Why The Startup MVP Has to Change

Software is everywhere. It isn’t only in everything it is everything. That’s great for the software industry as a whole but as the industry matures startups will have a harder time.

Whether you’re throwing around startup ideas over a couple of beers or you’re a research associate doing a SWOT analysis for a VC, startup ideas can come from anywhere, at anytime, and to anyone.

My point is, ideas are easy. Building products, that takes a lot more work. Building products that sell and scale, that takes superpowers.

Obviously, establishing a startup that scales is hard. In fact, 90% of all startups fail. 42% of those who fail, fail way before scale is even a concern. So, how can you overcome failure while searching for market viability?

What is an MVP?

A minimum viable product or MVP is the bare minimum product necessary for your target audience to go: “Yeah, I would buy that”. This reaction is your initial product market fit (PMF): a situation where the product being offered and the audience consuming or using the product match up. If you’re familiar with the “lean startup” methodology then you know the MVP has become a blueprint for small startups to quickly grow and disrupt well-established markets.

Likely, this is due to early stage startups having very little funding at their disposal. This forces them to be strategic about how it is spent. In fact, the second most common reason for startup fails, after lack of market need, is lack of funding.

The catch 22 facing early stage startups is that you can’t raise significant funding until you’ve proven product market fit and you’ll have a hard time proving product market fit (PMF) without investing time and money. With the odds stacked heavily against a startup’s success it’s no wonder about 90% fail.

The (Less Discussed) Reasons Your MVP Will Fail

Failure is obviously a big concern for entrepreneurs who will usually invest a lot of time and money into their startup. In fact, the topic of “startup fails” (and its longtails) is Googled several thousand times a month in the US alone, and there are close to 13 million search results for “Why startups fail” so the topic has been covered ad nauseam. However, I would like to discuss 3 specific reasons startups fail that are very often overlooked.

1. Not Meeting Market Expectations

Many zealous entrepreneurs may overlook an important question they need to ask themselves: Am I operating in a competitive or an untapped market? Also known as red ocean (highly competitive industry) vs. blue ocean (untapped or unknown industry). For example, imagine you’re pre-Tesla Elon Musk. Pretty nice, right. You want to build an MVP for an electric car to test the viability of mass producing an electric car under a new automotive brand.

Most electric car MVPs would start by attempting to answer: “what is the minimum viable product that provides consumers with what they need in an electric car”? The answer would probably be like: “A car that will get me from point A to point B quickly, safely, efficiently, and be environmentally friendly”.

So, you build an electric engine, connect a steering wheel and pedals. You attach it to a battery that’s good for 200 miles or so, and you place the driver inside a protective carriage to manage it all. Boom! You have an MVP that should demonstrate PMF. Or do you?!

The automotive industry is a competitive and established industry – a red ocean. The MVP in the above example is missing the most important bare essential: what the market considers to be “a car. The market expectation of what is considered “a car” already exists. Your MVP would need to first live up to it by including a radio, air conditioning, door locks to prevent theft, and several other amenities that car manufacturers have tested and developed over the years.

That is the bare minimum upon which your mock Tesla MVP would still need to offer a unique selling point or competitive edge.

Now, you’re probably going “well, obviously you need A/C and radio”. But, that’s only obvious because you’ve been in a car before. You’ve probably been in several cars, heck, you’re the target audience. However, this type of knowledge is not inherent among many B2B software MVPs – it takes a lot research, time, and money to gain this type of knowledge.

The reason product market fit is particularly elusive in the B2B software industry is that most B2B SaaS startups are founded by coders. However, the audience for their MVPs is frequently not programmers but marketers, salespeople, plumbers, hose fitters, fire fighters, and so on.

Building a product for an unfamiliar market makes research critical to finding your fit. In addition, if the market is already saturated with competition then consider that you will need to do even more market and competitive research to find the market’s requirement for your minimum viable product.

In an untapped market, on the other hand, where you don’t really have any strong and established competitors, you have the luxury of managing the market’s expectations rather than it managing you. This sounds like a tagline but it’s actually a major difference that will impact your success criteria and growth strategy. Keep in mind, that entering an untapped market doesn’t mean you don’t need to do your research but rather that you need to do it differently.

