08. November 2018
Petr Šídlo: Interview about Product Development, Getting Customer Feedback and Baking Apple Pies
Minimum viable product, or MVP, is the first functional version of a product that the company offers to its customers. You can imagine, for example, the first version of a new computer game or a sample model from a young designer's workshop. Thanks to MVP, companies can verify if people want their product and are willing to pay for it, in addition to finding out what they can do to improve it. Since the release of the book The Lean Startup, the term MVP has suddenly appeared everywhere. We asked Petr Šídlo, the founder of the innovation agency Direct People, what is so miraculous about this concept and how to work with it.
What do you think about MVP?
I think the MVP is an important concept, but in reality it gets spoiled. It is supposed to be a product with a basic design that customers will like, but instead it sometimes becomes what the company likes or what seems to be the simplest way for software engineers. MVP is one of the phases to get to the final product, definitely neither the first nor the last. The error is that it has often become the first one, but that only makes sense when making the first functional version of the product is cheaper than undertaking other ways to find out what people want. Another problem with the MVP is that some people confuse it with a small, ugly version of the product. And when people do not want it, they come to the surprising conclusion that people do not want their product and that it will not work.
Is MVP new or did this approach exist earlier?
It's an approach from the software world that is gradually spreading to other business disciplines. Previously, it worked so that a clever group of people figured out how the product would look like, someone developed it for a long time, and everything that needed to be changed was considered a mistake. The MVP says there is no smart group of people who knows everything. We can have our hypotheses, and at some point it makes sense to produce the product, but in the most basic form, to find out if people are actually interested in it.
Is this a new way of thinking?
Yes, because I have to admit I do not know everything and never will. If I want to think of a scalable product, I have two options. Either I invent it and make it straight away, or I go through slow steps called iterations. We can compare it to the British Cycling Team, which has never won anything and is suddenly winning one competition after another. It was found to be due to the fact that the coach had begun to consistently improve every parameter, including how cyclists slept and ate. This made them the best world team. Not one thought, but a lot of things that broke the critical limit and caused an exponential impact. This is the idea of the MVP: I need to find a point of reference from which to start.
But don’t you ever feel that startups create an MVP, but then most of the money goes into marketing and sales instead of the next product development?
Sometimes yes. It may be that they are at a certain stage when they cannot overcome a barrier on the market. For example, dating sites have to attract a large number of people, and therefore, they necessarily push a lot of money into marketing. On the contrary, I see the phenomenon I have ironically called "We already have the product, but marketing is missing.” Many people say they have a product but actually have only the technology they call the product. For me, the product is something people want to buy and it has some marketing packaging. A laser that can shine on something is not a product but a technology.
Can you explain why these two extremes arise? While some invest only in the technological development of the product, the other only spend money on marketing?
I think it's because they cannot decide what's going to push them further in the process of creating a business model. Startups have too many things to deal with - selling, marketing, product development, building partnerships, and creating an organizational structure. When you successfully solve one of these things, you often start from scratch with something else. For example, when you find a customer who has a problem, it's great, but you still don’t have a product. So you build the MVP, customers buy it, but you still cannot sell in bulk. Once you have scalable channels, you will find that you have never done big marketing. Or, the company will grow and you will find that the current CEO is not experienced enough and has to leave, which is very difficult. You always keep finding out that you don’t know something.
So how should startups work on product development?
This is a very large topic about which entire books have been written. Let's break it down gradually.
Does the development of physical and virtual products differ?
With virtual products, you don’t have to invest so much in development because you can change it at any time. When developing physical products, especially mass-produced ones, any small change costs big money. For that reason, companies are accustomed to having more discipline in order to ascertain that the product meets all requirements before they start production. I prefer this approach because it is an honest craft. On the other hand, it sometimes happens that designers play around with different things, but ultimately the product is missing important functionalities from the user’s point of view. For example, when you look at office air conditioners, few people know how to control them because they are invented by tech-savvy engineers.
Therefore, it is always important to collect feedback from customers. From whom and how often should companies collect it?
I do not know if there is a simple answer to this question. It's a lot more complicated than it looks – for example, before collecting the feedback, the product team should put themselves in the customer base's shoes and be able to predict its reaction. If feedback is taken by people who do not understand customers, it is useless because they often see things that are not true. But it happens often. Therefore, it’s important for each change made to the product to find a way to verify overall product attractiveness for customers. It's not a simple thing because people don’t know what they want, because they want to please you, they often do other things than they say, or they don’t have time for you. In this minefield, we need to find a credible way to make sure that we are going in the right direction, that this is the most important thing that customers need, that we do it in a way acceptable to them at a price acceptable to them, and which is also profitable for us. Even though it's sometimes complicated, there is no reason to stop collecting feedback. The journey to product hell often starts when you hear the team saying, "We can do this without customers.”
