Why 99.98% of entrepreneurs benefit more from a maximum potential strategy than MVP
Current thinking about developing high-potential venture capital, and what many business schools teach, is primarily focused on the opportunity and venture capital method. This thinking popularized pitch competitions and led to the concept of a minimum viable product (MVP). When the strategy is considered, it is usually not evaluated for capital efficiency, but in terms of “will dogs eat dog food?” “
MVP is defined as a “version of a product with just enough functionality to be usable by early customers who can then provide feedback for future product development.âWith its initial popularity in Silicon Valley, the assumption appears to be that the initial viable product is followed by funding from angel investors and venture capitalists (VCs) to lead the product to a successful business.
The MVP model was better than the previously popular model where entrepreneurs often sought capital after developing a product and before testing it in the market. But the issues with relying on MVP and VC are as follows:
Â· Most products can be imitated. Developing a salable product is smart because income is one of the best sources of finance and makes the business more attractive to potential investors. But entrepreneurs should be careful not to stop here as an MVP is necessary but not sufficient.
Â· The focus on the product has led to an emphasis on âfirst comeâ product development and confidence in CV. The problem is that around 89/100 early players fail or fail to dominate. Thus, a precursor product is not enough.
Â· The emphasis on a viable product is often accompanied by a capital intensive strategy and requires angel capital (CA) followed by venture capital. The problem with relying on venture capital is that venture capital firms only fund around 100,000 / 100,000 companies because they need to see evidence of potential (Aha!) Before they fund. This means entrepreneurs need to know how to go from Idea to Aha, and there can always be a chasm between MVP and Aha, unless the opportunity is unicorn tech, like Genentech. This MVP-AC-VC path does not help the 99,900 / 100,000 companies that do not get VC and the 80/100 that fail with VC, which is 99.98% of companies.
Perhaps more importantly, this focus on the MVP-AC-VC method is inconsistent with the actual strategies of most billionaire entrepreneurs.
The reality is that most billionaire entrepreneurs have avoided VC (outside of Silicon Valley) or delayed it (in Silicon Valley) until after take off. To bridge the gap between Idea / MVP and Aha, they:
Find the right smart financial strategies to grow more and need less
Used alternative funding to avoid or delay CR, and
Â· Learning unicorn skills to take off with control. Some got VC after take off. Most did not.
The Maximum Potential Strategy (MPS) seeks to grow more with less, and includes the following:
Â· Emerging trend, who helped billion dollar entrepreneur ride the wave
Â· Focus on a segment with high potential dominate an attractive segment
Â· Satisfy the key unmet need, which allows companies to add value and achieve higher margins in the high potential segment using the emerging trend.
- Walmart: jumped on the big box trend. Focused on rural America initially. Offers a wider choice and better prices.
- Microsoft: PC trend. Focus on PC manufacturers. Standardization offered.
- Airbnb: Internet trend. Focused on connecting travelers and owners. Selection and prices offered.
- Facebook: Internet trend. Focused on connecting students. Provide an easy way to meet and communicate.
So why is MPS better than MVP for entrepreneurs?
Â· MVP focuses on the salable product. MPS focuses on the potentially dominant strategy
Â· MVP looks for AC-VC and helps little. MPS focuses on take-off without VC and helps all
Â· MVP focuses on product development skills and VC. MPS focuses on smart financial strategies, unicorn skills, and alternative finance.
MY VIEWPOINT: MVP and âfirst moveâ can get you in the game. But 89% of early mists didn’t dominate. To win the long game, entrepreneurs must use the MPS strategy i.e. develop smart financial strategies, access alternative finance, and use the unicorn skills to take off without VC. After Aha, a few billionaire entrepreneurs (mostly in Silicon Valley) have used VC. Most did not.
Summary: Current thinking about developing high-potential venture capital, and what many business schools teach, is primarily focused on the opportunity and venture capital method. This thinking popularized pitch competitions and led to the concept of a minimum viable product (MVP). The MVP model was better than the previously popular model. But they can be beaten by the maximum potential strategy, as proven by Sam Walton, Bill Gates, Brian Chesky, Mark Zuckerberg and Michael Dell. Learn how to develop your MPS.