Build a MVP and Validate Your Plan with Customers
[The following is an edited excerpt from David S Rose’s book The Startup Checklist: 25 Steps to a Scalable, High-Growth Business.]
By this point, the word “lean” has been so used so frequently and in so many contexts that you could be forgiven for thinking that it was completely meaningless. But it’s actually quite the opposite. The reason the term—and the thinking that it represents—has swept the startup world is because it makes fundamental sense. Originally developed by Steve Blank and brought to popular attention by Eric Ries in his bestselling book1 and subsequent series, the core philosophy boils down to a loop that cycles through three steps:
Instead of spending months or years thinking and planning and writing about a business (that’s what “wantrepreneurs” do), the essence of the Lean Startup Methodology is to start by just getting off your seat and doing something! Based on the initial modeling that you’ve done with the Business Model Canvas or the lean business plan, you’ll come up with a testable hypothesis for a particular product designed for a particular market. You’ll get something out there into the real world (even if it’s only something that looks like your product) and see how people react to it. You’ll measure what happens, adjust your approach, and go back into the market. Within a few cycles of this, you will have figured out the perfect fit…at which point, you’ll be ready to scale.
Conducting Marketplace Experiments
One of the best ways to learn about what your potential customers really want is to test the appeal of your proposed product or service through carefully planned experiments. As we discussed in Chapter 1, the lean approach to business development is built around the concept of using experiments to test a business idea, and rapidly, inexpensively modify it as dictated by real-world outcomes.
The steps in the marketplace experimentation process (as defined by Eric Ries) include the following:
Create a Minimum Viable Product (MVP).
Rather than engaging in a lengthy, painstaking process to make your product as perfect as possible, start the experimentation process by creating a simple, basic version of the product that is suitable for testing the core idea with customers. Depending on the nature of your product, the nature of the minimum viable product (MVP) will vary. It may be a prototype—a simple version of the product with just its most essential features. It may be a video demonstration of the product that can be made available online, enabling customers to react to what they see (either with interest or disdain).
Another alternative is what Ries calls a concierge MVP, which is a custom-made version of the product whose creation and delivery is unrealistically labor-intensive. For example, Ries tells the story of a startup called Food on the Table that uses software algorithms to develop weekly menus and grocery shopping plans based on customer preferences, then links them to supermarkets that deliver the products to customer homes. To test the concept, the startup team created a concierge version of the service that required a company employee to perform all the individual steps by hand. This would be an absurdly expensive way to serve any significant number of customers, but the point of the concierge MVP experiment was simply to test whether customers would like the service, and to identify ways it could be improved. Once these issues were resolved, the team set about bringing the product to scale through automated high-tech tools.
Test the Value Hypothesis.
The value hypothesis is the belief that customers will find the product attractive, useful, and desirable—in short, valuable. The way to test this is by offering the MVP version of your product for purchase to a select group of potential customers and seeing how many people buy it. You can offer your product for sale through any channel that makes sense, but preferably the same way you plan to use once your company is running at full blast—online sales and distribution, retail sales through bricks-and-mortar stores, business-to-business sales through visiting sales reps, or what-have-you.
At this point, remember that it is much more important to see if anyone is willing to pay for your product than that they actually do pay for it. That means you can test your value hypothesis without even having a product! One approach that many lean startups take is to craft a clear, pithy, online advertisement, and then place it alongside targeted keywords through paid search engine marketing. Clicking on the ad leads the customer to a landing page, where you describe the product, perhaps provide illustrations and pricing, and include a “Buy Now” button. At that point (since of course you don’t yet actually have a product), the prospective purchaser can be asked to sign up to be notified as soon as the product is available.
With no cost involved on your part, it is possible to construct elaborate test campaigns with different marketing messages, different price points, and different value propositions. You can easily create your own landing page with a simple Web page editor, but there are several online services that specialize in managing the whole process for you, including QuickMVP.com, InstaPage.com, landerapp.com, Optimizely.com, and unbounce.com.
While some people may view this as a form of “bait and switch,” at best it will give you a mailing list of interested prospective purchasers, and at worst it simply costs the purchaser a minute or two of their time.
Test the Growth Hypothesis.
The growth hypothesis is the belief that, once a few customers discover and use the product, their enthusiasm will begin to spread to others—through word of mouth, recommendations, or online virality. The way to test this is by opening up the possibility of purchasing the MVP version of the product to a larger market of potential customers, and watching how many new customers buy it over a reasonable period of time—say, a few weeks.
Watch How Customers Actually Use the Product.
