Most aspiring entrepreneurs start with an idea – hopefully, a BIG idea. They first set out to do a Proof of Concept. This can take many forms, from simple sketches to a rough prototype. Some join a startup accelerator, where they learn how to validate their ideas using methodologies like Lean Launch Pad, and tools like the Business Model Canvas. The dedicated ones do a lot of industry, market and competitive research. They often write a mini business plan and create an investor pitch deck at this early stage.
If they satisfy themselves and others that the idea is VIABLE, usually by demonstrating Product-Market Fit, they then must take a HUGE leap to build a Minimum Viable Product(MVP). Proof-of-concept is one thing, but MVP is another thing entirely. What looks good on paper or sounds exciting in an elevator pitch, rarely proves out in practice. For that reason, most investors won’t seriously consider investing in a new venture until the entrepreneur proves he or she can produce the product and start getting some traction with it.
Most investors will tell you they don’t invest in ideas, they invest in execution. They bet on the jockey, not on the horse. The most important criteria for most investors is MVP with traction.
MVP is perhaps the biggest chasm to cross in an entrepreneur’s journey. In my experience, most don’t make this leap. No matter how promising an idea looks in the proof-of-concept stage, it goes nowhere without a Minimum Viable Product. MVP is oxygen for an idea. It is what brings an idea to life.
There are several reasons why most aspiring entrepreneurs fail to get MVP. First, it typically costs money to build – more money than proof-of-concept. Depending on the nature of the product, this can be VERY expensive. Second, it’s exponentially harder to do. Talking about an idea and researching its potential is child’s play in comparison to making the damn thing. One must also make it in enough quantities to get useful data from a representative sample of the target audience. It’s this data from the MVP that prompts the necessary refinements or pivot. No idea ends up being exactly the thing it was conceived to be.
So….how do you get there? How do you cross the chasm and get from Proof-of-Concept to Minimum Viable Product?
Let’s first agree on what MVP is not. It’s NOT sketches or a PowerPoint or even a functioning prototype. An MVP is at least a small production run that real customers can use without you being present or having to operate it for them. For example, if I can only use your IoT thingy and app with you telling me which buttons to press and which actions to take – and most features don’t work, that’s not an MVP. That’s still a proof-of-concept. In the software world, it’s the difference between alpha and beta.
Having produced dozens of MVP’s for my own businesses and advised hundreds of other entrepreneurs struggling to produce MVP, I’ve learned a few things about how to finance it and how to organize the work that must be done. Here are a few tips:
1. Write a detailed specification.
Too many aspiring entrepreneurs want to skip this all-important first step. Some tell a virtual programmer they hired on UpWork what they want, then are disappointed with the results. If I don’t see a detailed spec, I know I’m going to see a camel when they were promising me a horse. Many “idea-people” do not have the expertise to write a good spec, which is another problem. It pays to contract with a pro to write it. This goes for industrial products and consumer packaged goods as well as for software and content.
2. Determine what size production run is necessary to test your assumptions about customer adoption AND will be a catalyst for securing growth capital.
This can vary widely depending upon the nature of the product. A B2B product might only require 10-20 installations to validate adoption in the real world. A B2C product might require hundreds or thousands of users who are representative of the target audience. You should be able to solve the equation: If I get X customers to test my MVP it will be enough to validate Y assumptions and, if validated, will allow me to raise Z dollars.From this perspective, a good MVP is designed to start getting traction immediately.
3. Line up enough real-life testers BEFORE producing MVP.
Lots of potential customers will tell you the Proof-of-Concept looks good. Some may even say they would buy it. But FEW will commit to doing so ahead of time. You MUST get these commitments, or the effort will be for naught. Real-life testers (or first adopters) are what you are building the bridge across the chasm to reach. If they are not there when you get there, then you will be crossing the chasm into a great void and your MVP will run out of steam and starve the minute it steps on solid ground.
4. Determine what facility, equipment, tools, materials, human and financial resources are required to build MVP, with a 30% margin of error.
Most of the resources that will be required to build MVP should be detailed in the spec (see step 1). List all the resources, especially the human resources. People are generally the biggest cost and most uncontrollable variable. Nail it down and put a pencil to it. Now add 30%. If your MVP comes in only 30% over budget, you will be doing good.
Good so far? You know exactly what needs to be built, how many need to be built, who you are building for, and roughly what it will cost and how long it will take? If you know this, you are way ahead of 90% of the aspiring entrepreneurs who have a proof-of-concept. What’s next? Money and execution, of course!
If you are not independently wealthy or can’t convince your rich aunt to lend you the money, you’ll need to raise the capital to build MVP. It’s highly unlikely angel investors will come to your rescue, but not impossible. There are a few groups that invest at this stage – IF the above steps have been completed and your proposition is for a BIG, under served market, or one ripe for disruption.
It’s also possible to raise money from angels and VC’s to build MVP if you have defensible IP (like a patent or trade secrets), and/or have done it before (not your first rodeo) and have assembled a killer team (with a track record in the space). If you have none of that, don’t waste your time on main street angels or VC’s. Do some research to identify “alpha angels.” Most of them are in Silicon Valley.
Here are some strategies for financing MVP:
- Apply to an accelerator that will pay you to build MVP. There are several of them, but the entrance process is rigorous. Only 1%-2% of applicants get in. Doesn’t hurt to apply. For a list of the accelerators and their criteria, check out https://www.gan.co/.
- Circulate a simple convertible note among friends and family. If you only need a few thousand dollars – no more than $25,000 – a convertible note is a good option. This is a micro-version of how some angels like to invest in startups, except most angels invest for ROI when the MVP is complete and friends and family invest out of love and support to help you get MVP.
- Get a corporate sponsor. If your product is designed for a particular type of company, or will give it a significant competitive advantage, some will not only agree to be a tester of the MVP but will also invest. You just have to make them an offer they can’t refuse. Back in the day I worked with a startup that developed one of the first contact management systems (now called CRM). A large corp sponsored their MVP in exchange for some stock and FREE software for the entire enterprise for life.
- Propose a joint venture or offer equity to the people needed to build MVP. If you are unable to find a corporate sponsor, you can organize a consortium of the key people (or their organizations) for a decent stake in the enterprise. This can be time-consuming and challenging, but I have seen it done successfully numerous times. One of my own MVP’s was a consortium between the company I worked for at the time, a UX/UI designer, a local software development shop, a prestigious law firm, and a major customer. It was a lot of work to organize but paid off handsomely for all.
- Use crowdfunding or apply to a seed investment platform. Crowdfunding is perhaps the greatest source of MVP development funds in the history of startups. Most campaigns fail because the idea is not properly packaged and promoted. There is an art and a science to it. Retain a specialist with a track record of running successful campaigns. There are also a variety of seed-stage investment platforms. These work differently than mainstream crowdfunding sites. Some specialize in certain industry segments.
- Beg, borrow, steal, promise and cajole. I know this sounds trite, but it’s the way many entrepreneurs get their MVP’s done. They know exactly what and who is needed, and they don’t take no for an answer. If the idea is powerful enough and the entrepreneur passionate enough, the entrepreneur will find a way to bring the idea to life.
In summary, Proof-of-Concept is only the first, and arguably the easiest step, in a new venture’s life. The entrepreneur must cross the chasm from Proof-of-Concept to Minimum Viable Product (MVP). Most don’t make the leap and their ideas never see the light of day. Getting to MVP as quickly as possible should be the focus of every entrepreneur once the idea is validated. It requires thoughtful, organized work and seed money. These tips and strategies can help you get there. Godspeed!