As an entrepreneur developing a cutting-edge business idea, you must understand how a robust Minimum Viable Product lures inventors. Having an MVP gives your pitch deck that extra edge and evokes interest in funding the venture.
Startups have a notoriously high failure rate that can go up to 90% in the initial few years. At least 34% of new companies fold because their founders did not get the product-market fit right.
Investors are understandably wary of backing untested products. However, they might be interested in funding a tangible concept that can potentially sell in the market.
Statistics also point to an 8% failure rate because of poor product design. Another 10% of companies go under because the market is not ready for the disruptive idea. These numbers indicate how critical it is to develop the right product at an opportune time when markets are receptive.
The Ultimate Guide To Pitch Decks
Understanding the Concept of Minimum Viable Product (MVP)
A Minimum Viable Product (MVP) is often confused with a product prototype or demo version. On the contrary, the MVP is a functional solution that users can test for suitability for their problem. This version has basic features and limited functionality.
Founders can build on their business concept and transform it into a usable design without investing too many resources. However, they must focus on ensuring optimum product quality and great user experience. Typically, an MVP takes a month to build and allows its developer to test it for usability.
Once the product hypothesis is proven, developers can use the insights and findings to expand the design. They can move on to enhance and improve the product with new features and elements. As the improvements continue, the product converts into a fully refined, market-ready model.
Let’s try a few examples. The eCommerce giant Amazon started off in the early 1990s as an online bookstore, which was its MVP. At the onset, its founder, Jeff Bezos, experimented with a selection of different products he could sell.
Jeff started off with compact disks, videos, books, computers, and software, finally zeroing in on books. And the rest is history.
Let’s try another. Established on February 4, 2004, Facebook’s MVP was a platform to connect alumni at Harvard University via a social network. It started off with basic features like Photo Album, Friend Request, and User Profile, to name a few.
The objective behind developing a functional model is to introduce the concept as a marketable product customers want to buy. And that’s how a robust Minimum Viable Product lures investors.
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How a Robust Minimum Viable Product Lures Investors – What Backers Look For
The MVP is a crucial step in the product development process that uses the minimum of resources. With this version, founders can implement a successful product launch and attract funding for the next steps.
Ensuring Product-Market Fit
Investors need assurance that the startup has an interesting concept that can potentially capture the market. Founders can test MVPs on actual customers to ascertain if they are willing to pay for them. Beta versions of new software are an excellent example.
MVPs invite users to test them for functionality and offer feedback and comments. Incorporating the feedback and improving the design ensures that the product will sell when presented to the market.
At this point, entrepreneurs can build on the product design or scrap the project entirely without the risk of losses. A successful launch indicates that the startup has a high success probability and is worth backing.
Checking Product Functionality
As long as the project is in the ideation stage, it can be hard for founders to convince investors of its value. The MVP shows that the idea can transform into an actual solution to a real problem users face. At the same time, it should be effective in solving the problem, engaging, and easy to use.
By developing a Minimum Viable Product, entrepreneurs indicate their belief and commitment to the project. And their interest in building a product per customer specifications.
Testing the Founding Team
The success of any startup depends on the founding team and the expertise behind the product. Testing the MVP allows investors to evaluate the skills and experience driving the startup. If they like what they see, financiers are more likely to back the project.
Checking the team’s profiles on professional platforms like LinkedIn for their track records may also assure investors of product viability. When you pitch for funding, your efforts are more likely to be successful.
More importantly, hiring and retaining top-notch talent can cost the startup in terms of expensive salaries and stock options. Testing the MVP ensures that you can divert your human resources to developing better products if the initial model doesn’t pan out.
Testing Market Research and Awareness
Minimum Viable Product demonstrates that the founder has done the necessary market analysis and is aware of the ongoing demand. It also indicates that the team has studied competing brands and is capable of developing a product with a USP.
Understanding the competition is a crucial factor since 20% of startups fail because other products in the market perform better. As a result, they are unable to capture the market.
Building an MVP requires an in-depth analysis that shows that the product is versatile and adapts to changing market conditions and customer needs. It convinces investors that you’ll deploy valuable resources into its creation only after a deep understanding of customer psychology.
Conducting market research with surveys and questionnaires to get into the user mindset can only take you so far. But if you can present an actual product that they can test, it adds validation if it is received well.
