unlike conventional techniques which begin with a B-plan, lean startup favours experimentation over prolonged planning, client feedback over assumptions, and iterative design over traditional “big design upfront” development. The entire focus is building a product which is tightly aligned to customer needs after each pilot phase, much like the agile method adopted by software developers in IT firms.

Due to my IT experience, I had practical knowledge about this method so I could bootstrap it to my startup ecosystem. The first step is identifying the problem, followed by asking the right questions to solve it, and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible. Once the MVP is established, a startup can work on fine-tuning the solution. The emphasis here lies not on a plan that can take months to develop (like a B-plan) but on continually testing your prototype with a test target group and improve it based on feedback.

In a nutshell, the salient features of the lean startup methodology are:

  • Focus is on minimal wastage of resources and time.
  • Building an MVP or prototype and getting customer feedback.
  • Pilot testing the prototype with different target audiences to understand their needs.
  • Improving the prototype with each iteration in line with customer feedback.
  • Trimming down on wasted time designing features or services that consumers do not want.
  • Helping to a create valuable solution at the end of each iteration.

When you dig deeper into the points above, you will notice that the first point that minimises wastage of resources has an undercurrent of great thought and prudence. If we go back to why most startups fail, the research highlights that many entrepreneurs want things too soon, refusing to remain as startups for long.

The founders of Wantful, an inactive startup, conceded that they failed to achieve “highly accelerated growth required to secure later-stage venture capital.” In dire need of funds, it was impossible to sustain the business as investor funding started drying up.  That was the beginning of hitting the bottom rock.

Herein comes the advantage of lean startup methodology, which teaches us to use the minimal possible resources to achieve our goals and keeping strict control on wastage. First and foremost, ask yourself if you need investor funding at all. That way you will not be under the obligation of a third party, who is solely eyeing profit share from your company. You will have an increased level of accountability to this party and you are answerable for any business decisions you take, besides owing them a handsome share of your profits.

If you get a secured loan, there is an added burden of paying interests on the principal borrowed. Using some seed capital or diverting unused funds from friends and family towards your startup can be the best possible solution. I started off with near-zero capital for setting up my market research consulting business, which I will elaborate how later.

You can convert a small unused part of your house or garage into an office. Remember, having your own space means you are eliminating rental expenses. I started running my consultancy from a small room in my home because I didn’t want to incur monthly costs. The whole idea is to allow you more time to nurture your business until it becomes sustainable and starts reaping profits. But if you choose to invest in a fancy, plush and grandiose office space, you are already saddling your fledgling business with undue costs.

Many a times, you can argue that some businesses demand magnificent locations and lofty interfaces or are simply impossible to launch from a home or garage set up. While I agree there could be exceptions to the case, my suggestion here would be to host your client meetings in professional hotel or conference rooms, which would incur one-time costs rather than committing to a high monthly rental expenditure. You need to think about alternatives to keep to the minimal wastage principle in lean startup methodology.

Next, you need to think about how useful your product is to others. Don’t expend all your energy in building something with features that only you think are cool and not what your target buyers need. The lean startup methodology hence supports the idea of a prototype or an MVP which can be piloted with each iteration only to improve it with customer feedback.

I started off with writing analysis reports and publishing them on a free WordPress site, completely free for users to read and review. I did not hire any SEO expert or invest in pay-per-click (PPC) ads, but rather learnt up the SEO basics myself and drew traffic organically by solely riding on the wave of quality content where others were selling for a plump fee.

By and large, most established market research agencies charge anywhere between $150 upwards for their reports while I was giving away all of it for free, at least initially. I started receiving a good number of eyeballs on my website and feedback started pouring in from various pockets, a good mix of bouquets and brickbats. I was absorbing all of it and tried to accommodate all recommendations that would make my analysis more holistic.

For almost 9 months or more, I worked hard on producing good quality market research reports, improving every time with customer feedback and published them completely free for my readers. My only source of income was Google ads which was almost peanuts for a newly launched website, just at the threshold of gaining traction. Over time, I gained a deeper understanding of my target audience’s needs and started to focus on actionable metrics by introducing the “Buy Now” button on my pages, adopting a freemium model.

Parts of my content were offered for free, whereas readers were encouraged to pay a minimal fee for accessing and using the complete report as a premium service. At this point, I was only drawing payments via PayPal and had not invested in a complete payment cart setup yet, to rein in development and maintenance costs.

As my website started to become popular, I realized there was an urgent need to scale up. Herein again, employing the principles of lean startup methodology, I did not hire qualified people as that would have cost me a bomb in terms of their salaries. Instead I started looking for in-house talent and found great support from my husband and some cousins who helped me with digital marketing and content development with training sessions.

 As I could not afford to pay high salaries, I decided to hire interns from reputable colleges who could help me advance this business and in return, learn and imbibe from the same. Most of the staff I hired were on contractual basis and work virtually, which helps me greatly trim down on salary expenses.

Innovation is a high-risk gamble on foreign turfs, and it is hard to assess whether a business idea will fail or survive. However, by employing the lean startup techniques, you can dramatically increase your startup’s chances of surviving a longer period of zero profitability and ensuring that your product is closely aligned to customer needs.


Tasneem Sayeed

at SWOT & PESTLE.com

Tasneem Sayeed is a double gold medalist engineer and co-founder of SWOT & PESTLE.com (https://www.swotandpestle.com/) which sells syndicated and customized analysis reports across the globe. She has worked with leading IT firms and Fortune 100 clients. As an entrepreneur she believes in sharing her experiences, both good and bad, to help other business and entrepreneurs in turn enrich the entire startup ecosystem. When she is not working, she loves to read, bake, coach, and travel.


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