Lean Startup Tradeoffs

by Sarah Elliot

The primary objective for most entrepreneurs is to create a product that customers want and are willing to pay for. The process by which this objective is reached often requires frequent product iterations and customer interactions. It is through this process that the entrepreneur identifies which aspects of the product vision are incommensurate with the wants and needs of the customer. Closing the communication gap with the customer is critical to the success of a venture. However, there are real and substantial consequences to exposing a customer to a product that isn’t “right”. Therefore, there seems to be an inherent tension between getting the product “right” and getting the product out the door and into the hands of customer. So the question remains,

When does it make sense to launch early with a buggy product, and when is it important to perfect the product?

The answer to this question varies and is contingent upon several contextual factors such as the nature of the product, the degree of exposure, and the core objectives of the entrepreneur. Entrepreneurs that face this question should approach this decision by asking themselves: (1) What is the minimal viable product necessary to reach my core objectives?; (2) What are the trade-offs between launching now and iterating further?; and (3) Who bears the brunt of the risk of failure --the entrepreneur or the customer?

1. What is the minimal viable product necessary to reach core objectives?

One of the core components of Eric Ries’ lean start-up methodology (http://theleanstartup.com/) is the concept of the minimal viable product (MVP). At its most basic level, the MVP is the minimum product and associated feature-set that enables an entrepreneur to validate/test her core hypothesis regarding product/market fit. The MVP process begins with a clearly defined hypothesis about the customer pain-point (problem) and product vision (solution). The next step in the MVP process is to test this hypothesis through the design and execution of a barebones “experiment” whose results demonstrate cause-and-effect relationships. The MVP methodology suggests that a product should be launched upon the creation of the absolute minimum product (or experiment). It is important to highlight that the MVP doesn’t need to be a proprietary product. The objective of the MVP is to quickly validate the core hypothesis; therefore, the use of pre-packaged solutions is ideal if it allows you to quickly and efficiently collect valuable information about the customer and your hypothesis.

As we saw in the case of Cake Financials, Steven Carpenter created a web-based solution that addressed his hypothesis of the customer pain-points: (1) a lack of transparency; (2) distrust of advisors; and (3) complex investment offerings. He believed that his solution would address these concerns by (1) aggregating financial information; (2) comparing portfolios; and (3) automating the buy/sell process. Steve and his team invested a considerable amount of time and resources building out the back-end of his product at the expense of rapid MVP tests. Had he taken an MVP approach, rather than perfecting the product in the absence of reliable customer feedback, he would have learned that his hypothesis was incorrect much sooner – a realization that could have saved his company.

2. What are the trade-offs between launching now and iterating further?

When evaluating the trade-offs between launching an imperfect product now vs. launching a more perfect product later, a two factors should be considered. First, the degree of exposure should be considered. A PR induced broad product launch will magnify the reputational risks associated with product imperfections. One key prescriptive of the MVP method is the use of early adopters as the core test group. The rationale being that early adopters are more likely to be forgiving in the event that the product isn’t quite right. One critical question to ask is, “With whom should I launch this product?” Second, one should consider contextual factors when deciding when to launch. In the case of ScoreBig (Ent Fin), Adam Kanner, made the conscious decision to wait and perfect his product for nearly two years before launch. In his case, he felt that the key stakeholders (sport and media executives) would be reluctant to supply him with ticket inventory (core element of b-model) in the absence of a nearly perfect algorithm and an aesthetically appealing front-end. While he presumably could have tested his hypothesis with an MVP approach much sooner, contextual factors prohibited him from doing so.

3. Who bears the brunt of the risk of failure --the entrepreneur or the customer?

One final consideration when deciding when to launch is the degree of risk shared by the customer. If the launch of an imperfect product exposes the customer to the brunt of the risk, think twice. Integrity must be upheld in all stages of the product development process as trust is not easily restored once broken. If the product could expose a customer to harm (i.e. exposing confidential information or jeopardizing physical safety), keep iterating! The additional information you receive is not worth the risk and the reputational damage is irreversible.

In conclusion, as an entrepreneur, every interaction with the customer is an opportunity to learn important information that ultimately drives product development. Like the time value of money theory, information today is better than information in the future. Entrepreneurs should air on the side of quick iterations to capture information as quickly and efficiently as possible. However, it is important to understand that there are consequences to “getting it wrong”, and entrepreneurs should be mindful of the impact of a failed attempt. While failure is unavoidable, entrepreneurs can adopt key risk mitigation strategies to increase the risk/reward ratio.