A powerful step in the marketplace experimentation process is to watch customers using the product. How you accomplish this will vary depending on the nature of the product. The key is to pay close attention to exactly how the product is used, to make detailed notes, and, in particular, to notice anything that is unexpected or surprising. You may well discover that one or more features of the product go completely unnoticed or unused by some customers, which suggests that those features are poorly identified, inadequately explained, or simply unappealing. You may also discover that customers use the product in ways you never thought of, which may suggest entirely new applications, and even new markets to be developed.
One way to gain insights into the attitudes, values, preferences, and beliefs of customers is by conducting surveys, either in-person, by telephone, or online. Keep the number of questions low to avoid boring or discouraging participants; make sure the vocabulary and language used is as clear and universally understandable as possible; avoid writing questions in a way that suggests there is a “right” and a “wrong” answer; and, where appropriate, provide a simple, clear answer scale that makes it easy for participants to respond both quickly and precisely to any qualitative questions you ask. There are a number of good online tools that can make customer surveys easier to conduct and analyze, including Survey Monkey and Google Forms.
Anther way to measure the success of your MVP is through focus groups, in which you interview 5–10 customers at the same time. This can be a convenient way of gathering views from a group of people at once. The group discussions are recorded so that comments and observations by the participants can be studied later, and are often facilitated by trained moderators (which can be expensive). With some serious dedication, you can also try doing it yourself, and the results can be interesting and sometimes valuable. But take them with a grain of salt. Focus groups have been criticized for encouraging “groupthink,” in which the entire group follows one or two particularly vocal or articulate participants rather than offering independent judgments more reflective of the broader population.
The focus group discussion should be carefully planned to focus on the key questions you want to investigate about your product. Typically, a focus group will last around an hour and a half, and will sometimes be observed by researchers and members of a wider project team from behind a one-way mirror.
Nowadays, focus groups can be conducted online or via social media, which can be a more cost-effective approach than the traditional in-person method.
Iterate on Your Initial Product.
Regardless of how you measure the response to your initial product deployment or test, you will probably want to refine your product offering in some way. Then you can conduct a new experiment to test the new hypothesis you have developed. If you keep the process as simple as possible, you can do it rapidly—perhaps running through the entire cycle of defining your hypothesis, developing the MVP, conducting the market experiment, and analyzing the results within just a few weeks. This can help make it practical and economically feasible for you to repeat the experimentation process as often as necessary to reach the point where you have a product that a large number of real-world customers are responding to positively. At this point, your business should be off to the races.
Later in the history of your company, there will almost certainly be times when you will want to re-enter the experimentation phase—for example, when you develop a new product idea that you want to test; when sales of your existing product begin to falter; or when a new competitor enters the market and threatens to take away some of your customers. Customers and markets continually evolve, so smart, sustainable businesses make experimentation and learning a continual process, not just a one-time activity.
Along with online tools for creating and managing business model canvasses and lean business plans, there are some solid tools online for helping you manage your lean startup cycles. LeanMonitor.com provides online tools that can make it easy for you to apply the lean startup approach to your business (including their experiment tool) as a way of planning and conducting scientific tests to determine how a particular product idea is resonating with customers. Other useful sites with online tools supporting the entire Lean cycle are leanstack.com and launchpadcentral.com.
The Wisdom of the Crowd
Over the past few years, the explosion of online, rewards-based crowdfunding sites like crowdfunding KickStarter and IndieGogo has put a potent tool into the hands of lean entrepreneurs with physical products. Running an online crowdfunding campaign for your MVP can combine a complete set of tests for your hypotheses into one nifty package, including product, value, and virality, with full seed-funding thrown in as well…and all before you’ve actually produced your MVP.
In your crowdfunding campaign listing, you can provide detailed descriptions and prototype photos, offer different levels of rewards at different price points, and track how many of your supporters pass on word of the product to their friends—and you are not committing to actually delivering the product unless you get enough interest (and purchase commitments!) to make it economically feasible to go into production.
This type of crowdfunding (unlike the equity fundraising we will discuss in Chapter 21) can also be a great way to convince potential investors that the market for your product is viable. While most crowdfunding campaigns are actually not successful, if you are using it to test your lean idea, that could actually be a good thing. You will avoid wasting effort and money developing a product that customers are not willing to pay for. Although even the successful campaigns (and there have been well over 100,000 of them) usually raise less than $10,000, there are a growing number that have successfully raised six, seven, and even eight figures.
The ultimate example, of course, is Occulus Rift, the virtual reality head-mounted headset that started as a Kickstarter campaign, raised $2.5 million to fund its development, and then was purchased by Facebook for $2 billion. (No, that’s not going to happen with your product, but at least it’s nice that it happened to someone….)
1. Eric Rises, The Lean Startup (Crown Business, 2011).
This post is part of the “Prepare” series of the Gust Founder Curriculum. Gust’s Founder Curriculum is a roadmap for founders navigating every stage of the founder journey. Check out our event series and follow along with expanded resources here.
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