How to Correctly Determine the MVP of a New Project

Good news! A great idea has matured, there is an experience from the market and motivated professionals who are ready to get off the ground in your new startup. What’s next?

There is a long-term goal, but the portrait of your future business is still in ideal colors. It is necessary to test whether the business model will work in practice. To do this, it is necessary to determine and implement the MVP of the project (Minimum viable product). Many people consider MVP only as a software product. But let’s take a broader look and consider MVP like a “business as a product” that in addition to the software includes the minimum necessary internal processes, the minimum necessary marketing, the minimum required partnerships and services, etc. So, we need to determine the MVP of the new project.

Testing the main hypotheses

The new business and product/service, by design, will clearly provide some value to customers. But there are many competitors around who have already reached a certain level of growth and have optimized their costs and price offer. Even if the project idea is radically innovative, the startup will still have a competitive environment among similar technologies or large players who can adopt and offer your innovation to customers much faster. What competitive advantage will help your business gain market share?

The answer to this question is a pool of main hypotheses: “My product will be more useful, since a separate niche has been developed”, “The product will be like that of competitors, but the price is lower”, “I will attract customers with the complexity of the service”, “I will satisfy a narrow customer need” and so on. Such project hypotheses are what need to be tested within the framework of the MVP. This needs to be done as quickly and as cheaply as possible. What will be the criterion for the success of testing hypotheses and, as a consequence, the criterion for the success of the MVP?

The criterion for success will be the achievement of certain quantitative metrics, which, according to the business plan, will allow planning the economics of the project for future periods. Vivid examples of such metrics are the dynamics of customer acquisition or expectations for the initial level of monetization. Based on the planned competitive advantages, such metrics can also be a certain structure and level of unit cost of the service, the level of unit marketing and traffic cost, and others.

Having developed criteria for the success of hypothesis testing, it is time to estimate the term and cost of testing them. This will be the MVP of a new project according to the business plan and, often, the level of the initial round of investment in a startup.

Don’t step into the unknown

The presence of MVP criteria provides a clear program of action and a basis for decision-making. No matter how much you would like to start as soon as possible, don’t neglect identifying the MVP. Yes, the speed of production of a new product or service is often evident with a high level of accuracy. But startups aren’t failing because they can’t develop a product.

Often underestimated are the required level of working capital, the volume of required testing and, as a consequence, investments in marketing, the speed of searching and attracting the necessary specialists, the possibility of concluding contracts with the required suppliers and services (as a rule, they set certain thresholds for entry) and many other factors.

You need to predict the development of the project over time, take into account your existing fast tracks and digitize all this in a business plan.

Cut off everything unnecessary

Mercilessly cut down everything that you really want and would be nice to have, but that honestly will not contribute to testing hypotheses. At the MVP stage, you can proceed from the expected temporary nature of all processes and the very existence of the product.

Don’t cut off too much

This task will be more difficult. As mentioned above, the MVP must bring to the market a certain portrait of the new product and convey its inherent competitive advantages. And here a sober assessment may be required to what level of quality it needs to be brought to so that the testing of the underlying hypotheses is relevant and takes place in a real market environment.

Don’t underestimate the timing of potential contracting and onboarding of new suppliers and clients. It is also necessary to understand the minimum volume of sales and working capital required to evaluate hypotheses.

It is necessary to allocate time within the MVP directly to assessing dynamics and analysing data. It will take time to form quality conclusions. And time in a startup is directly money.

Break-even point vs. MVP

It is worth understanding that at the MVP stage, as a rule, the goal is not to earn a profit or even earn a positive direct margin from the sale of a new service. The cost at this stage may be uncompetitive and even much higher than that of competitors. The break-even point of the project is still somewhere far ahead. Let us recall that the criteria for success of an MVP are the success indicators of hypotheses built around competitive advantages, but not profit itself.

But as a result, the MVP should give clear answers to the questions of what the trend in the cost of your service will be with further scaling. This should follow both from the formed structure of own costs and from an understanding of the level of reduction in prices for services and goods of suppliers.

Already based on the results of the MVP, it becomes possible to build a refined, responsible business model that will reliably determine the break-even point and will be reliably defended in front of investors.

Ability to stop on time

This is not an uncommon situation when a startup’s hypotheses based on the results of MVP project, and often simply in progress of MVP, are not confirmed. But you already have your own brainchild, you have gotten used to the business idea and can’t get used to the thought that it won’t take off. In addition, there is a startup team that is hired, understands all the consequences of terminating the project and in every possible way argues for its further continuation.

Stop! This is not a failure, this is a proven MVP within the allotted money and time, this is actually a kind of success. Don’t bother with transforming and refining unworked hypotheses. Let’s go down, archive, write off losses. Otherwise, the project costs will eat up the investment budget, the team’s motivation will invariably fall, and there are only hopes ahead, but not a pragmatic business vision.

If, as a result of the MVP, new knowledge and ideas have appeared, then it is better to start all over again: formulate new hypotheses, a new MVP and a new business plan, and spend as much time on it as necessary. It is likely that the new project will require an updated team as well. And the results of an unsuccessful MVP can be partially used as a fast track in a new business scenario.

Developing a MVP and generating reliable financial forecasts for the project is a multifaceted task, largely creative and requiring certain experience and professional training. We will always be happy to help with this within the scope of our startup advisory.