II.The Build-Measure-Learn cycle
There are two main ways to develop a product:
- The traditional approach where years are spent in the lab developing a product that looks great on paper – often with cool innovative technologies. However, what often gets built this way is a great product that doesn’t actually appeal to customers.
- The modern “startup way” where a company puts the product on the market as soon as it has the basic functionalities in place to collect feedback and iterate. Especially with software products and services, product development continues even after the product has been officially released.
This second approach is much more in line with what Eric Ries calls the "build-measure-learn cycle", which replaces the traditional (and long) product development path. This process follows three steps:
- Build a Minimum Viable Product (MVP)
- Collect feedback on the MVP by exposing it to potential customers
- Iterate the product based on the feedback (not only verbal feedback, but how they behave – for example, buying your product)
Initially, you develop an early version of the product – an MVP – with just enough features to begin testing its market potential. The product is then given out to customers to test the following: Do people use it? Will they keep using it? Do they spend money on it?
Once the MVP version of the product has been tested, it can be further developed based on the test results and feedback. This process is important in the early stages of a startup but it should continue through the entire lifecycle of the company.
An example of build-measure-learn
The first round of a normal software startup’s build-measure-learn cycle could look something like this:
- After validating the idea with potential customers, the startup develops a simple MVP using no-code tools or a minimal amount of coding that has a couple of key functionalities valued by the customer (BUILD)
- They ship the MVP to those potential customers they’ve interviewed and collect feedback about the solution (MEASURE)
- The feedback from customers reveals that only some of the proposed functionalities provide any value, and that more emphasis should be put on those features (LEARN)
- Using the feedback, they now proceed to code the core functionalities and develop them further while leaving the useless features out (BUILD)
The Minimum Viable Product
A Minimum Viable Product (MVP) is the very first version of the actual product: it has the basic functionalities and is already able to deliver limited value to the end customer. The MVP should be as simple as possible, and only contain the bare minimum of working features and core functionalities to serve as a first touchpoint for potential customers. An MVP validates whether the product can solve a customer problem and deliver value to the market, often through a pilot, which we will talk more about in Chapter 5.
In one of the most popular startup books of all time, The Lean Startup, a few practical examples of different types of MVPs are proposed:
1) The Concierge MVP
Here the idea is to serve only one customer to demonstrate what your product or service will be like. Everything is done manually, meaning this approach is not scalable, but the goal is to show that the service is useful. In general, something useful to do in the beginning is “to do things that don’t scale”. If the real product is relatively straightforward to create, you can in the beginning test how customers see the value of your product by doing the solution manually.
Example: The CEO of Food on the Table visited one customer in person, talked with her, and then created (and delivered) customized recipes in person. This helped Food on the Table to acquire feedback and learn what worked and what didn’t before creating the actual service.
2) The Wizard of Oz MVP
In this MVP, there’s “someone behind the curtain” making it seem like technology is at work. But in reality, a person (or people) are doing everything manually. This is different from the Concierge MVP as there is a facade of a working technology product.
Example: Zappos.com began with an online storefront – but when a customer bought a pair of shoes, there were no supply chains or warehouses. The CEO went and bought the shoes in a store and mailed them to the customer. Again, though this approach was not scalable, it proved that the idea worked: people would buy shoes online if they were able to try them on and send them back, risk free.
3) Other Types of MVP
“Other” - a catch-all term for whatever kind of MVP a person can invent. E.g. creating a product that works (also operationally) like the intended complete product but just with the most critical features. There is now right or wrong way creating an MVP and you can be creative with it, just make sure that it delivers value to customers and is done in the simplest possible way.
Measuring the MVP
The second part of the build-measure-learn cycle is to measure the MVP by exposing it to potential customers and collecting feedback to determine how the product should develop.
Who you choose to test your MVP on will affect the usefulness and relevance of their feedback. In addition to the product’s regular users, consider testing extreme users as well – those who are likely to use the product significantly more than regular users, and those who wouldn’t be likely to use it at all. This will help you to get a new perspective on your product, as the heavy users and non-users are likely to be more vocal and opinionated regarding what works and what doesn’t.
To test your MVP, you always need a hypothesis, and you need to provide a framework and gently guide the customer to test it. One way to think about feedback gathering is to use the so-called Kano-model, that separates the features and functionalities into three categories:
- Basic: These are the features that the customer requires and takes for granted. The MVP’s task is to prove their viability.
- Performance: Additional features and requirements that customers think about and are in the back of their minds when evaluating options. Their value grows linearly – the more you have, the better your product is.
