When evaluating potential opportunities, companies often face a dilemma. Limited resources and day-to-day business clash with the desire to innovate. Whether it is a new product or a new business model, companies are desperate for ways to reduce time to market. A minimal viable product (MVP) does just that. It also optimizes the product-market fit toward a "minimally lovable product.
We have summarized how the MVP succeeds in six steps.
Where is the problem rooted?
On the road to becoming a digital champion, countless companies inevitably find themselves in the innovation theater. Employees are trained to be innovative at a moment's notice, innovation labs are set up with fancy furniture, trips to Silicon Valley are booked, and digital initiatives are mandated. In the end, IT projects take longer than planned and tie up too many resources. Well-intentioned efforts fail because of the following mistakes.
Processes
The brightest minds are useless if companies have the wrong understanding of process. Good ideas alone are not enough for successful innovation. The art lies in bridging the gap between a good idea and a better implementation. Agile, iterative, and with the stamina to fall on your face if necessary.Dedication
As fast and agile as digitization projects can ideally be, decision makers often lack confidence. The expectation that innovation can take place alongside day-to-day business is understandable, but dangerous. After all, we all know that there is always something to do in the day-to-day business. When managers have to decide whether to invest resources in maintaining or slightly improving the status quo, or in pursuing "real" innovation, the decision is usually made in favor of day-to-day business and incremental innovation.The Culture
Though few would admit it, we still secretly feel more comfortable with Six Sigma-like management credos than with trial and error. But with increasing digitalization, companies are learning the hard way that it's complex. And complexity means embracing uncertainty, because at the end of the day, there's no guarantee that an idea will work. No one knows which disruptors will make it to market, how fast the market will change, and what we will make money with in the future. But recognizing that we don't need to know, or can't know, goes a long way toward creating a culture that is not "innovation resistant. By changing the mindset of the management team and being willing to institutionalize innovation (and uncertainty).
So far, so good. Now what?
If companies want to get rid of old maxims, they need to make targeted changes to their processes, resource allocation and culture. Away from PowerPoint presentations and unctuous statements in annual reports, and into action. In an effort to satisfy the needs of all potential customers, many companies make the mistake of offering too much at once. The result: a product that is far too expensive, has all the bells and whistles, but is not needed by the customer. Sadly, more than 60% of features are rarely or never used. (Standish Group Chaos Report). This is where MVPs come in.
In a nutshell, an MVP is a minimally functional product. In other words, a preliminary version of a product that is used to gather user feedback and test its marketability.
When less is more
The claim of an MVPs can be nicely illustrated by this comparison. There are different types of Swiss Army knives: A so-called "collector's knife" consists of 87 tools and 141 functions. The right tool for every situation in life, at a price of more than €1,000. A "bartender's knife" takes a different approach. Comprising a corkscrew, bottle opener and knife, it costs €15 and is sold a million times over. In fact, the first knife represents a "featureitis" that many software solutions suffer from. Usually, a project team is assembled to develop a new product and then retreats for months or even years to develop a supposedly perfect product in secret and in elaborate processes. The second type of knife is essentially what the customer needs. Mostly just a knife without much ChiChi. And it is this core that an MVP identifies.
From idea to market in 100 days
The primary goal of an MVP is to validate an idea before tapping into large pots of money. Developing an MVP means finding the right balance between what the company can offer users and what they actually need. Hypothesizing, gathering feedback from the target audience, and testing are used to weed out bad decisions in product development.
Six Steps to MVP
Market Research: Competitor Analysis
Product managers believe in the uniqueness of their solution and often forget to analyze the competition. The first step is to scan the market and identify the success factors of a good solution. Qualitative feedback from the competition's customers provides insight into the problem your product needs to solve.Analyze the customer perspective
When building an MVP, it is necessary to think from the customer's perspective. To understand this, you need to ask two important questions What problem do you want to solve? And for whom? Conducting surveys helps to analyze market needs and find out where your product fits in. Market research provides valuable insight into customer needs.Design Process and User Flow
The most important premise when designing software is that it must be easy and convenient to use. It must be designed from the user's point of view, starting from the first use of the software solution to the purchase process or delivery. In addition, user flow is an important aspect. It ensures that the product vision and usability are kept in mind. It defines the individual process steps required to achieve the main goal. The focus should be on basic tasks rather than small features.List Features
First, list all the features you want to include in your product before you start building the MVP. Once you have a list of features for each phase, you need to prioritize them. To prioritize features, ask yourself questions such as What do my users want? Am I giving them something useful? Then categorize them by priority: high, medium, low. This categorization is the basis for the scope of the first release of the MVP.Developing the MVP
Once you have decided on the key features and learned about the market needs, you are ready to create your MVP. Remember that a prototype is no less high quality than the final product and must meet the needs of your customers. Therefore, it must be easy to use, appealing, and suitable for your users.Build, Measure, Learn. Repeat.
Once the product is built, it's time to test it. The first phase of testing is to ensure that quality standards are met. If the product is satisfactory, it is ready for alpha or beta testing. Key metrics are measured, and the feedback from testing provides clarity on what changes need to be made.
Metrics to measure success
📣 Word of Mouth
Traffic is a useful metric for predicting success. Another way to measure success is to survey potential customers. You can start by listing the problems you think a customer has or might have and validate them.
💑 Engagement
Engagement rate allows you to measure not only the current value of the product, but also the future value. Engagement helps improve the user experience based on feedback.
👋 Number of signups
Sign-ups are a viable way to measure user interest and can be converted into revenue based on interest in the product.
❤️ Customer feedback
The number of downloads and launch rates show whether users are interested in your application or not.
💃 Active users
In addition to downloads and launch rates, user behavior needs to be analyzed and active user ratings need to be checked regularly.
🧐 Customer acquisition cost
You need to know how much it costs to acquire a paying customer. This way you can check if your marketing efforts are effective or if changes need to be made. CAC is the amount spent on each acquisition in relation to the number of client:ins.
💸 Revenue per user
This metric helps you understand which products are generating revenue. ARPU (average revenue per user) expresses the total revenue per day per customer.
👴🏻 Customer Lifetime Value
This metric describes the average active lifetime of the customer relationship. There are different calculation models, the simple one is calculated as follows: (customer lifetime (t) customer revenue (s) contribution margin (p)) - acquisition cost (k).
😤 Churn rate
It shows the number or percentage of people who have uninstalled or stopped using the application. It is calculated by dividing the number of churned users per week or month by the number of users at the beginning of the week or month.
Quick Tips
Define the time-to-market at the beginning, the goal is 100 days. Speed is more important than perfection: It is less about building perfect products and more about implementing ideas quickly.
Focus on one platform and one feature at the beginning to efficiently gather market feedback. Especially in the testing phase, it is important to focus on the right feature (e.g. a specific feature) and measure its success.
Iterative adjustments and regular testing ensure that the solution ultimately delivers value to the target audience.
In summary, the benefits of an MVP include:
Minimize financial risks
Accelerate development processes
Focus on customer value
Market validation