Money and Time are Equally Important Resources

Last update: July 30th 2018

The most prominent issue startups face is the fact that most great ideas tend to be counter-intuitive. This is why validation of your idea is a necessary step.

However, as idea validation is a process full of research and testing, this step requires time and at MVP Workshop, we believe in a saying: Being first is better than being better.

It is evident that to be first, you need to act quickly and understand that you’ve got no time to waste. So, how can you be fast (first), and at the same time be sure that your idea is valid? How should you invest time and money in the very beginning, when there are still many unknowns out there?

Validation of a startup idea is hard work, but albeit a necessary one.

Startups fail either because of a wrong assumption, lousy execution or lack of market.

By doing the work incrementally and using Customer Development and MVP design patterns and frameworks you can validate your ideas faster and with less wasted resources.

Our tools are designed to prevent you from making mistakes and speed up your product launch. Scaling too fast without the right strategy, market and customers is one of the main reasons why startups usually fail. We want you to avoid falling into that pit.

By knowing what to look for and which pitfall to avoid, you can accelerate the learning involved in developing your startup story.

Business Models help you visualise ideas, challenge and learn without actually building something

MVP Workshop manifesto

The rules we go by can help you define your problem statement, your target audience and unfair advantages on the market.

With this in mind, you’ll be ready to build your one MVP with a minimal set of features needed for the market. This way you will validate your idea and make your work prepared for scaling and growth.

So, what is our manifesto?

Preserve or Pivot

Do you continue what you’re doing, or do you pivot? Should you stick to your business model or switch to Plan B? Is there even a Plan B?

These are one of the hardest questions for startup founders around the world.
Pivoting your business can mean admitting failure, but it can also be a solution to all of your problems. It’s hard to see which is which and after a company succeeds or fails hindsight is 20/20.

According to estimates, as many as 15–20% of startups pivot from their initial business plan at some point. Pivoting isn’t necessarily a bad thing.

However, many startup founders misinterpret when it makes the most sense to pivot.

For a startup founder or anyone at the helm of a company, it’s important to recognize when it is the right time for pivoting and when it is best to stay on course. A reactionary pivot can be as dangerous to a company as no pivot at all. Therefore, we will introduce three business pivoting types.

Business pivot types

There are three types of pivots. Prep up as each one is hard to do and requires making a massive change to your business model.

• Product Pivot: You learn that one part of your product is way stickier than the rest, and your customers care a lot more about it.
• Customer Pivot: You learn that there is a new segment of customers willing to pay more for your product than your current customers.
• Problem Pivot: As you talk to your customers and conduct research, you discover they have way more significant problems than the ones you’re trying to solve.

How to know if your pivot will be successful?

1. Take nothing for granted and challenge every idea you come up with. Then validate your assumptions.
2. Never get too attached to your original idea. By listening to your users and looking at the data you might be able to do much more.
3. Ask yourself whether there’s any aspect of your solution that can be radically simplified. Or better yet, spun out as a standalone product.
4. Dip a toe before you dive in. Try developing quick, inexpensive ways to put out feelers and see how receptive people are to your idea.

Product Pivot

Slack is the fastest growing workplace software ever. The company’s CEO Stewart Butterfield co-founded the company in August of 2013, as a cloud-based team collaboration tool. However, Slack was started as a tool to help him build another product. A game that he and his team worked on from 2009 up to 2012 when it was shut down.

How do you pivot from a gaming company to a B2B chat/productivity IRC clone?

Having left Yahoo few years after Flickr was acquired, Butterfield set up a company called Tiny Speck to work on a game called Glitch. To collaborate remotely on Glitch, the team behind it built an internal chat tool, to which they kept adding features over time: search messages database feature, basic file-sharing, and more. The entire team from product people to the developers loved using it.

When Glitch failed, the team decided not to do any other project without their collaboration tool so, instead, they decided to build a company around it.

How to monetize?

