MVP, Functional or Non-functional? The Early-Stage Startup Dilemma
If you are deciding how to create your MVP there is an initial question you must ask yourself:
Should I make a Functional OR Non-functional MVP?
The answer is not always easy. Most startups jump in right away to develop the product. However, there are some outliers with MVPs totally outside the box, representing an alternative that should be considered. I’ve already accompanied over 100 startups through Altar.io during this decision. In this post I’m sharing the rational I usually bring to help you make this decision.
Dropbox & Similar Successes
Everyone talks about Dropbox and other success cases that tested their market’s appetite with an MVP that was not a fully functional product. Instead, these startups created a video & landing page, with a few thousand dollars in advertising. That is an extremely clever move. Warning: It only works in very specific scenarios.
Try to go Viral!
Of course, you might also consider viral marketing. With this option, however, the HR budget is high (good growth hackers are expensive). Also, you cannot make forecasts on the outcome because it is impossible to predict the success of a viral campaign.
It could run perfectly and after 2 months you have your 10k subscribers. Alternatively, it could be a flop and after 2 months you have:
- 500 subscribers
- Less money in your account
- 2 months less in your year
- 40% less energy in your drive deposit.
Be Rational
Sure your goal is the same, either you go one way or the other. You want to generate metrics to gather validation, attention, talent and investors. There are infinite hypotheses. But the only way to be pragmatic between the several options is focusing on a structured rationale always having your Value Proposition in mind.
The “video + a landing page + marketing” route is easier to predict — so let’s theorize it. The point of making a non-functional MVP is gathering interesting metrics to then make the real investment — and/or potentially raise money to implement it and go-to-market. Let’s consider a very simple and humble goal for this non-functional MVP exercise: 10k Subscribers.
Elementary (but meaningful) Calculations
So let’s reason on the cost and time to get early validation through a standard Non-functional MVP: Video + Website + Ads + Little Virality.
To make a proper quality video it will take ~10k USD. Videos that cost two thousand USD are sh*t. If you pay with peanuts you’ll get monkeys. This quality consideration is not about the animation, but more about the quality and efficiency of the communication rationale. If we are talking about a filmed one let’s consider ~30k USD onwards, with time from briefing to the final product somewhere between 1 and 3 months.
A proper website (Single Page) to gather metrics and subscribers could be very affordable, around 2k in the simplest version and around 10k with some marketing automation to better convert the leads.
In terms of marketing on display advertising? If it is a very well run campaign (good video and conversion website) you’ll have a conversion close to x% and the cost-per-click will depend on the sector, but considering the average or median cost-per-click, we start at y.
It is extremely hard to forecast a number for “Viral K” (virality factor), but let’s consider in this exercise: Each user acquired with paid marketing is bringing 4 users, so Viral K = 4.
The Calculations (with acceptable numbers):
With $1 CPC and 15% conversion we’ll have a cost per acquisition close to 1.33$ (CPA = 1$ / 15%). To get to 10k subscribers, it is a simple multiplication: 10k * 1.33$ = 13.3K. Now we add the video and website and we’ve got a minimum total of ~25K and with Cartoon and a maximum of ~45K with live video.
VS Functional MVP:
To help you get a time and cost for the functional MVP, from our experience with over 100 startups, close to 80% of the cases, a proper functional MVP (implemented with high standards) can be implemented in a ~3 months project with a budget ~30k USD.
Conclusion
Now your final consideration is comparing the effort and output of building a functional MVP vs building a non-functional MVP (compare the time x costs/output).
Remember with a functional MVP, you are actually talking about real conversion, real retention and real cost per acquisition, not forecasts based on shown appetite. I’m also sure your investor’s appetite is much higher with real KPIs, even if the total numbers are low but with a promising conversion and sustainable cost structure.
Let me leave you with this example. Say I am an investor and you:
- Come to me saying you have 10K users that submitted a form saying they are interested in your project
OR
- Come to me stating you have 100 retained, paying users as a result of your MVP/early concept validation.
Option 2 will immediately grab my attention, pique my interest and you will leave me hungry to learn more.
And By The Way,
I’m the Co-Founder of Altar.io & 10kstartup - a team of experienced second-time founders & world-class developers and product talents based in London and Lisbon. We help startups and corporates to build great tech products.
If you have a brilliant idea that you want to bring to life — drop me a few lines in a private message and let’s chat!
Thanks for reading,
Daniel
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