Not all products and ideas are destined for business success, no matter how compelling they may seem to you. So what can you do to weed out ideas that are not likely to succeed from those that stand the best chance of success? How can you accomplish this without spending a ton of time, money, and effort?
One way is to create a minimum viable product, or MVP.
What is a MVP?
Eric Ries first coined the term MVP and described it as “that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”
In order to realize what works and what doesn’t, you need to test the validity of your idea and gain feedback as cheaply, quickly, and efficiently as possible. You can then adapt your idea according to the feedback you receive before taking any major steps forward.
This approach differs from the conventional one of investing time and money to produce a complete product before discovering whether customers actually want it. An MVP allows you to test whether customers will use your product, as opposed to the conventional approach of surveys and focus groups that can provide misleading results.
Over time the definition of MVP has shifted to “the smallest thing you can build that lets you quickly make it around the build-measure-learn loop.”
How is an MVP critical to the bottom line?
An MVP needs to function as an actual test of the validity of your idea, not just as a cheap version of your product. In fact, the MVP can provide value only if you use it to test a hypothesis about your offer and clear up uncertainties around your business plan.
In other words, you can’t just release an MVP; you also have to gain data in the process. Here are a few ways that data obtained from an MVP can affect the bottom line:
1. By solving real problemsYour idea may start off as an answer to a specific problem, but your MVP might reveal new demands and related features that come up in the testing process. So, the MVP helps bring to light issues that you might not have considered otherwise.
2. By helping you identify your real customer base
For a product to be successful, you need to know who would use the product and benefit from doing so. The MVP provides firsthand experiences with customers and helps clarify who your buyers really are—they might be quite different from those you were thinking of.
3. By saving time and increasing productivity
The MVP approach allows for early-stage product testing for better planning and effective iterations. This will lead to better productivity that in turn affects the bottom line. It also results in unnecessary features being culled before production begins, which also helps save time, effort, and money.
4. By helping you build a winning strategy
An MVP is not built as a complete product in itself, and you should expect it to gain complexity over time. The problem is that as you add more features, you need more resources. From a stakeholder or investor perspective, it is important to have a product that will do well in the market over time. This is where using an MVP to demonstrate value helps build a better strategy.
5. By giving you reliable data
The MVP development process allows for initial product testing and feedback without having to create a full production version. The ability to gather data from customers is crucial. Even though its functionality is basic, the MVP provides insight into what needs to be done next. Using the data obtained to improve the product and its marketing can only lead to better outcomes for the bottom line.
How do you set MVP metrics?
The MVP should provide the smallest value possible for testing your hypothesis and learning more about the idea. Unfortunately for a lot of companies, the MVP becomes a most valuable product instead of a minimum viable product.
How can you determine what the MVP should do for your business? How do you keep from building features that are better suited for, say, version 2 or 11 of your product?
Here is some guidance:
1. Answer the right question.
The process of creating and testing your MVP must take into account your central hypothesis—the pain point or unmet need of your target customers. You need to have a clear idea of the untested assumptions that, once met, will resolve the pain point and eliminate the risk of going forward with the idea.
The tests you develop to test the hypothesis should therefore be simple and straightforward, so that you can answer the central question through your interaction with your target customers.
2. Develop actionable metrics.
Once you are clear about the question your MVP will answer, you’ll need to ensure that what you measure in your test is actually relevant to how (or whether) you proceed with the idea.
Actionable metrics should guide your decision making as an entrepreneur. They are what you need to validate your idea. For example, social media follows may be a vanity metric for a restaurant but an actionable one for a clothing brand. Metrics around customer satisfaction and daily operating profit, on the other hand, would be crucial for a restaurant.
In other words, the metrics you use will depend on the nature of the product. They could be common, like the number of signups, time spent using the product, or conversion rates. You might also want to track metrics that are unrelated to the product you’ve developed, such as the level of interest people have in a certain type of activity. In any case, you need to come up with metrics that make sense given the context of your product.
For a product to be viable, you need ways to measure its success or failure, and the measurements need to be factored into the product definition from the start.
*What are the key MVP metrics for most startups?*Common MVP metrics for most startups include:
- Churn rate: the percentage of customers who have discontinued their subscription in a given period
- Customer acquisition cost (CAC): the average cost of acquiring a customer
- Monthly recurring revenue (MRR): the monthly predicted revenue a company can expect to earn
- Lifetime value of a customer (LTVC): the predicted profit from a customer over the whole of their time using the product
- Average revenue per user (ARPU): the average revenue received from each customer
Seek the qualitative and quantitative
Your MVP success lies in:
- Uncovering the long-term potential of your product
- Developing a strategy to unlock that potential
To do both, you need metrics that capture qualitative feedback on the future prospects of your product.
Metrics are often thought of as being quantitative in nature, but gaining qualitative insights doesn’t mean you should not also be data driven.
Once you have an MVP, gaining an understanding of customer sentiment is just as important as looking at metrics. In other words, engagement matters. It’s measured according to the context of the product and market, but is a good way to understand how customers see the current value of the MVP as well as its future value.
Feature flow analysis offers another indicator. Chances are that your MVP will have more than one feature flow. Monitoring which features customers use most and the sequence in which they use them can provide great insights.
Another way to discover whether your MVP resonates with your target customers is to quantify word-of-mouth traffic. The Net Promoter Score is a good metric but can cause problems with a small user base, so for many MVPs interviews with customers would yield better data.
Deliver customer value
Following the definition of MVP, you can focus on delivering customer value and weeding out unnecessary features. However, balancing product priorities doesn’t end after the launch of your MVP. You need to do that even when you have plenty of customers and are well established—it is a necessary part of your product’s life cycle.
Your first order of business with the MVP process should be to determine which features you should build out first and what can wait until later.