MSG Team's other articles

8953 Direct Public Offerings: Threat to Investment Banking

The costs of issuing an initial public offer can be prohibitive. There are many companies across the world that want to access finances from the general public but cannot do so because they find the costs prohibitive. Hence, in order to bypass the floatation costs, these companies decide to go public without taking the help […]

12619 Capital Adequacy Ratio – Meaning and its Importance

Banks in the modern world face an inherent risk of insolvency. Since the banks are so highly leveraged, there could be a run on the bank any moment if their reserves are considered to be inadequate by the market. Hence, banks must maintain adequate capital in their vaults if they want to survive. However, what […]

12666 Cash Flow to Debt Ratio – Meaning, Formula, Assumptions and Interpretation

Formula Cash Flow to Debt Ratio = Operating Cash Flow/Total Debt Meaning The cash flow to debt ratio tells investors how much cash flow the company generated from its regular operating activities compared to the total debt it has. For instance if the ratio is 0.25, then the operating cash flow was one fourth of […]

9339 Financial Modelling for Insurance Companies

Financial strategy is at the heart of the business of any insurance company. This is because insurance companies need to deploy their funds in a manner which allows them to gain maximum returns. However, the nature of claims being faced by insurance companies is uncertain. As a result, every insurance company is supposed to have […]

12265 Advantages and Disadvantages of Currency Pegs

Advantages of Currency Pegs Currency pegs have become extremely popular in the post Bretton Woods monetary world. About one fourth of all countries in the world today have pegged their currencies to some other major currency like the dollar or the euro. This strategy has bankrupted certain nations like Argentina whereas it has caused other […]

Search with tags

  • No tags available.

We have already learned about the technique of proof of concept in the previous article. However, proof of concept isn’t the only technique that is used by entrepreneurs. There are other techniques that are frequently used as well. Minimum viable product is one of those techniques which is widely used by several entrepreneurs. In this article, we will closely examine the minimum viable product technique as well as the various benefits that it offers.

What is Minimum Viable Product?

The concept of a minimum viable product is closely related to proof of concept. However, it is still significantly different. A minimum viable product is a particular version of the product which has maximum utility for the end consumers.

Hence, in order to undertake a minimum viable product exercise, an entrepreneur has to create various versions of their product. They can vary the availability of different features in different products. The end result is to find the specific combination of features that provides the maximum utility to the end consumer per unit of cost.

The objective of the minimum viable product is to reduce the wastage of expenses. Sometimes, entrepreneurs and startups spend a lot of time and money in building features that provide very little utility to the end consumer. The objective of the exercise is to find out the minimum combination of features that must be present in a product for it to be considered viable.

It is important to note that the minimum viable product is different from proof of concept because a tangible product already exists in this case. Also, such a product is available to a wider audience even though it may not be sold commercially. Obtaining the correct combination of features in the minimum viable product is often an iterative process. Entrepreneurs keep repeating this process till they achieve the desired outcome.

Benefits of Minimum Viable Product

As mentioned above, the minimum viable product is often an iterative process. This means that the expenses involved in the process can be much larger than the proof of concept. However, entrepreneurs are still willing to undertake this process because of the following benefits that it offers:

  • The minimum viable product concept is based on the age-old adage that a stitch in time saves nine. This is because a minimum viable product design takes much fewer resources as compared to a full-fledged product. Hence, using several different designs, entrepreneurs can obtain feedback about the degree of market acceptance that the product can expect. This can be done at a significantly lower cost as compared to a product launch.

  • The minimum viable product development is an iterative and gradual process. Hence, entrepreneurs can use the increasing degree of confidence to raise more money from investors. This additional money can then be used to add additional features to a product.

    Minimum Viable Product

  • The minimum viable product experiment can be self-funding to some extent. This is because, at the end of the exercise, the company is able to develop a complete product that is capable of being sold in the market. Many companies do sell these products on the market. Not only does this help them recoup the underlying costs, but also provides validation that customers are willing to buy this product at a certain price point.

  • The minimum viable product exercise significantly increases the probability of obtaining more investor funds. This is because most investors are not interested in investing in products that do not have market approval. This is because many investors have lost money on products that appeared to have a significant market appeal on paper but didn’t gain much traction in reality.

    The minimum viable product validates much more than technical capability. It validates the design of the product and the fact that it has a certain degree of market demand at a certain price point.

  • The proforma financial statements which are created by entrepreneurs based on the minimum viable product exercise hold much more credibility in the eyes of the investors since they are based on actual market data rather than the investor’s assumptions.

Disadvantages of Minimum Viable Product Approach

The minimum viable product approach has one major disadvantage. Companies are often not able to find the correct focus group of customers which represent the target market. Even if customers are randomly chosen, there is a good chance that there may be some form of selection bias which may end up skewing the results of the exercise. This selection bias can cost the money a lot of companies and even some lost reputation.

The company may end up incurring expenses to develop a product that may not even represent the mass market. Hence, it can be said that the end result of the minimum viable product is only as good as the sample selection.

Also, the minimum viable product is not able to replicate the subtle effects which products such as branding and packaging which can have a significant impact on sales and consumer preferences in the open market.

The minimum viable product is generally done after the proof of concept. It is done to finalize the specs of the product after the technology to create the different variations of the product has been validated at the proof-of-concept stage. In short, this is a technique that requires a significant amount of effort as well as expenses upfront but helps in avoiding significant problems down the road.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Convertible Notes and Startup Funding

MSG Team

Cash Burn Rate: The Basics

MSG Team