The concept of an MVP – minimum viable product is almost ubiquitous. Whether entrepreneurs have one or can make one, they definitely bandy the acronym around. A lot has been written about it and yet despite following the MVP philosophy most Startups simply do not survive.
It is both surprising and disappointing that no one has thought to extend the principle of a MVP to instead build a Minimum Viable Business and coin “MVB”. This is my copyright claim!
The principles of MVP are well understood:
The issue is that so much time, effort and money is spent on developing product that an important part of business discipline and sophistication – how to get customers is ignored:
Most entrepreneurs create startups based on a product or service they dream up or know well. It is almost always an inability to get customers or scale revenue that kills startups. Therefore, it is extremely important that the sales side of startup is either built or learned very quickly. Even if the startup succeeds in building an MVP, there is no guarantee of revenue and chances are a valuable chunk of investment and time has been solely focused on product and not on sales or the discipline required to generate, sustain and scale revenue!
Even if you have investment and are focused on taking a moon shot, building some revenue is a good idea … for the following reasons:
- ensures you do not run out of money and runway when gearing up for your moonshot
- creates a difficult and vital part of the sales and operational model needed for the moonshot – builds invaluable sales and operational skills particularly for new entrepreneurs, begins building market presence and brand
- serves as a testbed and template that can be used later for diversification
So how does one build and bound the effort on developing an MVB.
An MVB may be defined as the bare bones organization required to generate revenue. What is the smallest team, product or MVP, operational processes, and initial resources required to generate revenue? How do we ensure there is no loss of focus and that the MVB effort is thematically in line with the larger Startup vision? Lastly, how can we with the least amount of effort produce the largest revenue?
When viewed with these perspectives, creating an MVB becomes both possible and necessary! It should be a required first step in any Startup. Unfortunately, Startups do not always think past MVP to MVB.
It is often the case that Startups focus on the moonshot and fail to exploit easy or efficient revenue streams along the path to a moonshot. Startups are forced to pivot when a planned moonshot is counter indicated either by the market or by other circumstance. What this really boils down to is that a Startup does not find its true moonshot or magic formula for a while and needs to just stay alive till it does. It therefore makes a lot of sense to find and situate an MVB rather than think of it as a loss of focus. An MVB would actually be the first of a successful portfolio for the Startup.
Building an MVB starts by looking at the operational model and identifying operations closest to the revenue that can be put in play as a mini business. The operational model of any business culminates with the sale of a product or service. This is preceded by a production or service prep cycle. Most Startups begin on the product or service side. It’s the selling of it and the scaling of the sales that is the bigger risk and often defeats Startups. By identifying and building a sales only operational initiative and team, a Startup can train itself to sell, build a vital part of the sales infrastructure, and bring in revenue that will help it stay afloat longer. In order to sustain focus, it is important that this initiative be a subsection of the overall Startup theme, objective, and activity. So constituted, an MVB becomes a way to drive risk out of the Startup.
MVBs can be thought of in different ways. A Startup can take an MVP or better yet a product or service that does not need production or other effort from the Startup team to market.
Here are examples of different approaches to MVB:
- Extending MVP to MVB: Startups with production that is a challenge in itself must follow this model. And Startup Advisors advocating an MVP do imply that sales must be simultaneously established. Long software or drug development cycles are classic examples. In fact in the case of Pharma the onus of sales might simply be passed on to an acquirer of the startup.
- Agency: Companies that are simply middlemen in protracted sales cycles are good examples of this type of MVB. No production responsibility is taken on and this is just about selling and the operations for it. Software channel partners, Distributors, Agents etc. do business in this model. A Startup might chose to constitute an MVB as and Agency for a related product and focus on building out sales.
- Cookie Cutter: In the case of very well understood and templated production processes, this model is followed. The template may be filled with different content by each company or initiative. Food businesses provide excellent examples of this. The process of mass production of food and even the sourcing of ingredients is handled by the optimized processes in a commercial kitchen. The food brand merely specifies the recipe. Either the commercial kitchen or the food brand or both may opt to build out sales. A Startup can be the provider of a standardized process or the provider of just the content and thereby minimize product risk to enable focus on sales build out in the new market.
As an investor, I would love to see Startups that have adopted a Cookie Cutter MVB approach that lines up thematically with their moonshot effort. In my mind such models are much more likely to survive and actually take the moonshot!