Media reminds us that we live in a golden era of startups. Becoming an entrepreneur has become as easy as never before. Just come up with the idea, hunt up a business partner, find investments and you are good to go.
The 23 years old Tony Hsieh and Sanjay Madan managed to create their first startup LinkExchange and one year later sell it to the Microsoft for the $265 mln. Impressive, isn’t it?
Why startups fail
We live in incredible times when everything is possible. In 2016, Startup activity in the USA reached the record mark and almost overtook the level of Internet bubbles in 1996. The more startups emerge, the more they fail. In order to avoid failure, you have to understand the reasons.
According to CB INSIGHTS, the most startups suffer from not knowing their target audience. Almost 42% of new enterprises failed because there was no market need for the product or service they offered. Among other reasons, there is a lack of money and an inconsistent team.
In this article, we want to investigate the very first reason for startup failure. As founders can fix this problem with the right tools at the initial stages of startup creation. Before starting any business, the founder has to research the market and identify the target audience. There should be clear understanding who are the potential customers, their likes, and dislikes. Judging by the previous sad statistics majority of aspiring entrepreneur neglect such research.
If you start own business, very often you can’t rationally evaluate your project. You have the feeling that you start something big, that is going to change the world. Also, a big mistake is to identify yourself or your close surroundings as the target audience. You don’t want to find out after the launch there is no one interested in the product.
Treehouse logic made such a mistake. It was a company that developed a product customization platform. Founders, the IT engineers, mistakenly thought if they served their own need they would fit the market’s need. In reality, their customers were not IT engineers, but self-service small businesses. This mistake costs Treehouse a success.
MVP for startups
To overcome the problem of not knowing your customers’ need can help an MVP. Minimum Viable Product (MVP) is the prototype of the product that owns the essential functions and requires less funding then end product. The purpose of MVP is to launch a viable product as soon as possible with minimum costs. This approach allows you to collect user feedback for the primary product and incorporate it in future iterations.
Nick Swinmurnwas, the founder of Zappos, had an idea to sell shoes via the Internet. In 1999 it seemed crazy to sell footwear without fitting, so no one did that.
To eliminate risks and learn the demand, Nick started to take the photos of shoes in the local stores and then posted it on the Internet. When he received the order, he went to the store and bought a requested pair of sneakers. This model illustrates how at first the entrepreneur can test the idea with minimum costs and examine the demand on the market. Nick come up with an MVP of his future shoe business.
Creating an MVP is all about finding the right balance between giving users what they need before you are entirely sure of every function they will want later on. The purpose of MVP is to test the hypothesis. Usually, it is based on usefulness for the customers and their willingness to purchase.
Do not perceive MVP as a “draft version” made in a hurry, which can be thrown away after the deploy. It is the version, which is going to bring feedback about your product. The feedback that will make you the entrepreneur whose product successfully enters the market. Nick Swinmurnwas’ made a hypothesis that people can buy shoes via the Interner without fitting. This assumption brought him success.
MVP sucks, EVP rules
The concept of MVP was quite a long time around and proved to be useful. Although, the attitude towards it starts to change. The founder of Moz, Rand Fishkin, declares that “MVP Kinda Suck”. In his article, he explains that MVP frequently cannot produce exceptional value. Therefore, it is difficult for such a product to earn the attention and attract early influencers.
Rand tells us that good startup is the one which makes people religious about it. MVP cannot provide with such an effect, but EVP can. Moz founder introduces the concept of EVP – Exceptional, Viable Product.
The concept suggests making a product as perfect as it possible before release. It is a long way of polishing, developing, improving. Unlike the MVP, there is no product with the basic functionality, but only the close-to-done version, that can surprise and capture users. And the most important, the product has to turn users into evangelists of the brand.
Fishkin suggests creating an MVP and testing it on your team and few select customers first. Only when you collect feedback from testers and incorporate it into the next version of the product, you can release this exceptional product. EVP acts like an advanced version of MVP. Do not launch the product with minimum functional to the customers but test it first in-house to offer a ready solution with exceptional and relevant features.
This concept seems logical and economically viable, but we are sceptical concerning some aspects.
Firstly, if you test MVP on yourself and your team, it is doubtful that feedback will be reliable. Stakeholders are not the users of the product. Their desires and preferences do not necessarily match the wishes and preferences of the end users. Moreover, testing the MVP in-house do not provide specific data on whether the product resonates the needs of the market.
Secondly, the process of creating EVP takes a while. Let’s make some rough calculations, building an MVP takes from 3 to 4 months, testing – 1-2 months, shaping EVP – 1-3 months. At best, you will spend half a year on development. This period may be crucial for the startup, as there is nothing new in this world. Any time you can be beaten up by someone who released faster.
Where is the golden meal?
Business is an overwhelming activity. It involves risks and difficult decisions, and you have to be strategic and visionary to stay afloat.
We believe that balance is the crucial factor in the successful business.
If you are thinking about starting a startup, it is the right decision to define the target audience and check the demand on the market.
If you are deciding between MVP and EVP, analyze your current position. In case you have money and time to go with EVP, do it. And yet, better refrain from testing it in-house. Find a group of potential customers and allow them to use a product for free. It won’t bring you money but provide with relevant and useful feedback.
Returning to the Fishkin’s idea to make customers religious about the product, right marketing can handle this mission. Try to advertise it, before even having the real product. The well-known resource Hubspot was started as a blog. Later on, when Hubspot has increased captive audience, they began to offer a unique product that was pulling customer far beyond just blog readers. The blog was kind of pre-selling marketing tool that helped to build a strong community of potential customers.
Check out our article about companies that successfully followed MVP approach: http://sombrainc.com/they-build-mvp-first-or-how-to-minimum-viable-product-in-software-development/