How to Measure the MVP of Your Digital Venture
The Build-Measure-Learn framework in “The Lean Startup” provides a feedback loop for establishing how viable your venture is as quickly as possible.
The Build-Measure-Learn framework outlined in “The Lean Startup” provides a powerful feedback loop for establishing how viable your digital venture is as quickly and cheaply as possible. However, many companies fail to effectively measure their minimum viable product in a way that provides validated learning and helps guide the next iteration.
‘Measure’ seems like the simplest stage of the framework. Is there enough interest in your minimum viable product (MVP) to continue developing it?
Companies can run into roadblocks during this stage that can derail the entire project or cause them to misinterpret the results of their MVP and put a product into development which they shouldn’t. These issues can start at the beginning of the digital venture with a misunderstanding of what a MVP is designed to do. Organizations can also run into issues when they measure the wrong metrics for success.
First, the minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning with the least effort.
This tool isn’t just a simplified version of the product you will eventually develop. It is an experiment, built with the specific purpose of testing a hypothesis.
Setting a Hypothesis
Before you can ‘Measure,’ you need to determine what you are measuring. Creating a hypothesis and then designing your MVP with the specific purpose of testing this hypothesis will ensure you walk away from the experiment with valuable, actionable data.
The biggest thing that can sink a digital venture is basing your venture on specific assumptions that end up to be false. Therefore, when setting a hypothesis, list out all the assumptions and then determine which assumptions would hinder the venture the most if they turned out to be false.
Potential assumptions could fall into several categories:
- The customer has a specific problem.
- A specific feature or differentiator matters to the customer.
- There are no other products that deliver this solution.
- The customer is willing to pay for the solution.
Based on the riskiest assumption, develop a statement that must be true for this assumption to hold. Use this hypothesis to determine what your MVP needs to look like to prove this statement true as quickly and inexpensively as possible.
In the Lean Startup, Ries defines innovation accounting as “a way of evaluating progress when all the metrics typically used in an established company (revenue, customers, ROI, market share) are effectively zero.”
In the Measure stage of the Build-Measure-Learn framework, many companies can get distracted by the wrong KPIs (usually revenue or market share). This is particularly true for digital ventures that are innovative or disruptive, which makes their value ambiguous or difficult to quantify. The goal of developing an MVP isn’t to see an early return on investment, it is to measure the KPIs that will predict market success.
As each of the three key stages of innovation accounting, create dashboards to measure specific metrics as you slowly tweak and dial in on the performance metrics most relevant to your MVP:
- Track customer focused metrics that are actionable and measurable.
- Track metrics specific to your assumptions. If your hypothesis is focused on the product's value, track metrics such as retention and repeat purchase rates. If your hypothesis is concerned with growth potential, track word of mouth referrals and how well existing customer revenue can sustain new customer acquisition.
- Track Net Present Value metrics that represent the most important drivers of long-term success for the digital venture.
The goal of creating a hypothesis and running innovation accounting is to reach validated learning. This validation is data that proves the key assumptions and associated risks in your venture have been addressed.
Instead of focusing on revenue, your goal in the measure stage is to focus on gaining a deeper understanding of your customer and market opportunities. The ROI of your MVP doesn’t matter as much as the knowledge you gain about your customer as this knowledge can be applied to future products whether this specific venture proves fruitful or not.
A venture that has no revenue can still show tremendous value through validated learning. High engagement, viral coefficient, and long-term retention are all examples of metrics that prove the potential of a venture and could indicate the success of your MVP.
Developing and measuring a minimum viable product is a crucial stage in evaluating the potential for your next digital venture. By taking time in the early stages to clearly define what you are measuring - and prioritizing that goal throughout the experiment - you can ensure that you leave this stage with valuable intel that will help move your business forward.