A Theoretical Analysis of the Lean Startup Method

Forthcoming, Marketing Science

62 Pages Posted: 16 Nov 2017 Last revised: 23 Dec 2020

See all articles by Onesun Steve Yoo

Onesun Steve Yoo

UCL School of Management, University College London

Tingliang "Tom" Huang

Haslam College of Business, University of Tennessee; University College London

Kenan Arifoglu

UCL School of Management, University College London

Date Written: August 13, 2017

Abstract

The lean startup method (LSM) advocates an iterative and adaptive product development and testing approach to innovation. It recommends firms to build test products, use them to learn about consumer preferences, and modify (or `pivot') the product design accordingly. It is less straightforward to understand how effective LSM can be however, not least because consumers' responses to the test product are influenced by its quality, price, and design -- that is, learning is endogenous to the features of the test product. This paper analyzes the build-test-learn cycle of LSM using an analytical model to understand its micro-foundation and how best to implement it. We find that an optimal test product that maximizes learning should aim either to confirm a more likely product design or to rule out a less likely product design as being the most desired by consumers; have a vertical quality that is neither too high nor too low; and have a higher quality when aiming to confirm than to rule out. We also identify the product--market conditions for which the LSM is more effective. Conceptualizing the LSM via a formal model may help to improve its implementation in practice and to advance further academic research.

Keywords: Lean Startup method, entrepreneurship, customer discovery, new product development, Bayesian learning

Suggested Citation

Yoo, Onesun Steve and Huang, Tingliang and Arifoglu, Kenan, A Theoretical Analysis of the Lean Startup Method (August 13, 2017). Forthcoming, Marketing Science, Available at SSRN: https://ssrn.com/abstract=3070613 or http://dx.doi.org/10.2139/ssrn.3070613

Onesun Steve Yoo

UCL School of Management, University College London ( email )

1 Canada Square
London, E14 5AB
United Kingdom

Tingliang Huang (Contact Author)

Haslam College of Business, University of Tennessee ( email )

Haslam College of Business
Stokely Management Center
Knoxville, TN 37000
United States

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Kenan Arifoglu

UCL School of Management, University College London ( email )

Level 38
One Canada Square
London, England E14 5AB
United Kingdom

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