If you’re interested in startups/innovation, then you’ve probably heard of Minimal Viable Product (MVP). It is a great concept but is only part of the equation to creating a successful business. You need to be thinking about your viable business model (VBM) as early as possible. In theory, these two endeavours should align and overlap. In practice, too many Founders get carried away by the Product wave and the business model gets neglected.
This is understandable. Product work is fun and it feels like your idea is coming to life. We are also influenced by the fact that the the two most discussed topics for startups are product and fundraising. And the best advice on fundraising is to create a compelling narrative, which usually focuses on product.
“Imagine being able to order whatever food you fancy on your phone and have it delivered within 30 minutes” sounds a lot better than “we are going to hire an army of random people on bikes/scooters to deliver food. We’ll reduce costs by making them independent contractors and charge both sides of the marketplace.”
That said, plenty of great products have failed to gain traction. Many average or simple products have seen great success.
As many quick delivery providers have found, if you don’t nail the business model, then you won’t create a sustainable business.
The goal of VBM is to help you avoid this fate.
So, what is VBM
VBM is the process of identifying your business model. At its best, it is how your company earns money. In boom markets and certain sectors, it might be how you drive utilisation and engagement.
Start with your end customer and work back. This will help you determine if your business is Business to Business (B2B) or Business to Consumer (B2C) focused. It is worth noting that there are multiple variations on these, but this is a good starting point.
From here, you can map out your distribution channels and start to build your path to revenue. An example that I like to use is cloud storage providers Dropbox and Box. They provide the same product, but they took very different paths to distribution. Box focused on B2B- selling to startups at the beginning and then moving up the food chain to large enterprise. Dropbox focused followed a B2C/freemium model. They would increase your storage in the cloud for each referral you made. These were two very different approaches that built unicorns.
How is VBM different from MVP
I think of these as two estuaries that stem from the same river. They share 30-50% of the core, but they have an important divergence. MVP guides you to a better product. VBM guides you to revenue.
They will run in parallel and, at times, come back together. VBM should (almost) always take precedence over MVP (or a later version of product development). The reason is simple: VBM is a higher threshold. It uses revenue as the proxy for value. This means that your process starts with what is most valuable to the user/what makes it worth it for them to pay for the product and build from there.
This forces you to ask the second and third level questions rather than stopping at first level questions about usefulness that are very common in product development.
This should minimise the chances that you fall into feature overload. The reality for most products is that 20% of the feature provides 80% of the value to users. If you want to delight users, you’re better off making the 20% better than developing new features. The reality is that most people like working on new more than refining existing. This is especially true for Founders.
It is easy to waste resources on product. And unused (read: unsuccessful) product features frustrate the teams that worked on them. You want your teams laser focused on solving your customers' biggest problem(s). That' where the money is!
VBM puts you on the right path from the beginning.