Why 42% of startups fail to build products that people need (and how to avoid becoming a statistic)
Despite the fact that Minimum Viable Product is a widely known concept compared to 5-7 years ago, we still see similar failure rates for projects and startups on their first project.
Entrepreneurs and Product Managers who studied the MVP concepts and process end up making the same mistakes as those who don’t know them.
They start off well: customer development, prototyping, experimentation, and so on. However, they still experience the same pitfalls: they don’t pivot fast enough, they keep optimizing the interview guide, the prototype, or the ads instead of focusing on product/market fit, and the list can go on.
It’s almost as if the information and knowledge they have – that’s meant to prevent those mistakes – doesn’t help them at all. Why is that?
Let’s get specific.
To be proficient at building and operating a business, you need to:
- Know how to minimize risk by experimenting and learning (aka MVP building)
- Be emotionally and mentally capable of making decisions (aka Experience).
Point 1 is well covered in terms of practical information, but point 2 is not nearly talked about enough. There aren’t as many actionable resources on how to gain experience fast or how to make good decisions based on your existing know-how, so we decided to share our own lessons.
Here’s what we’ve learned from over a decade in the trenches.
To build a track record of good decisions that forge business success, you need to master these 3 things:
- Your desire to succeed
- Your fear of failure
- Your lack of patience.
You can’t ignore these personal traits. These same three traits can make you – and your business – either sink or swim. The good news is you can manage them to your advantage!
TL;DR: there’s no cheat code to becoming emotionally and mentally proficient at making important decisions for your business, but you can shorten your learning curve with this process.
Your desire to succeed (aka the confirmation bias)
The human tendency to “search for, interpret, favor, and recall information in a way that confirms or strengthens one’s prior personal beliefs or values” is more damaging than it sounds.
When building MVPs, if your goal is to succeed, then you’ve already failed.
Just like any of us, you’ll subconsciously dismiss negative feedback, even when it’s based on strong arguments that are exclusively tied to the product. As a consequence, the confirmation bias can cause you to make flawed product decisions and miss great opportunities.
The thing with biases is that we can’t avoid them even if we know we have them. But at least we can learn to handle them.
To avoid the confirmation bias:
- Set intermediate objectives or expectations that don’t relate to “being right”.
- Separate the doing part from the learning part. Top tip: find a framework on how to achieve this separation at the end of the article.
The fear of failure (aka the sunk cost fallacy)
Everyone fears failure. It’s a fact of life and our biological impulses demand that we stay as far away from it as possible. That’s why we experience the same worry and reluctance to act even when our fear is irrational, in situations like postponing to conclude that we failed and keep pumping money into the project instead.
To avoid the sunk costs fallacy you must re-define failure. If you’re not aiming to succeed, then you cannot fail.
So before dedicating money or time to an MVP or experiment, think about them as an expense, not as an investment. Just like buying coffee or going to the movies.
The moment you dedicate the budget, consider you’ve already lost it. You’ll be able to make much more clearheaded decisions as a result, as counterintuitive as it may seem.
Consider this distinction: if you buy a ticket to see a movie and it’s bad, you won’t immediately buy another ticket to the same movie again, hoping it’ll be good the next time around.
For the price of a movie ticket, you expect to see the movie projected on the screen. You can then independently evaluate if the movie was good or not. What’s more, you won’t sink your life’s savings into a movie ticket. So don’t do that with an MVP either.
Your lack of patience (aka the opportunity cost)
“This is not working out.
Maybe I should be doing something else with my time.
Maybe if we write more content we’ll get more conversions.
Maybe if we raise more funding we will grow faster.
All these questions are actually about the opportunity cost of your decisions. The “what ifs” are real and great questions as long as they don’t put you in a deadlock.
There are infinite “what if” questions and it’s highly unlikely you’ll find out the answers to all of them. Truth be told, it’s impossible to make a perfect choice. If you try… you’ll only end up in a deadlock.
