What’s a lean startup & is it right for you?

MoneySmall Business

Written by:



Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.


A lean startup is a customer-centric methodology that may help you launch your business or product more quickly and with lower costs. It’s based on answering an existing need and pivoting product design quickly based on customer feedback. Find out what a lean startup is and determine if this business model is the best option for your new company.

What is a lean startup?

The concept of the lean startup is often attributed to entrepreneur Eric Ries, whose book of the same name was published in 2011. A lean startup is a new business that aims to create a product or service where there’s already demand for a product. The lean startup process assumes that change is inevitable, which is why it doesn’t rely on a traditional business plan. Instead, the business is ready to constantly pivot as its product needs tweaking. Slack is a great example of the lean startup definition.


The intra-office chat platform actually started as a gaming company. The chat feature was used to connect offices. While the gaming subscription business didn’t get off the ground, the company started testing the chat feature with external groups. As the developers received feedback, they incorporated that input into the program and then released the chat program to an even larger group, continually improving and growing over time. In December of 2020, SalesForce acquired Slack for $27.7 billion. Dropbox is another company that has reportedly used this model.


Related: Learning to pay yourself first

How a lean startup works

The lean startup model is designed to reduce waste and streamline processes so that the business can become successful more quickly. A lean startup is also a way for startups to bootstrap early on rather than taking on expensive startup funding options. Not only can it be difficult to find small business loans for new businesses, but it’s also risky. According to the U.S. Bureau of Labor Statistics, small businesses opened in 2019 had a one-year survival rate or 78.1%—meaning that more than 20% failed in the first year.


A lean startup plan could increase a business’s chances for survival. Start with your initial product, but don’t expect that it’s the final model. As you get feedback from customers or test groups, you can make changes to improve the product. That way you know early on what customers like and don’t like without investing a huge amount of capital into inventory that may not end up being the final product you want. Once you land on a product and your company starts growing, you can begin exploring small business loans for startups if it makes sense for your company. Alternatively, well-paced growth could allow a business to remain self-funded without taking on debt or investors.

Lean startup vs. Traditional business model

There are a number of differences you’ll find when you’re comparing a lean startup with a traditional business model.

  • Plans. The first is the type of planning that’s involved. A traditional business typically creates a multi-year business plan and tries to stick to it. A lean startup plan is much more flexible.
  • Employee Skills. Additionally, a traditional business may focus on hiring employees with specific expertise to help execute the goals of its business plan. Lean startups, on the other hand, try to attract employees who can easily adapt to changing circumstances.
  • Metrics. The two types of businesses may also use different metrics. A traditional business may focus on financials from the beginning, whereas a lean startup is likely to focus on measuring customer-based metrics like customer acquisition cost, customer churn rate, and lifetime customer value.

Phases of a lean startup

Most lean startups operate on three distinct phases. Each stage leads to the next to ideally reduce costs and effort.

Business model canvas

This is the lean startup’s version of a business plan. Instead of focusing on industry, market share, marketing strategy, and projected financials, this business model canvas creates a hypothesis based on the product. What does that look like? In a single chart, you sketch out the problem you’re trying to solve, the solution, and your company’s unique value proposition. You briefly define your customer segments, cost structure, and revenue stream. The idea is to create a roadmap with the understanding that change is bound to happen.

Customer development

Once you have your base model or minimum viable product (MVP), the next lean startup stage is acquiring feedback from customers. This feedback may include (but is not limited to) the MVP itself. Other areas to ask about include pricing and distribution. After all, a business needs to operate well in all areas, not just production. Changes should be made after each round of feedback. The change may be something small, which is called an iteration. Or it could be a major change, in which case it’s considered a pivot.

Agile development

Agile development is the phase when the changes are actually made. The focus should be on incremental changes so that significant amounts of time and money aren’t wasted on marketing a product that isn’t quite right. It’s also supposed to make it easier to scale. You only expand as improvements are made, not with a warehouse of inventory that doesn’t meet your customers’ needs.

Pros and cons of a lean startup

Like any business model, a lean startup has its particular benefits and drawbacks.

Pros of a lean startup

A lean startup has several benefits when you’re trying to create a new product.

  • Enables you to quickly identify and create the best product for your customer
  • Can save money and time compared to a more traditional business model
  • Builds in customer feedback from the beginning

Cons of a lean startup

Lean startups are not without their potential negatives.

  • Early feedback sessions may lead you to actually abandon an idea that could have been successful given more time
  • Could delay your ability to earn revenue depending on how you approach those early feedback sessions (through either paid or complimentary products)
  • May make it more difficult to get small business loans early in the process than it would be with a more traditional business model

Is a lean startup model right for my small business?

Some businesses are better suited for a lean startup methodology than others. Software and tech companies are often associated with this type of business model. After all, Slack and Dropbox are two of its most successful examples. Software companies can use customer feedback to constantly create updates and improve the user experience.


Companies producing physical products may be able to use the lean startup model as well. Several automakers such as Toyota have started employing this approach.


Before you start your company, you may want to think about how comfortable you might be with this model, whether your staff will be able to respond nimbly to changes in direction, and how and where you’d get the feedback this approach requires.

