By: Seif Hakim | Program Manager, AUC Venture Lab.

Have you ever wondered what truly makes a startup? Let’s explore this from the birthplace of Silicon Valley to the forefront of the Lean Startup movement.

The Evolution of Startups

The term “startup” emerged in the 1970s, initially describing tech companies. With the rise of giants like Microsoft (75), Apple (76), Oracle (77), Adobe (82), Cisco, and Dell Technologies (84), the landscape began to take shape. Fast forward to the dot-com crash in 2000, where resilient companies like Amazon (94), eBay (95), and Google (98) either preserved or pivoted, redefining the business world.

What Defines a Startup?

Is it only about technology? Or perhaps it’s about scalability with minimal resources, or innovatively serving customer demands? I believe it’s all of these after working with over 100 startups in Egypt. But what about on the global stage?

Hewlett-Packard’s HP 1939 Garage: Prototyping, Testing, and Refining

Source: HP Museum

William Hewlett and David Packard, two electrical engineers from Stanford, decided to build low-cost electronic test and measurement equipment. They created their first MVP in a garage, focusing on functionality and minimal cost to enable testing and refinement. HP actively sought feedback from potential customers like universities, research labs, and electronics companies. This feedback loop helped refine their prototypes, ensuring they addressed real market needs. HP later expanded into computers, printers, and imaging products, becoming a leading technology company.

The Lean Startup Movement: 70 Years Later

Eric Ries, a software developer, highlighted his 10 years of experience developing several companies, leading up to 2011. He began blogging about his experiences in 2008, sharing ideas on iterative product development, validated learning, and minimizing waste. His blog, “The Startup Lessons Learned,” became a breeding ground for Lean Startup concepts.

Source: Startup Lessons Learned Website

Ries was greatly influenced by Steve Blank’s customer development approach in the 1990s, emphasizing validating ideas through early customer feedback. This customer-centric focus became a cornerstone of Lean Startup.

The Lean Approach

“For startups, information is much more important than dollars, awards, or mentions in the press, because it can influence and reshape the next set of ideas.” ~ Eric Ries

In “The Lean Startup” Ries offers a systematic, scientific way for business managers to gather the information they need to make fast decisions in today’s changing world through three sections: Vision, Steer, and Accelerate.

Starting with what constitutes any founder’s north star which is:

Vision:

Ries outlines what makes a startup unique in its business model foundations, building a value-driven product for customers. Imagine this vision as the North Star guiding the startup ship. A value-driven startup steers its way to achieve its vision.

Strategy:

Your strategy involves your customer segment, activities, delivery channel, partners, and the nine building blocks of the business model canvas. Strategy can be tested, iterated, and changed because it serves your vision. You either PIVOT or PRESERVE how you deliver that value. This journey is about gathering insights and eliminating waste in building your company. Through this value-finding journey, you understand who the customers are, what they need, and how to serve them with only what benefits them.

End Product:

Ultimately, you reach the end product that serves your value, resulting in product-market fit. This answers the question of, what if I have a good idea? Based on this approach and the following diagram, you will need to start from the market and the opportunity, not with the final product that is born from your perspective. That’s why you always start with the vision.

Source: The Lean Startup by Eric Ries

And that opens the door to a lot of follow-ups, such as what constitutes a good idea? Where do I start? Do I just follow any technological advancements and spiky trends or do I need to have a fundamental and impactful goal to start building a company?

My two cents on this matter stem from seeing a lot of early-stage founders struggling with validation beyond building the product because they didn’t use the OTR model by Jeffery Timmons.

The opportunities, resources, and Team. The pillars upon which any business is built. (Shout out to Dr. Moataz Darwish, associate professor of practice at AUC School of Business, for introducing me to that model).

Source: Venture Founders

You start from the market opportunity, seeing potential, reading the numbers, analyzing the data into information, and finally into insights. Thus, figuring out the patterns between the insights to understand what can you build to fill this gap or solve that problem.

Secondly, you utilize your available resources and study what resources you have to obtain. Third and most importantly, your founders and the executing team.

Going back, Ries explains that traditional methods, like elaborate business plans, only work if you have a prior-known business offering for existing customers. Instead, he advocates starting with a clear hypothesis about the customer problem to be solved.

Lean Manufacturing Influence: Toyota’s Impact

source: Harvard Business Review

Post-World War II, Toyota Motor Corporation revolutionized manufacturing with its Toyota Production System (TPS), emphasizing efficiency and quality by eliminating waste. This system, known as lean manufacturing, focuses on maximizing customer value by reducing waste and improving processes.

Ries saw parallels between waste in traditional manufacturing and inefficiencies in startups. Just as Toyota focused on continuous improvement and waste elimination, Ries advocated for a similar approach to product development.

Source: Medium

Build + Measure + Learn = Product-Market Fit through Validated Learning

“Validated learning is backed up by empirical data collected from real customers.” ~ Eric Ries

In the business world, failure in delivering results to a new product is often seen as a failure in planning or execution. But for entrepreneurial managers, success is about learning and iterating. They embrace the idea that initial assumptions will be wrong and that failing is part of the process. Their focus is on rapid experimentation and finding that “problem-solution fit.”

Testing Framework: From Hypothesis to Market Fit

To start, break your vision into small components: the Value Hypothesis & Growth Hypothesis.

Value Hypothesis:

– What functional and emotional values does my product deliver?

– What jobs to be done does my product complete for the customer?

– What problem will my product solve?

Growth Hypothesis:

– What sustains your value?

– Will the customer reuse your product, or is it a one-time thing?

– Will the customer recommend the product to their network?

Build your first hypothesis based on market research. Validate these findings through user interviews.

Using the Build, Measure, Learn diagram, Ries depicts how founders can rely on structured thinking to build ideas, measure data from experiments, and learn to either preserve or pivot.

The Cost of Not Testing: Kodak Gallery’s Story

Eastman Kodak Company, a titan in film photography, acquired Ofoto in 2001 to enter the digital photo-sharing market. Despite initial promise, Kodak Gallery struggled in the digital realm.

Kodak’s approach lacked the iterative, customer-centric focus of lean methodologies. Instead of starting with an MVP and refining it based on user feedback, Kodak invested heavily in a comprehensive suite of features upfront, leading to a significant waste of resources and time.

Building Your First MVP

“The point is not to find the average customer but to find early adopters: the customers who feel the need for the product most acutely. Those customers tend to be more forgiving of mistakes and are especially eager to give feedback.” ~ Eric Ries

To sum up, the startup journey begins with a hypothesis—a value you are searching for in a target market. Navigate this journey with a measuring instrument, an actual functional feature in a product, called a minimal viable product. This instrument enables you to LEARN, or what Ries calls “validated learning.”

We’ve all heard “Content is King,” but I say “Data is King.” Data enables you to build what the customer wants.

Build a product with the lowest cost and least resources using low-code to no-code software, like FlutterFlow for apps or websites, or Figma for UX testing. Consider the concierge MVP, where you build an interface while managing the backend yourself. Check the story of Zappos Family of Companies.

You can also build a simple landing page through Unbounce or Umso with a unique call to action and measure your conversions from Google or social media platforms.

Final Thoughts

To succeed, you need to fail—but fail safely, without incurring costs that hinder your growth or success.