Conversations with a number of entrepreneurs in Austin and Atlanta this week got me focused on the concept of “MVP” – Minimally Viable Product.  In this era of lean startups, and particularly those that are mobile apps, this approach is often recommended.   “Just get something out the door fast and see if the dogs will eat the dog food.”  Then risk your capital, or your investors’ capital, when the dogs give you some proof along with the woof. (Sorry couldn’t help that.)

At the same time, I am familiar with several companies that have raised anywhere from $.5M to more than $10M and are looking for capital now to start generating meaningful revenue.   All of these are Consumer Internet related, although some have a B2B distribution aspect.  Why have they not followed the MVP model?  Here are some possible reasons:

They started too soon.  They also went down a few wrong paths, and are just now matching strategy to the market.  It has been possible to go through a lot of money in the last few years through trial and error while technologies and markets evolved at light speed.  I personally advised on one deal a couple of years ago that had a large legacy investment.  We came up with a product for the iPad, prior to its release, that built on the original idea but used none of the code.  In retrospect I think our timing was perfect and we had a product that would have been a winner.   But, the investor group was caught up in the real estate downturn and couldn’t carry the restructured company to the start line.  And, not surprisingly, new investors were very leery of following so much capital, no matter how sweet we made the deal.  The psychology of that backdrop proved impossible to overcome.

The team had ready access to capital.  That is a corollary to the preceding paragraph.  I don’t have a list of the first 10,000 investors who said: “too much money has killed many a good idea” – but they were all correct.  We saw this in spades in the 90’s, but there have been many cases since where projects got overfunded.  If the money is there, it will all get budgeted for something well beyond an MVP.

The idea is too broad.  There’s nothing wrong with an idea that has lots of moving parts and needs to be more fully developed to demonstrate its value to users, investors, and whomever is paying the freight.  Any one portion of the idea may lend itself to an MVP, but that tactic would also result in a minimally useful product.  It might achieve some early traction, but it would neither prove nor disprove the bigger idea, and it in fact might die a quick death.  (Tech writing style guides require the use of the term “traction” as often as possible.) I’ve seen cases of early traction and investor euphoria only to have the usage fall off as fast as it rose.  Sustainable traction, with a positive second derivative on its growth curve, is what is really desired.  Underbuilding to an MVP spec may make that goal unachievable.

The product handles money and/or customer data.  In today’s climate, one should take no chances on a product that can have tremendous operational risk if it botches transactions, leaks customer data, or is subject to fraud, hacking, or any other type of customer misbehavior.  You’re no doubt familiar with the recent well-publicized Airbnb case and maybe with the breach at high profile Zaarly.  If I’m going to use a product, I want it to be Maximally Secure.

So, what is my conclusion?  I think every startup idea has an “Optimally Viable Product” and should be built for that.   That may be an ultra-lean weekend coding binge, or it may be a few $Million at risk before all the market risk is tested.  Would you rather have a portfolio of 50 $100K deals or 5 $1M deals?  Apart from the obvious question of wrangling 50 individual deals, which portfolio has the most risk versus upside?  Those $100K deals are more susceptible to being knocked off quickly, but you’ve essentially bet on all the horses in the field and will have some winners and no bottomless pit losers.  The $1M deals go much farther out on the limb, but they may be much harder to catch when the race begins and should have the potential to generate some big gains.  It’s your personal call if you are the investor – part of what makes angel and early-stage venture so challenging.  

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