Researching a blue-ocean should focus on understanding the possible size of this untapped market and, not less important, realizing if it is truly untapped or are you just not aware of your competitors and their market share.

2. Not Separating the Vision from the MVP

Your startup vision should be grand; your MVP expectations should be modest. This seems obvious and implied but still gets overlooked. Many startups try to be everything for everyone – “One stop shops”.

There are several reasons why this happens. First, some VCs expect to see a big vision. If they’re to invest they want to see large growth potential. That’s fine as a long term goal but not for your MVP. Your MVP should be able to solve a relatively simple and straightforward problem for a very particular audience.   

Second, as a startup, it’s never clear if or where your next $ will come from. So, some take a giant leap towards the finish line only to fall flat on their face and several feet short. This process is evident in MVPs that over promise and stretch themselves too far. This is precisely the premise behind the Wizard of Oz MVP, and can be a dangerous side effect but also easily preventable by creating several short term and realistic milestones.

3. Not measuring PMF Through the Journey

PMF is measured by how users engage with your product or by your NPS score benchmarks. But, there’s more. To really understand your PMF you need to measure it at all stages of the marketing, sales, and customer success funnels. Each conversion or micro conversion in the funnel is a PMF indicator. This is especially useful if you’re trying to figure out why you’re not able to find a fit.

For example, if your landing page converts at a high rate but your product has low usage or your sales and customer success are having a hard time onboarding then there is a disconnect between your value proposition and the actual value provided by the MVP.

If it’s the other way around, and you have very high usage or success rates with POVs but marketing is brining in low conversion rates, then you need to more clearly introduce your product’s value to the market or better understand what pain it is solving.

By benchmarking conversion rates through the funnel you can easily trace your users’ journey, observe where drops off are most common, and push users further down the funnel until they are fully onboarded, engaged, paying users who also recommend you to their friends.

Evaluating Product Market Fit (PMF)

Most startups will offer their MVP for free – just use it. It’s a great way to onboard an impactful number of users without having to spend too much to acquire them. However, offering your product for free makes it difficult to tell if someone likes your software enough to pay for it. Therefore, we assume that engaged users are retained users that will find enough value in the product to pay for it. Alas, the MVP is about compromise.

For “product driven” startups, engagement metrics, such as number of sessions per user or daily active users (DAU), are usually the Key Performance Indicators (KPI) that correlate highly with payment, LTV, and PMF.

For “sales driven” startups, usually selling enterprise software, the prospect isn’t expected or required to engage the product as frequently. Therefore, the commitment of the user and success of the MVP can be evaluated by the number of sales meetings they attend and direct feedback received from the user.

Have you created predictions for the above KPIs for your MVP and met them? Feel free to ceremoniously decork that champagne bottle you’ve been saving behind your desk.

However, if you fail to reach your MVP’s KPIs, start breaking down the customer journey and evaluate where you had PMF and where you lost it.

Evaluate the viability of your product using the following steps:

1. Define your target audience and success criteria for the proof of concept of your MVP
2. Find the gap in the market
3. Clearly state the value proposition for the target audience on a landing page or equivalent
4. Offer the product for test users from the target audience (for free if possible)
5. Monitor their usage of the product and request their feedback
6. If not a self-service product, monitor the data they receive and their engagement with their account manager.
7. Gather insights for all stages of the customer journey
8. Test to see which stages of the journey have product market fit (discussed below)
9. Improve, rinse, repeat, repeat, repeat until the unit economics (CAC: LTV) make sense

Robust is the New Lean

In 2019, there will be few opportunities to truly disrupt. If you’re good enough to jump in front of the competition it won’t take long for corporate to notice and either invest or acquire your startup ( + ) or invest / acquire your competitors ( – ). In either case, the large tech corporations are like Vegas casinos. They’ll let you win for a while but in the end the house always wins.

With less room to innovate, the minimum in MVP is a lot higher. Entrepreneurs, startups, and last but by no means least, VCs will need to be more humble about their expectations of MVPs.

The startups that are successful will be those that can afford to incorporate more research, strategy, KPIs, and measurements in the early stages. Quick and lean shouldn’t be abandoned nor should it be a goal but a method used only when deemed appropriate. Because who wants to sprint only to fall off a cliff when you can briskly walk all the way to NASDAQ, instead.