Capital Intensive MVPs

According to Eric Reis, MVPs allow us to test our business’ most important “hypotheses.” This is supposed to help us “fail faster,” but I’m finding that there are real differences in how much effort we have to put into our MVPs before we can validate our business hypotheses. In other words, some MVPs are more capital intensive than others. This is a big deal because you often can’t get favorable investment terms until you’ve shown that you’ve got product-market fit. You can’t do that without an MVP, and if you’re MVP is too difficult to build without capital, then you’re business will need exactly what it can’t have (under favorable terms): capital to create an MVP and validate its fundamental hypotheses.

Expensive Solutions

Talking to customers before building anything is probably a great idea. Customer interviews probably yield tons of insight on how to build something people want. That said, I suspect that customer interviews aren’t enough. These interviews can give us great insight vis-a-vis the particular problems are customers are facing. They can also give us a clue as to what the solution to these problems should look like, but until we’ve got a prototyped solution to sell them, we won’t know if we’ve actually created a solution that’s good enough for them to pay for.

Some MVPs are easier to build than others, and some MVPs are so difficult to build that its not feasible to build them without capital, capital that you can’t get (under favorable terms) because you haven’t shown that you’ve got product-market fit.

High Customer Acquisition Costs

Even if you’ve built an MVP, you still have to be able to verify that people are willing to pay for your solution at a price that’s high enough for you to offset the cost of acquiring those customers in the first place. The difficulty of verifying this varies from MVP to MVP, and customer acquisition costs can be prohibitive, even if we’re just trying to validate our business assumptions with an MVP.

It’s much easier for me to get my SnapChatGramBook app in front of 100 dousche-bag teenagers than it is to get my military simulator in front of 20 procurement folks at various defense companies. More generally, if you’ve got to charge a lot for your product, it’s going to take more money to get people to pay for it, and again, the costs may be prohibitive.

Conclusion

In some ways, it feels like the lean startup movement has been a barrier to me realizing this. We’re taught that the “holy grail” of a startup’s journey is product-market fit and so we focus much of our thinking on finding that fit. I’m finding, however, that there really is important prior question to the question “Am I building something people want?” That question is “Do I have enough capital to find out whether I can build a viable business building something people want?”