The takeaway

Lean startups provide a way to create a business or product that’s responsive to the wishes of your target audience from the get-go. They require your company to be nimble and responsive, but may enable you to create a successful product quickly. Whether you opt for a lean startup approach or a traditional one, it’s always smart to understand how to get a business loan.


Learn more:

This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.


Lantern by SoFi:

This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)


All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.


*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.


All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.


Personal Loan:

SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.


Student Loan Refinance:

SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and DisclosuresTerms of Service, and Privacy Policy.


Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).


Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 01/31/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.


Auto Loan Refinance:

Automobile refinancing loan information presented on this Lantern website is from MotoRefi. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.


Secured Lending Disclosure:

Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.


Life Insurance:

Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. 

More from MediaFeed:

The pros & cons of short-term loans


It’s easier than ever to borrow money by finding short-term loans online, but should you? Although convenient, these products aren’t always a good idea for everyone. Below are a few pros and cons of online short-term loans to help you consider whether they’re right for you.




No financial product comes free, and short-term loans online have their own set of pros and cons. Pros of short-term loans online may include:

  • Fast
  • Convenient
  • Easy to compare




Here’s what that means more specifically. Since you can search and apply for short-term loans online, the process can be much faster than if you were to drive around to different lenders. What’s more, the loans are often able to be funded within 24 hours.




Convenience plays into this same factor. You can basically compare and contrast various short-term loans from the comfort of your own home, not to mention the fact that you can apply anytime, day or night.




Finally, the fact that you can find the loans online at your convenience means you can compare and contrast them without the pressure of someone trying to get you to close a deal. You can gather various details of different loans — from rates to fees to loan amounts and more — and take your time deciding which one might be right for you. That would be much more difficult to do in person, since you’d have to gather their paperwork and go to various lenders to get all the information.




Fast, convenient, and easy to compare are great pros, but there are certainly cons to be aware of as well when it comes to short-term loans online. Here are a few to consider:

  • Potentially expensive
  • Harder to validate as legitimate
  • Can be difficult to know who’s really getting your information




The first con applies not only to short-term loans online, but also to short-term loans in general. Compared to a traditional loan, short-term loans can have interest rates that start in the teens and can go all the way up to several hundred percent.

Yes, you read that right. The problem is, payday loans are one version of short-term loans, and they come with the highest interest rates in the business. This map from the Center for Responsible Lending highlights just how high payday loan interest rates can really get.




Besides the high rates, it can be difficult to validate the lender you’re working with as legitimate. (this can also be true of other types of loans acquired online). It’s one thing to work with a bank you know, but another to find a lender for the first time online and have it be a company you might never have heard of. This makes it easier for scams to slip through, such as the notorious advanced-fee loan. In this scam, someone would be “guaranteed” approval if they pay fees for the loan upfront, only to do so and never have the funds from the loan come to fruition.




Finally, the last con is that it’s not always easy to know who you’re working with. Again, this can be a problem with other types of loans as well. For example, you might think you’re working directly with a lender only to find out that your credit application actually went through a broker and out to various lenders that you never vetted on your own.




One of the biggest risks of short-term loans (online or otherwise) is that they tend to come with higher interest rates than more traditional loans. If you have a choice between a traditional personal loan and a short-term loan, you might find significant cost savings in the former option.

To illustrate the cost issue, the Pew Charitable Trusts analyzed 296 loan contracts from 14 installment lenders and found the highest APR to be 367 percent and the lowest to be 16 percent. What’s more, that 367 percent was on a loan for only $129 — showing how quickly the convenience of a low-dollar, short-term loan can become a burden.

What’s more, Pew also highlighted the fact that the advertised APR isn’t the only cost of the loan. Front-loaded fees and add-ons like credit insurance can increase the total lifetime cost of a loan in ways that aren’t so easy to see unless you get all the information and do the math before signing on to the loan.

When you add up all these costs, you don’t just have more money leaving your pocket — you could be at risk of ending up in a cycle of getting new short-term loans to stay afloat. Although the goal of these loans is to get you out of a financial pinch, they can create a new one when their burden is too difficult to repay.

According to the Consumer Financial Protection Bureau (CFPB), “more than four out of five payday loans are re-borrowed within a month, usually right when a loan is due or shortly thereafter.” Although not all short-term loans are payday loans, this is a dire enough warning to be sure you can repay them in time without needing another loan.




What does all this mean? It simply means that analyzing the costs — from interest to fees and add-on products you may or may not need — should be an important part of deciding if short-term loans online can work for you.

Although short-term loans online can help if you need funds fast and want to compare options from the convenience of your home, you could pay a premium for those loans. That said, most short-term loans have higher interest rates than more traditional personal loans — whether you obtain them online or in person. If high interest rates are a risk you’re willing to take, then doing so online at least makes it easy to compare options and shop for the best rates.

In short, it’s up to you to decide whether a short term loan online will help or hurt you, but the key to using one successfully starts with knowing what you’re getting into (and with whom).

And if anyone is saying you have to pay these fees before getting the loan (or they’re unwilling to disclose their fees), then it might be best to move on to the next lender. After all, that’s the beauty of any online financial product: You can do your research first on your own schedule and wait to act until you find the one that best meets your specific needs.

This article originally appeared on UpturnCredit.com and was syndicated by MediaFeed.org.




Featured Image Credit: gpointstudio/istock.