Principles of a lean startup – 4 Minimum Viable Products

Today´s topic is MVPs – minimum viable products.

Eric Ries opens his chapter with a descriptive example. He is talking about Groupon and its success as one of the fastest-growing companies of all time.

They didn´t start out successful at all. To make it short (for further details take a look in his book): At first Andrew Mason intended his company to become a “collective activism platform” called The Point. Bringing people together to solve problems they couldn´t solve on their own. After his first activities were disappointing he had to change and keep the new product simple – a minimum viable product.

Here his story told by himself:

“We took a WordPress Blog and we skinned it to say Groupon and then every day we would do a new post. It was totally ghetto. We would sell T-shirts on the first version of Groupon. We´d say in the write-up, “This T-shirt will come in the color red, size large. If you want a different color or size, email that to us”. We didn´t have a form to add that stuff. It was just so cobbled together.

It was enough to prove the concept and show that it was something that people really liked. The actual coupon generation that we were doing was all FileMaker. We´d  run a script that would email the coupon PDF to people. It got to the point where we´d sell 500 sushi coupons in a day, and we´d send 500 PDFs to people with Apple Mail at the same time. Really until July of the first year it was just a scrambling to grab the tiger by the tail. It was trying to catch up and reasonably piece together a product.”

Handmade PDFs and a simple blog were enough to launch Groupon into record-breaking success; it is on pace to become the fastest company in history to achieve $1 billion in sales. It is revolutionizing the way local businesses find new customers, offering special deals to consumers in more than 375 cities worldwide.

A MVP helps entrepreneurs start the process of learning as quickly as possible. Contrary to traditional product development, which usually involves a long, thoughtful incubation period and strives for product perfection, the goal of the MVP is to begin the process of learning, not end it.

With some more great examples Eric Ries puts in the “early adopters” which are essential for MVPs. Before new products can be sold successfully to the mass market, they have to be sold to early adopters. These people are a special breed of customers. They accept – in fact prefer – an 80 % solution; we don´t need a perfect solution to capture their interest. Early adopters use their imagination to fill in what a product is missing – so we can learn a lot by listening to them.

Deciding exactly how complex a MVP need to be cannot be done formulaically. It requires judgment. Most people dramatically overestimate how many features are needed in a MVP. So when in doubt, simplify.

For example, consider a service sold with a one-month free trial. Before a customer can use he service, he or she has to sign up for the trial. One obvious assumption, then, of the business model is that customers will sign up for a free trial once they have a certain amount of information about the service. A critical question to consider is whether customers will in fact sign up for the free trial given a certain number of promised features (the value hypothesis).

In the business model should be an assumption that specifies the percentage of customers who see the free trial offer who then sign up (For example 10 %). This is a leap-of-faith question.

Most entrepreneurs approach a question like this by building the product and then checking to see how customers react to it. Eric Ries calls this a lot of waste of money and time. If customers won´t sign up for the free trial, they will never get the experience the amazing features that await them. So why already build them without testing if they are needed?

The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time.

Besides all the advantages and chances building a MVP is not without risks, both real and imagined. Both can derail a startup effort unless they are understood ahead of time. The most common obstacles are legal issues, fears about competitors, branding risks, and the impact on morale.

For startups that rely on patent protection, there are special challenges with releasing an early product. In some jurisdictions, the window for filing a patent begins when the product is released to the general public, and depending on the way the MVP is structured, releasing it may start this clock.

In many industries, patents are used primarily for defensive cases, the patent risks of an MVP are minor compared with the learning benefits. However, in industries in which a new scientific breakthrough is at the heart of a company´s competitive advantage, these risks need to be balanced more carefully.

There is also fear of competitors stealing a startup´s ideas. Part of the special challenge of being a startup is the near impossibility of having your idea, company, or product be noticed by anyone, let alone a competitor. Eric Ries´ opinion is that the fear of getting an idea stolen is way too big. Especially large companies won´t steal them because most managers in most companies are already overwhelmed with good ideas – their challenge lies in prioritization and execution, and it is those challenges that give a startup hope of surviving.

If a competitor can outexecute a startup once the idea is known, the startup is doomed anyway. The reason to build a new team to pursue an idea is that you believe you can accelerate through the Build-Measure-Learn feedback loop faster than anyone else can.

The next steps are “from the MVP to Innovation Accounting” – so tomorrow´s topic is Measure

 

——–

Principles of a lean startup:
Part1: Principles

Part2: Learn and Experiment

Part3: Steer and Lead

 

 

One thought on “Principles of a lean startup – 4 Minimum Viable Products

  1. Pingback: Principles of a lean startup – part9: Epilogue and Conclusion | self.vestors

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>