Three things business angels look for – minimum viable product, market and team

Launching the first phase of a startup business – or for a business angel, preparing to invest in one – requires an assessment of three things – product, market and team.

Equally, it is well understood that the first stage of product development is a prototype, a beta version, or more recently, a minimum viable product.

But, does the same apply to the market and the team too?

Well, yes, it does…

So what would a minimum viable market look like?

Steve Blank is the person who came up with the concept of ‘customer development’. This was because he used tech developer concepts of agile development to argue that the product needs to be developed rapid and quickly and that equally customers need to be developed too – quickly and rapidly.

In effect, Steve Blank argues that customers are developed through a series of contacts or product developments or iterations.

So, what would count as a minimum viable market (customer) or minimum viable team?

Let’s start with the minimum viable market. Steve Blank says that this is not a focus group. In other words, it is not about collecting desires or wants from potential customers. Instead, it is about selling a product.

The best description I’ve heard is; one product sold, one happy customer, one referral.

… and the happy customer can’t be your mum (or dad). Instead, it has to be a real / non-family / customer without vested interests who pays and is willing to provide a referral (ie a lead to another potential customer).

The referal bit is critical, as it confirms that the customer is still happy after they’ve bought the product. Hence, slick marketing and a poor product won’t deliver a happy customer after the event.

Minimum viable team

So, moving to our third test – minimum viable team – what might that look like?

Again, business angels and early stage venture capitalists understand that the team will not be complete in the early stages of a startup business.

So, what is the minimum viable team? Most business accelerators have settled on the view that the team must consist of at least two partners. So, solo entrepreneurs don’t count. This is based on empirical experience of seeing teams succeed far more often than solo entrepreneurs.

To this, we would add that the two partners must bring different startup abilities. For instance, a tech developer who brings in another tech developer partner does not count as a minimum viable team. Instead, there must be both the ability to invent and create along with the ability to sell and market fit.

Other abilities – such as the ability to work with investors, might be missing, but this would be the absolute minimum.

Minimum viable product

Lastly, a minimum viable product is described as an operating prototype. However, be warned, this can not be a low quality product. So, if a fashion item, it must be made with the material that you intend the final product to be created in, not a cheap imitation.

 

The consequence of the ‘minimum viable’ concept is that we have temporarily suspended profitability. This is not being tested at this stage. Instead, we want to know whether our product will sell and impress customers and that the team can deliver this basic element.

The question of profitability follows next – as it is tied up with scale and falling production costs, but this is typically the stage where a high potential business will require (or seek) funding. And it is a great stage at which an angel investor – with a small size investment – can have a significant impact.

 

Summary

So, to sum up, a viable business angel investment must consist of a minimum viable product, team and market.

The purpose at that stage of the investment is to prove the scalability of the product(s) and the potential profit margins.

For a more info, check out the 4 tips at Arena’s blog on Minimum viable product

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