- Excitement: Unexpected features and functionalities the customer may not think about, but which are the innovations that ultimately separate your product from others.
Another way to guide feedback gathering is to categorize the features into six key attributes known as “FURPSS”:
In many business-to-consumer (B2C) products, for example social platforms, mobile applications, or games, a key metric is user retention – in other words, how well does the product hold on to its user base? While testing their product, these companies will often “soft launch” the MVP version by publishing it for a small number of users in markets where the cost of acquiring customers is low. The purpose of a soft launch is to collect data on user behavior that will allow the product to be improved.
This approach is especially popular with so-called “freemium” or free trial products where the startup’s aim is to first get the user to spend as much time as possible on the product (retention) and only then convert them to a paying user (conversion). After various experiments and adjustments to the product’s features and settings, the product is then tested again. If the retention increases, the changes are retained. If not, the changes will be discarded and reverted to the original version. This will help get real-time feedback on the development process.
Retention is calculated using a simple formula: for any given day, retention is based on the percentage of users who have signed up to use the product. So for example, if a hundred people signed up on Monday and there are fifty users on Tuesday, the D1 retention, or first-day user retention, is 50%. On the following Monday, if there are ten remaining users who signed up for the product a week earlier, D7 retention is 10%. And so on.
A common rule of thumb for a hit product is the 40/20/10 rule. In other words, the product should be able to hold 40% of users on the first day, 20% after a week and 10% after a month. Long-term retention in particular is a very demanding challenge for B2C products.
Iterating the idea
The third and final part of the build-measure-learn cycle is to iterate the product based on the data and feedback that you’ve measured.
According to The Lean Startup, iteration is when you need to turn the data you’ve gathered (the “measure” part) into actual changes to your product. This is when you need to decide if your project should “persevere” (continue to develop along the same lines the product has now) or “pivot” (change some or all aspects of the product strategy).
To do this, you need to analyze the data received and focus on what is relevant in the feedback that will help you to create a product that is actually desired by customers. You also need to decide if the changes needed are sustainable – in other words, can you maintain the level of service or produce the new product.
If the feedback for the product is generally okay, you probably will still change or add something based on feedback to make the solution better, which is normal product development. After this, you continue with the improved product and test it with same and new potential customers. Sometimes user data shows that it’s not worth developing the product as is, but you should go back to the drawing board and build a completely new product. This is called a pivot, and is a typical transition in the startup world. A pivot means that a startup transfers its resources to a whole new product or to a new customer group. Doing this is not an easy task – but is vital if your startup is to have the best chance to succeed. Remember you should not love your product, love the problem.
When building a startup, it might be difficult to determine what task to work on next and which activities you should focus on. It is fairly easy for founders to lose focus and end up spending time on things that don’t actually help their startup move forward.
An important thing to keep in mind is that all of the time you put into your startup should be spent on activities that provide real value for your (potential) customers. At this point in your startup’s journey, these activities should be closely related to only two things:
- Talking to people who use the product or service
- Building and iterating your product
Successful products often have the ability to create a new habit in the user. Nir Eyal, famously known for the best-selling book, Hooked, presents a simple circle to explain how this new habit can be formed. The first is the input, for example a beep from the phone. This will result in an action, such as checking your Facebook feed. The app must be able to reward your action. In the case of Facebook, this means that a red ball appears on the feed – which shows that someone has remembered you.
It’s also essential that there is variability in the rewards so that the user does not get tired of doing it. In social media, this diversity is built into the product because users are constantly producing content. In the gaming industry, one of the most common mechanisms is “loot boxes”, or bundles of rewards that contain a variety of random prizes. Ultimately, the result is a commitment to the product – where users are actively waiting for a new reward. The product is designed so that it rewards a player with activities that matter to them, ultimately forming an emotional bond.
Creating new habits is not only essential in social media services. Creating new habits and educating consumers is vital for new products and other services as well. If you are for example introducing more sustainable fibers for clothes, you need to educate your consumer about the benefits and create a habit for them to always check what fabrics clothes are made from when they enter a store and choosing the more sustainable version. The same applies to new foods – if you’re introducing something like edible insects, you’ve got to create a lot of new habits in order to get consumers to buy your product on a daily basis.
Perhaps in today's world, especially in the software market, instead of an MVP it might be worthwhile to aim to create what’s been called a "Minimum Lovable Product". In extremely competitive fields, the core functionality of the product alone is not enough, what really succeeds are products that are so tangible and valuable that their users feel ultimately attached to them and want to come back.
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