I can easily picture the scene. A conference room filled with top executives are digesting the message from the CEO. He wants VW to be the #1 auto manufacturer in the world by 2018, which cannot be done without breaking into the hyper-competitive and well served North American market. The question for the executives is what can be done to differentiate the brand and attract customers to the showrooms.
The marketing guy hits on an idea, the American is saturated in everything except diesel vehicles, an area where VW already excels in. The engineering head expresses concerns, the American emissions standards are very strict. Meeting them would negate the performance benefits. But then he remembers one of his engineers boasting that they could tell if a test was done on the road vs in the lab based on sensor data alone. It was gamble, but a plan was quickly hatched to put in the hack to test if there was a viable market for selling diesel passenger vehicles in the USA.
The parable above is pure fiction. I have no association with VW beyond being an owner of one of their gasoline powered vehicles. Fictitious as the board meeting may be, VW’s real world sales strategy focused heavily on the diesel powered vehicles, responsible for 70% of the market for diesel passenger vehicles and 16% of of VW’s sales. Of course, a group of researchers discovered the discrepancy, the EPA found out about it, and VW is in turmoil, facing fines and litigation across the world.
The problem for VW is that the MVP was a bedrock product without becoming a Truly Viable Product (TVP).
A critical lesson in building a company is understanding that MVP’s (Minimal Viable Products) are experiments and not sustainable long term initiatives.The diesel engines in my hypothetical situation were an MVP. It was the least that could be done to satisfy the two requirements of providing great fuel economy and passing the emissions test. The problem for VW is that the MVP was a bedrock product without becoming a Truly Viable Product (TVP). Instead of selling a few thousand vehicles to understand the market and prove it exists, VW sold a half million in the US and 11 million world wide.
An startup that fails to transform its MVP into a TVP risks excessive burn and stalled growth. Long term burn is nothing more than the difference in cost between acquiring and servicing customers and the total lifetime value of those customers. MVP’s require shortcuts and efficiency trade-offs in order to reach the market at a lower initial cost. The code is not built to scale, billing is reconciled by hand, the automated marketing emails are actually a person copy-and-pasting into Gmail. This works great when you have 10 customers, but is an unmanageable mess when you have 1000’s. The end result is an overly large headcount, invoices that remain unpaid, customers that get lost, and an engineering team that needs every available body to man the fire hoses. It means frustrated auditors and a stagnant product; don’t ask for whom the bell tolls, it tolls for you.
If the MVP fails to gain traction, it needs to be killed. If it validates the market assumptions and gains traction, it needs to be replaced with a solution that can fulfill the needs of the market efficiently.
Success requires a commitment to doing one of two things to an MVP. If the MVP fails to gain traction, it needs to be killed. If it validates the market assumptions and gains traction, it needs to be replaced with a solution that can fulfill the needs of the market efficiently. While this sounds like common sense, no company finds an easy time dedicating resources to reworking a success when those resources could be used to discover the next big thing. VW released SUVs, crossovers, and premium sedans before releasing an updated engine. The lure of market expansion is very powerful.
Unfortunately for VW and nascent startups alike is all bills must come due. VW provided 11 million chances to discover its fraud, eventually it was going to become known. Likewise, investors will eventually tire of infusing capital into a company that does not provide a return. The lesson from VW is that MVP’s have an inherent expiry date. The failure to respect that will lead to very hard times for your company.
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