To avoid the opportunity cost, aim to find out what doesn’t work and don’t do it again. Quitting before discovering what doesn’t work and constantly shifting will keep you bleeding money and other resources and end up depleting you.
You’re going to want to try to change the MVP process to satisfy your emotions. It’s inevitable.
Remember that your discipline and commitment are finite and invaluable and use them to master the emotional MVP.
How to set up your MVP-building process to override these 3 biases
1. Rephrase the objective.
The end goal is to succeed, to create something that works. As long as this is your only objective, you will make the aforementioned mistakes.
That’s why it’s helpful to break down and reframe your end goal into multiple steps:
You always have a budget, be it time or/and money. Split it into:
- Budget A for learning.
- Budget B for building the business.
Budget A is disposable. You know – ahead of time – that you’ll throw away everything you build using Budget A after you’re done.
Budget B is for value generation. You want to make what you build with budget B work.
To clarify, the purpose of the MVP is not to make it work – it’s to learn.
So how do you make sure you get the most knowledge and experience for your budget?
2. Aim for a fixed cost: allocate time and money that you’re comfortable spending.
Just like the movie ticket, dedicate adequate resources for MVPs and experiments. These are expenses, NOT an investment.
The moment you spend more for an MVP than you’re comfortable losing, the less you’ll be able to avoid the sunk cost fallacy.
As a result, Budget A should be no bigger than what you spend on several cups of coffee when it comes to your available time and savings.
Remember that an MVP is all about being thrifty and making it count. That’s why it helps to work with an agency that specializes in building products. The moment you set the budget constraints, that agency becomes your right hand in prioritizing your $$$ and time investment.
Working with them is another opportunity to combat mental biases and ensure you’re making decisions for the long-term benefit of your users and your product.
Consider dividing your budget into three parts: reserve 2/3 for learning (absolutely inevitable) and 1/3 to make the MVP work.
3. Keep an advisor. Work with someone who can see the writing on the box.
It’s always easier from the outside. From inside the box, you can’t see its label. Simply put, there’s a lot you miss when you’re in the weeds.
Managing operational issues, your own reactions and emotions, the rest of the team, and other aspects of the business can be truly trying. All this work leaves you little mental space to think about the big picture and spot big mistakes.
That’s why keeping an advisor can be extremely helpful. They don’t have to be the very best in your industry, just someone with enough experience to look from the outside and provide an external perspective.
Sometimes the product development agency or your suppliers can act as advisors because you can formalize the boundaries in your relationship with them.
For example, if you’re willing to do 3 consecutive experiments of $5,000 each and the decision to move to the next one depends on extracting unambiguous data from the previous experiment (without revealing what outcomes you expect), the agency will be impervious to the cognitive biases because they’re not aware of the results you anticipate. As a result, their decisions will be much more objective and focused.
4. Care less about each step and more about the trend.
Putting your MVP out there, in the hands of potential customers, is fundamental. Leaving your ego and emotions out of it is essential.
You know that you shouldn’t polish every feature and launch faster, but you still end up postponing. The more you care about it, the less you’ll be inclined to release something unpolished. The trick is not to care about it.
Push yourself by setting “release on the deadline” as your criterion for success. This will help you avoid this common problem.
Also, keep in mind that social feedback is important for us humans. Don’t ignore its value. Make sure you celebrate and appreciate each release with your peers. Remind your psyche that this is what success is and make sure you feel it as opposed to just going through the motions.
You can’t avoid the emotional side of an MVP, but you can manage it.
The faster you do it, the more progress you’ll make.
Your growth rate as a business owner and a creator of products depends directly on your ability to learn to challenge your thinking and doing, always striving to make the right decision for the situation at hand instead of choosing to satisfy your – often unconscious – biases.
“Fear is a fickle mistress and a tricky one to dance with: One moment it’s an exhilarating tango partner; the next minute it’s a sloppy drunk in need of therapy. Accept fear as a motivator, but don’t let it get the best of you.”
Howard Love, The Start-Up J Curve