The MVP assists in bringing together the problem hypotheses, project requirements, market analysis, and projected revenues and profitability. Presenting these findings in the pitch deck is how a robust Minimum Viable Product lures investors.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Testing the Business Model
The MVP is the perfect tool to test the different aspects of the founder’s business model. You can use the initial version to test if you have the optimum success strategy. You’ll address issues like the ideal pricing structure and whether your marketing and advertising approaches have the desired impact.
Keep in mind that 15% of startups fail because of out-pricing by the competition. Another 22% have ineffective marketing, which is why they are unable to sustain beyond the initial few years.
Building and testing the MVP demonstrates that you’ve tested the business model and are ready for a pivot if necessary. At this stage, you can work out if the product design is worth pursuing. Or if it’s feasible to switch to an entirely different product range that has a better chance of success.
Minimizing Costs and Risks
Since creating the MVP uses the least amount of resources, you can avoid investing in building a full-scale product. As a result, you can test it on actual users without risking funds and sweat equity with no potential for returns.
Think of the MVP as a safety net that allows you to build a basic version. Next, you’ll enhance it gradually after checking with customers for their needs. If the project is not viable, you can pivot the startup in a different direction. Like, for instance, choosing an entirely new business vertical.
Investors will appreciate respect for their money and your dedication to risk mitigation. They may even be interested in backing the next project you propose.
Time Sensitivity in Product Release
When founders come up with a disruptive business idea, they may want to capture the market quickly before the competition catches on. Having identified a customer need or problem, you’d want to focus on accelerated product development and delivery.
Accordingly, you’ll create a version with core features and test it without advanced features. This strategy will allow you to reach the market before the competition. You might also be able to generate and secure valuable Intellectual property, which is a crucial asset for attracting funding.
Building Customer Engagement and a Market Presence
The long-term success of any brand is largely reliant on developing user engagement and minimizing Customer Acquisition Costs (CAC). Offering trial and beta versions and free giveaways builds brand recognition and acceptance.
When you contact customers for feedback to evaluate customer satisfaction, they feel seen and heard. Not only will you acquire first-hand information about the product’s performance, but you also identify the flaws.
You’ll use this information to improve the product and its value for customers. Yet another positive is that you learn about the features and specifications that don’t resonate with the audience. As a result, you can make the necessary changes in the development stages.
Founders can also use performance metrics to ideate complimentary product lines once they develop an in-depth understanding of what customers want to see. Projecting this product-driven growth is an excellent way to attract funding.
Lower customer churn rate, brand loyalty, profits, and consistent revenues are other factors that look good on your pitch deck. And that’s one of the ways how a robust Minimum Viable Product lures investors.
Investors viewing your pitch deck presentation or data stored virtually are interested in the startup’s traction. When developing an MVP, most founders have an overview of how they intend to monetize the product.
Once you have a product that is tried and tested by real customers, chances are that the orders start to roll in quickly. As you rack up sales and revenues and start to show profits, that’s an attractive proposition for venture capitalists and accelerators.
Building the MVP is an excellent first step for how to validate your business idea. If you need more information about how to secure your idea before moving forward, check out this video I have created.
What’s Next After the MVP?
Although you’ll tick off all the important boxes after building the MVP, that’s just the beginning of your fundraising journey. The next steps involve developing compelling financials to convince investors you have the other aspects of business building in place.
Even if the company has yet to bring in revenues, you’ll talk about projected profits according to industry benchmarks. Also, add statistics like expected cash flows, profit and losses, balance sheet, turnover, and assets.
You should also be upfront about the expected risks and the asking amount. This is the approximate funding you hope to raise from the pitch. Also, talk about how the funds will be allocated and the milestones to be achieved.
The objective behind creating a Minimum Viable Product is to demonstrate value proposition to customers. This basic version will have only must-have features and is designed to give users a preview of its functionality.
Founders are focused on getting a step ahead of the competition and quickly developing a model to present to customers. In that scenario, an MVP is the ideal solution that they can put together with the minimum of resources–more specifically, time.
Startups prepping for their seed funding round are likely to be more successful since they have an MVP. Investors are likely to appreciate that the venture has proof of traction and a ready-paying customer base.
Performance metrics, market analytics, a core team, lower churn rates, and CAC all look good on a pitch deck. Venture capitalists and other investors are keenly interested in backing startups with compelling pitches. And that’s how a robust Minimum Viable Product lures investors.
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