Funding and the Minimum Viable Product (MVP)

There are only a handful of scenarios in the history of the U.S. that truly changed the way capital works: the Great Depression, Savings and Loan collapse in the ’80s, and the recent “great recession“, to name a few.  This latest financial catastrophe has reminded the world that you cannot throw your cash in a hole and expect a money tree to grow.  From the standpoint of the startup, this means that we can no longer take an unproven idea and expect to find investors lining up with offers of hundreds of thousands of dollars to help build something to test. You have to be more proactive now.

What’s beautiful about this so-called “problem” is that technology has advanced to a stage that, when combined with some simple principles, allows us to create functional products, with users, in order to prove and test the model before we go and seek substantial funding.  One of the most important principles revolves around the idea of a Minimum Viable Product, or MVP.  An MVP is something that is the absolute bare minimum of your grandiose idea that will allow you to get users, buyers, clients, etc. to see how they interact with your product.  The goal is to spend as little as humanly possible in order to begin getting user feedback (which may not come directly from the user, but from an embedded ‘analytic’ function) so that you can iterate, or change, your product/process as needed to make it better.  A great book titled “The Lean Startup” by Eric Ries is a must read regarding the basics of the MVP.

There are numerous resources that exist to help you with your MVP.  For example; if you intend to create a mobile app, try POP: Prototyping on Paper.  POP will allow you to manually draw out your vision, with pen and paper, then upload images of the drawings and add functional buttons that link to other pages and features.  In a very simple few steps, you can create the basic look and feel of your app as you click through to various pages and interfaces.  With the back-end skeleton frame work complete, you will be much more able to get the front end programmed to your MVP vision.

After you have launched your MVP and have some users and data, then you use that extremely valuable information to seek funding.  You’ve now mitigated some of the risk to potential investors and proven the basics of the business model, the result of which is that you will get more investment while giving up less equity.

About adamcallinan

Adam Callinan is a founding partner of Beachwood Ventures, a Los Angeles based early stage Venture Capital firm that excels where technology and entertainment intersect. As an entrepreneur, Adam spent nearly a decade building small businesses in and around technology, medical devices and consumer products, which most recently includes an exit in 2013. Adam lives in Manhattan Beach with his wife Katie and remains active as a founder of BottleKeeper.

Posted on June 7, 2013, in Strategy and tagged , , , , , , , , , . Bookmark the permalink. 6 Comments.

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