Startups Need a Minimum Viable Product

MINIMUM VIABLE PRODUCT – WHY STARTUPS NEED AN MVP

❏ Today, I’ll speak on Why Startups Need a Minimum Viable Product. Before raising money, you’ll learn what constitutes an MVP and why you should have one.

One of my responsibilities as an executive coach is to help company founders determine when they have an “idea” worth pursuing. I give them the answer: “When are you ready to hand over your money to a vendor?” My mentee replied, “When a vendor has proven to me they have a solution to one of my problems.” So I’ve written this post, Why Startups Need a Minimum Viable Product.

That answer is correct for every potential customer. It doesn’t matter if you are a consumer looking to buy a grocery item or American Airlines looking to purchase an airplane. You’ll pull out your hard-earned cash or credit card once you’ve found a solution to your problem.

As an entrepreneur, you need a “minimum viable product” (MVP for short) to determine if your “idea” is something your customers will pay you for. Your MVP is what we will discuss today.

The Big Picture [Minimum Viable Product]

Last week, in “Pitch Deck Ask Slide: 10 Slides to VC Funding Success,” I spoke about the Ask slide and its importance. In that post, I talked about how to ask investors for the money you need. When asking for money from investors other than friends and family, you will need a Minimum Viable Product (MVP).

Why? In the first nine slides of your investor pitch, you’ve talked about the market, the customers, and much more. It’s hard to do that with a straight face if the customers haven’t “touched” your Minimum Viable Product (MVP).

Do you “always” need an MVP to raise money from investors? No. I co-founded multiple high-technology semiconductor companies in my career. These massive hardware companies required tens of millions of dollars 30 years ago to create an MVP. These same companies can only be built for USD 10B or more. Few “ideas” are this hardware-intensive, so let’s focus on those that are not.

MVP: Why Is It Important? Reason One: [Minimum Viable Product]

Prove you can build one.

For every thousand or more ideas I’ve heard or read about, maybe one “gets built.” Why? Simple. Talk is “cheap and easy.” Building something is “hard.” I can’t count the number of emails I’ve received or people who have told me, “I’ve got a great idea! I’ll give you 10% of the company if you build it for me.” If it’s an email, it goes straight to my circular file. If someone stands across from me, I’ll say, “Sorry, I’m too busy working on my ideas right now.”

Many ideas have an active software component. If you’re not a software coder, please don’t ask someone who is to “build it for free or 10% of the company. Frankly, it’s insulting. Ideas have zero value! Let me say that again. Ideas have zero value. A “minimum viable product” might have some value. The coder who might spend 1000 hours making it for you is what makes a potential company. It would be best if you had a team to build a successful company.

MVP: Why Is It Important? Reason Two: [Minimum Viable Product]

Prove you built the right thing.

I’m going to shock you again. Even repeat entrepreneurs often build “the wrong thing.” What? Please say it isn’t so! Yep. Even experienced entrepreneurs often need to catch up on their first try.

As a first-time entrepreneur, you must determine if you’ve “built the right thing” quickly. I encourage entrepreneurs building software-as-a-service (SaaS) products to create wireframe diagrams as Step 1. Then, take those wireframes to some “friendly” potential customers and walk them through them. Ensure the potential customer understands you are looking for “blunt and brutal feedback.” You can’t afford to have them “blow smoke up your backside.”

The next step is to repeat this as many times as possible. Based only on the opinions of one or two potential customers, do not begin devoting time and resources to coding an MVP. Make a ton of inquiries. Make it obvious what issue you are trying to solve for them. What is lacking in this solution that would make this product a “slam dunk”? ask them.

Once you’ve had a dozen such meetings, you’re almost ready to spend time and money “building” your MVP.

MVP – Why Important? Reason Three [Minimum Viable Product]

Get customers to pay you the price you ask for your product.

When you’re out speaking with potential customers about your MVP, you need to close each meeting by discussing your pricing. You’ll need to start this part of the conversation by having the customer walk you through how they do the workflow your product will replace. How many people are involved? How many person-hours are there per week for each of these people? Are there any external products or services you use? What do they cost? Will your product eliminate any products or services, or reduce their needs? Will your product eliminate these products or services? Are there benefits to your product, such as improved outcome quality or employee safety? Your product’s value will never exceed these direct costs.

You’d also like to argue that you are saving the customer 3x to 10x your product costs. Alternatively, you’d want to say that you are enabling them to increase their revenue by 30% to several multiples of their current income. Now you have the insight to price your product. I recommend a setup fee and monthly pricing plan for SaaS companies with Silver, Gold, and Platinum levels.

Share your projected pricing with each potential customer you meet. Write down their objections to your proposed pricing. Please don’t commit to a lower price, but you should know that Beta customers will likely receive discounts for the first year. If the potential customer bites and asks, “What’s a healthy discount?” you have them hooked. You can float a possible number, say 50% discount, and ask, “Does that new number work for you?” If they smile and react positively, you have a customer lined up.

Conclusion [Minimum Viable Product]

I hope I have convinced you of some of the critical reasons every startup needs a minimum viable product as quickly as possible. Build the MVP, and you’ve graduated from the idea phase to the early stages of your company’s build phase. Congratulations!