In just over two years, the app added more than two million daily users who collectively spend more than 320 million hours connected to the app, sending 1.5 billion total messages. Moreover, the company is doing something many tech startups find challenging to do — monetize its customers. 95,000 users pay for the service, including major companies.

Not all product pivots need to be as drastic as this one. Sometimes you will find out that a single feature of your product is merely the main reason why your customers use your product. Simplifying things, and making that feature into a product on its own might be the way to go.

If you’re trying to figure out whether to pivot your product or not, ask yourself these questions first:

● Is one part of my product or feature stickier than the others? Why?
● Which product features correlate most highly with long-term retention?
● Where are people spending the most time in my app?

Problem Pivot

What if early customer feedback indicates that the problem you’ve solved is not very important to them or that the money isn’t available to buy. This requires repositioning, or an entirely new product-problem worth solving.

What if early customer feedback indicates that the problem you’ve solved is not very important to them or that the money isn’t available to buy. This requires repositioning, or an entirely new product-problem worth solving.
In a customer problem pivot, we try to solve a different problem for the same customer segment. This is usually an exciting kind of change. When you are doing intense customer development, the problem team can attain a high level of empathy with potential customers. If the results of that exercise is a realization that customers have a different problem that our solution doesn’t address, and that the new challenge is a more promising venture — it’s time to pivot.

Starbucks example

Many of today’s most successful brands are still here thanks to a necessary pivot that happened at some point in time. Take Starbucks, for example. It may be hard to imagine, but when the now ubiquitous coffee chain was founded in 1971 in Seattle, it did not sell cups of coffee at all.

The only brewed coffee a customer could be lucky enough to enjoy there at that time would be, perhaps, a free sample. After the company was sold to now CEO Howard Schultz in 1987, it was time for Starbucks to start brewing up a significant pivot and a whole lot of coffee. With Schultz’s vision, Starbucks pivoted to become a coffeehouse, not just a retailer of supplies.

The product a business sells is far more than just specific goods or services that the business may promote. In fact, the product that consumers buy from a company is the total of the goods they collect + the services they receive + the perceived benefits that they enjoy, which together equals the total product approach.

While coffee is an important part of the total product that Starbucks sells, there are a great many more aspects of their product offer than just the coffee alone. In other words, ‘going for a coffee at Starbucks’ means much more than just satisfying a thirst or caffeine need. Starbucks has done what all other major global chains have done in the pursuit of profit, in that they only deliver adequate goods (coffee) while choosing to excel at services and in promoting their highly-valued/low-cost intangible benefits.

Starbucks realized that the need for coffee users is more than just the end product.

To figure out if it’s time for a problem pivot ask yourself these questions:

• Is the problem I’m solving really a problem?
• What other problems are my customers facing?

Customer Pivot

When people need recommendations for a good doctor or a good movie rental, they ask their friends. Jeremy Stoppelman started a company called Yelp and asked millions.

Along with co-founder Russell Simmons, the company began in 2004 as an automated system for emailing recommendation requests to friends. Although the duo received $1 million in funding from PayPal co-founder Max Levchin, the idea fell flat with their audience.

However, users viewed the system in a way they hadn’t expected: by writing reviews on local businesses just for fun. They decided to change course, capitalizing on the new “blue ocean strategy” of online reviews for local businesses. Today, the original “Friendster Yellow Pages”, with 17 million reviews online, has over 50 million users per month.

Maybe you have the right product and business model but discovered that your current customer base isn’t lucrative enough to support the business. If that’s the case, you have to figure out if there are other customers worth pursuing.

It doesn’t have to be that you don’t have the customers. Your product may attract real customers, but not the ones in the original vision. In other words, it solves a real problem, but needs to be positioned as a more appreciative segment, and optimized for that segment.

Early on in your business, it’s especially important to focus on who’s willing to spend money on your product. But what do you do when you find out there’s a more pressing, more urgent problem your paying customers have, that needs to be solved first?

