A Theoretical Analysis of the Lean Start-up Method

Onesun Steve Yoo (), Tingliang Huang () and Kenan Arifoğlu ()
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Onesun Steve Yoo: UCL School of Management, University College London, London E14 5AB, United Kingdom
Tingliang Huang: Business Analytics Department, Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467
Kenan Arifoğlu: UCL School of Management, University College London, London E14 5AB, United Kingdom

Marketing Science, 2021, vol. 40, issue 3, 395-412

Abstract: The lean start-up 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 microfoundation 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 start-up method; entrepreneurship; customer discovery; new product development; Bayesian learning (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:40:y:2021:i:3:p:395-412

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