How to Start a New Business Using the Lean Startup Method (part 9 – costs/expenses)

photo courtesy of NVarchitect under creative commons license

photo courtesy of NVarchitect under creative commons license

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

The Lean Startup Method involves several learning steps. The last step is to identify your costs and expenses. Your costs and expenses depend heavily on the target market, revenue streams, key resources and key activities that you have already selected for your new business.

After you have

  • found your target customers
  • confirmed by speaking to them that they have problems they you can solve
  • let them convince you that they will pay for your product or service by asking for the order
  • identified a cost-effective way to reach the customers and deliver your product or service to them
  • focused on the key resources, key suppliers or partners, and key activities needed to be successful

Then you are ready to go back to these previous decisions and find the costs of product or service delivery, key resources, suppliers/ partners, and activities. Do the analysis needed to be sure you can make a profit in your new business, before you run out of money.

If your analysis tells you that your business can’t be profitable or will run out of money before it becomes profitable, this is another time to “pivot”, go back and re-examine the decisions you made in previous steps. Either you have a bad business model, or your startup is undercapitalized. Test some new ideas.

Before you have reached this point, your goal is to preserve your initial capital while you are searching for a successful business model. Once you believe you have confirmed a successful, scalable business model, you goal changes: start spending to build the business, create end-user demand, and set up a sales channel to turn the demand into revenue.

One of the major reasons that startups fail is that they don’t have enough capital to pay the expenses before the business starts to earn a profit. Don’t let your business become one of them. SCORE counselors are available locally or on-line to help you navigate the path to a successful startup. Call us in Pinellas County at (727) 532-6800 or go on-line to www.pinellascounty.score.org.

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