Let's say I'm going to start an apple pie bakery. I will first try to sell apple pie at a festival and if people buy my apple pies, I will try to sell them on Facebook. Meanwhile I will regularly collect feedback. Is this the right thing to do?
Now you've come across exactly at the point that everything depends on what kind of business you want to build. Do you want to bake apple pies that you will produce in a big factory and sell them in supermarkets? If so, then you just need to know that people at the festival liked the apple pie and are willing to pay for it. Then you need to find out how to get the pies to the supermarket. But if you would like to sell apple pies for business events, selling them at the festival will not help you much, because even though people liked it, in companies organizers pay for the apple pies, not the people who eat it. Companies are not only interested in a quality apple pie but also how reliable you are and if you can do whole catering, etc. The question is not how often to collect feedback, but what are the key questions in the business model and where to get the right feedback quickly and cheaply.
And what is the next right step?
It depends on what type of business model you want to build with your apple pie. You have to decide where you want to go, think about what critical questions you need to answer and then find a credible way to get feedback. The moment you find that this process will last for half a year or more, it's too long. This critical thinking is often one of the most difficult barriers to bringing things to the market.
Over time, many companies (such as Amazon, Tripadvisor or Airbnb) have decided to offer new products and services. Is it better to concentrate on one quality product or have a wide offer?
I think the answer depends more on what is good for shareholders, customers, and employees. Companies should generate profits for shareholders through the value they make for their customers. If the extension of my offering can do so by increasing value for customers, it's good. When I start selling a new wine in my wine shop, I have probably raised the value, but if I sell something there that doesn’t fit in at all, like engine oil, I will hurt myself instead. On the other hand, sometimes concentrating on one product only leads to excessive self-centeredness, and then the company is outrun by a competitor. It should be noted, however, that besides product innovations, there are a number of other types of innovations that need to be included in the innovation strategy. Sooner or later, the core of business is commoditized by all companies.
What do you mean by that?
Commoditization means that what used to make a profit now doesn’t make any. Petrol stations previously earned from gasoline sales, but they are now selling refreshments. You can see that a product is being commoditized when people cannot distinguish different vendors and decide by price. Commoditization occurs gradually in all areas and is getting faster.
What effect will the commoditization of products have on business?
Companies will be gradually replaced by more successful ones. Previously, companies were placed in the S&P 500 index for 50 years; now it’s for only 15 years, and it’s still going down. If you have a commoditized product, you are thinking about the strategy of returning to a larger margin business. Apple sells expensive, high-quality stuff because it builds on emotions and story, and it seems that the margins will last for some time. Google started as a search engine, but today it earns a lot from ads, which is not ideal for the future because people don’t like ads. And so Google is trying everything possible, including self-driving cars. Everyone is looking for a way to secure themselves for the future.
When you say everything is being commoditized, which sector would you focus on?
That's the right business question.
Do you have the answer?
I don’t. That’s why there are incubators like UP21. It's not enough to know what product will be successful, but you also need people who can make and sell it, capital, investors, and a sustainable competitive advantage so that someone doesn’t copy you in half a year and you have no business.
I assume that technological rather than classical production will be promising. Maybe I'm going to make some money in the production of an apple pie, but it's probably not going to be a fortune.
Yes and no. Yes, because there are markets, generally, that are seeing growth. But for a person who has no competence or emotion in them, it probably won’t be a good choice. According to Japanese culture, it is necessary to combine competence, emotion and the principle of greater good for society with what people are willing to pay for. It's called ikigai. When you can combine these four factors, you may have a future unicorn. I think the discussion on whether passion or business is more important is simplified. It is necessary to have passion for what do you; the motivation to make money is not enough. At the same time, there must be a rational basis – these are the customers who would be happy to pay for such a great thing. That's why I said that I don’t really know if you would make a good business out of that apple pie baking. I don’t know if you're going to invent a new apple pie that no one else can do, or a new kind of bakery that will bake pies twice as fast and you can make a profit on these bakeries. When I see how people are capable of setting up a startup and selling it for a million dollars, it often surprises me, so I'm trying not to make assumptions.
Petr Šídlo believes that innovation is not about spells and coincidence, but about the way of thinking and craftmanship you bring to it. He co-founded the Direct People innovation agency in 2010 to help innovative companies bring successful products and services to the market. Among these are Dr.Max, Škoda Auto and Škoda Digital, LMC, Air Bank, Adastra, IDC, WAG, Sazka, T-Mobile, Olympus, Česká spořitelna and many others. Petr Šídlo is the mentor of the StartupYard Incubator, member of jury in the Social Impact Awards and he runs regular workshops on Innovation Leadership within ELAI Institute.