To figure out whether to pivot around your target customer, ask yourself these questions:

• Who are your highest-LTV customers? For what do they use your product?
• What might customers use your product for that they aren’t using it now? What’s their LTV?

When to pivot your business model?

Internal and external factors are the two main reasons for which a company could benefit from a pivot.

The inside changes for a startup can be staff turnover, lethargy and lack of performance. The occasional staff changes are reasonable. However, losing key individuals has the potential to devastate the startup. This requires an immediate action to prevent additional losses. Lethargy can slow down the capability of a company to work. It requires twice the effort to reach previously met goals. As for the lack of performance, there is always a “good” reason why things didn’t turn out as expected. If you have more excuses than products, you are in trouble.

Outside forces that can affect a startup are market changes, investor turnover, and customer needs. Don’t wait for the market to fit the product. The product or service has to respond to the market, not the other way around. Another indicator of a need to pivot is a high turnover of investors. A sudden exodus of investors indicates there is a problem lurking within the startup. Finally, your focus has to be on customer needs. As they shift, the startup must be willing to pivot. Your goal is to continue to accommodate the client.

Staying on the course or change direction?

Think it was hard to create your initial business plan? Maybe it’s time for a change in your startup.

Like everything in life, businesses continuously evolve. Change can be scary but at times necessary. This way, you can create a Plan B that will be sustainable and profitable. And it can be even better than your first plan. As you can see in our examples above. An excellent Plan B is always your best Plan A.

Look at a business pivot as your second chance. You can change things in your favor. Without extra effort, use all the hard work you have already done. Pivot will not be so far off base. You don’t need to change the whole concept of your business. Rather get on track. Get your startup back in good position. Also, prepare for development and profit.

Business pivots are responsible for some of the most successful businesses. This iterative approach focuses on fast go-to-market strategies, customer development and maximizes learning.

When it comes to learning, try not to get lost in all the metrics.

Metrics: Good for feeling Awesome, Bad for Action

Is the phrase “What gets measured, gets managed” the first thing you think about while managing your business and grow your customer base?

If it is, that means you are ready to become truly data-driven. And it probably means that you read Peter Drucker one time too many.

While all business owners now know that they must measure their results to understand how effective their marketing efforts are, too many of them use wrong metrics. The first thing a first-time entrepreneur who wants to measure his company success does is to download a template or find a SaaS tool that is going to show him how his business stands.

I am guilty of this too. We probably all are. It’s the most natural thing to do, and it gives you more certainty and a feeling you know where you are going.

However, your path is probably wrong as you are now really close to falling into the trap of your vanity.

One million downloads, one million registered users, one million tweets per day. These growth metrics can often be signs of traction, and we all love to see them. However, are they actionable? What can you do with them? Even if you think about your MRR (Monthly Recurring Revenue) — are you going to make business decisions based on just that?

Sure. You want more money. That is the end goal. However, revenue is not the metric you should be looking for.

Let’s say you have 10,000 “hits” to your website. Now, what? Do you know what actions you took in the past that drove those visitors to you? Do you know which steps you should take next?

The Theory of The 3 Whys

You would be amazed at how powerful and decisive a simple question “Why?” can be. In Aristotelian philosophy, the word ‘cause’ is used to mean ‘explanation’ or ‘answer to a Why question.’ It’s an important realization that we all need to go a few layers deeper before doing important things.

Whether it is building a product, adding a new feature, hiring new people, or having a tough conversation with a loved one, etc.

Let’s try asking ourselves three Whys in a row about our revenue.

1. What is the cause of our revenue? Let’s say it’s the number of sales.
2. What are these sales caused by? Let’s say the active usage of our product causes them.
3. What causes active product usage? Let’s say it’s the high success rate of your primary feature.

So let’s primarily measure the success rate of this feature and stop worrying about revenue. Our revenue should be known. We should not be surprised when we find out how much money we have, but let’s not act upon income but find out what is causing it.

