MINIMUM VIABLE PRODUCT – WHY STARTUPS NEED AN MVP

MINIMUM VIABLE PRODUCT – WHY STARTUPS NEED AN MVP

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

One of my responsibilities as an Executive Coach is helping company founders determine when they have an “Idea” that is worth pursuing. The answer I give them is the following question. “When are you ready to hand over your money to a vendor?”. My mentee’s answer along the lines “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 out there. 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. Your MVP is what we will discuss today.

The Big Picture [Minimum Viable Product]

Last week in 10: 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 for the monies you need from investors. When you’re 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 kinda 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 monies from Investors? No. I co-founded multiple high technology Semiconductor companies in my career. These massive hardware companies needed tens of millions of dollars 30 years ago to create an MVP. Today 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 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 said to 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 me circular file. If the person is standing across from me, I’ll say “Sorry, I’m too busy working on my Ideas right now.”

Many Ideas have an active software component to it. 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 of their coding time to make for you is what makes a potential Company. You need a TEAM to build a successful company.

MVP – Why 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 the experienced Entrepreneurs often miss the mark on the first try.

If you’re a first-time Entrepreneur, you need to figure out if you’ve “Built the Right Thing” as quickly as possible. I encourage Entrepreneurs who are building Software-as-a-Service (SaaS) product to create wireframe diagrams of their product as Step 1. Then take those wireframes to some “friendly” potential customers and walk them through them. Make sure the potential customer understand that you are looking for “blunt and brutal feedback.” You can’t afford to have them “blow smoke up your backside.”

Next step is to repeat this as many times as possible. Don’t start spending time and money coding an MVP based on the feedback of one or two potential customers. Ask lots of questions. Be clear on the problem you are solving for them. Ask them “what do I not have this solution that would make this product a “slam dunk”?”.

Once you 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 your potential customers about your MVP, you need to close each meeting with a discussion of what you plan to charge the client. I recommend you start this part of the conversation having the customer walk you through how they accomplish the workflow that your product will replace. How many people are involved? How many person-hours for each of these people per week? Are there outside products or services that you use? What do they cost? Will these products or services be eliminated by your product or their need reduced?  Are there values to your product such as improved quality of outcome or employee safety? Your products value is never likely to be worth more than these direct costs.

You’d also like to argue that you are saving the customer 3x to 10x your products costs. Alternately you’d want to be able 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. For SaaS companies, I recommend a setup fee plus a monthly pricing plan with Silver, Gold and Platinum levels.

Share your projected pricing with each potential customer you meet. Write down their objections to your proposed pricing. Don’t commit to a lower price, but you should share that Beta Customer 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 potential 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]

So hope I have convinced you of some of the key reasons why every startup needs a Minimum Viable Product and as quickly as possible. Build the MVP, and you’ve graduated from the Idea phase through to the early stages of your company’s Build Phase. Congratulations!