If you Build it, Will they Come?

Below is the “Tip of the Week” transcript from the Podcast:  Episode 5:  Evaluating Startups for Investment (feat. George Deeb)

Today I want to talk about MVP and MVC.  We hear a lot of startups and investors talking about MVP (ie. Minimum Viable Product).  Typically the earlier a startup gets a product launched and is able to test it in the market, the better off they are b/c they’re constantly getting feedback and are better able to prioritize changes and improvements to the product as well as better able to understand purchase motivations and demographics of their target market.  In general, I very much support this.  However, there’s a misconception, in the startup world, that a product is required to make a sale and test the market.  In many cases a product is not necessary and this is what’s referred to as Minimum Viable Concept or MVC.  I’ve seen a number of companies spend an incredible amount of their own money, investor money and time building their solution, not really knowing if it will sell, once they release it into the market.
So, the question is, how can we test sales without real products?  Well, take for instance a recent startup that I saw that was pitching a men’s facial grooming product.  I won’t be too specific on what it was, but know that it was a physical product that was a consummbale… so disposable after one time use.  And what was key in the pitch was that their only sales channel was over the internet.  They were not trying to sell this via retail.  I think they were basing their sales model on sort of a dollar shave club model.  So the founder was working with engineers on product development, traveling to china to meet with manufactures and he was a few years into developing this product… and I don’t think he needed to be.  MVC can be accomplished in a variety of channels but is particularly easy over the internet.  Eventually, when he launches the product, he’s going to have to create a page on the internet, maybe with a video and drive users to that page to see how they convert into sales.  Why not create the internet sales funnel upfront and see how it converts now.  It may not be ideal to have someone click a button that says “Buy Now” only to land on a page that says “We’re still in development, but hope to soon be launching soon.  We will contact you when we are ready.”  But can you imagine how much time, effort and money would be saved if they tested three different marketing strategies and all of them flopped.  That would clearly tell him that either 1) theres’ no market for the product or 2) his preferred channel is not going to work.

Some people may think that I’m talking about Market Research.  Often market research is collecting “Purchase Intent” by presenting ideas and asking people how likely it is that they would buy.  That’s different than testing sales in your market… where you are making the future product available for purchase.  A similar implementation of MVC is called pre-selling.  Where companies will offer a product at a discounted price if customers pre-buy it… before the product has been developed or completed… you’ve probably seen some of this on Amazon.  And this is one of the reasons that I like consumer companies that have launched a Kickstarter or Indiegogo campaign successfully.  George mentioned this earlier, but these platforms are a great way to assess market adoption before the entrepreneur has actually done anything.  This is another way to test MVC or proof-of-concept before exhausting a ton of money on your MVP.  

And if you’re a startup trying to raise money to build a product, what better pitch can you have than showing investors that you have real data on your target market, you know how to position and message your product and that it is so compelling that you can sell it for profit before actually having the product.