Measure What Matters

It is essential for a startup to properly instrument the data they track so that they can get a handle on the real health of their business. So, the only metrics that entrepreneurs should invest energy in collecting are the ones that help them make decisions.

The number of your visitors, subscribers, and followers is often meaningless. Track only metrics that genuinely aligned with your goals.

When you measure things, you want to measure things you can test, improve, and simplify to build the company’s business. Driving more page views without noticing the high bounce rate doesn’t do that. Neither does having 10,000 followers — none of whom like, comment or share your content.

You Don’t Fool Me

So, you may have many followers, high page views, or an excellent follower ratio, and still be ineffective when it comes to social media marketing.

Unfortunately, you won’t be able to discover the underlying issues that need to be addressed if you’re focusing your attention on the wrong information.

It’s tempting to think that because having metrics is good, having more metrics is better. That’s why vendors routinely list the thousands of ‘especially relevant’ reports they are capable of generating as a feature.

The truth is, the key to actionable metrics is having as few as possible.

Detailed reports are useful when we’ve diagnosed a problem and are looking for clues as to what’s gone wrong. Where does that diagnosis come from in the first place?

Actionable metrics help us realize we have a problem and point us in the right direction to start solving it.

The vanity metrics aren’t completely useless, just don’t let them fool you!

Metrics that do matter!

Therefore, these are some of the metrics that can typically matter to you as you progress through each stage of company maturity:

• Early Days — traffic, followers, subscribers, reviews, social media shares;
• Growth and Retention — the number of sales, revenue, conversion rate, time on site, customer satisfaction;
• Fully Grown — profit, retention length, churn rate, revenue per customer, costs of goods sold, impact…

Metrics used by European startups

So, what is a Key Performance Indicator (KPI) that most of the startups in Europe use to measure achieving their key business objectives? What are the relevant metrics for them? Significant research was carried out by European Startup Monitor in 2016 to find out what are the critical KPIs for startups.

They discovered three important indicators:

• revenue growth,
• profitability,
• and position relative to competitors.

To ensure sustainable growth, startups need more formal (financial and non-financial) control mechanisms — such as KPIs.

Almost 88% of all startups agree that revenue growth is essential to them, but only one-third is satisfied with their revenue growth. The happiest were French startups, followed by Swiss and Cyprian companies. The Least satisfied with their revenue growth were startups from Poland and Spain — only 8% of them.

A slightly lower share, with approximately 78% of startups in Europe, wholeheartedly agreed that profitability is essential to them, but only 27% satisfied with this KPI. Concerning their profitability, the most contented startups were from France and Italy, whereas the least satisfied were from Spain and Greece.

In general, the picture becomes more favorable when looking at respondents’ satisfaction with their positions relative to competitors. This seems to be similarly significant, with 74% of startups. More than half were often satisfied with their position relative to competitors. The most contented companies in this category are located in the United Kingdom, Finland, and Switzerland. The least pleased startups came from Spain and Poland.

Maximize learning to avoid vanity metrics

The best way to avoid vanity metrics is to maximize your learning. It is important to know that there is no knowledge out of these metrics. You can’t use them to improve your business. If you maximize learning, you will not only avoid vanity metrics but also minimize your time to market.

Entrepreneurs often start building early versions of their products and services. They don’t realize that the build phase is optimized for learning. The goal early on is to create the most knowledge as quickly and efficiently as possible.

The basic idea is to maximize validated learning for the least amount of effort. Like Eric Ries said: “The only way to win is to learn faster than anyone else.” Moreover, we doubtless agree with that.

Conclusion

Startups that focus on the real metrics can make their products better, attract more customers, and make them happier. Keep an eye on the target. Set your goals early. Execute based on meaningful and actionable data.

This will earn you money and save you time.

What are the metrics that you find most useful? Feel free to share your stories of actionable metrics and how you track them. If there are useful tools that you have used, let us know.

Also, did you pivot your business? If not, we hope we have clarified this process for you. If you have already changed your business model — we are looking forward to hearing about your experience in the comments section below.