Test Your Startup Idea with a Minimum Viable Transaction

The entire startup world owes Eric Ries a huge high five for everything he’s contributed to our understanding of how startups are created and grown. One term that he coined back in 2009, minimum viable product, has stood for the difference between shipping “error-free” shrink-wrapped software, and releasing something barebones that you can test and learn from. And while Corporate America and the Federal Government are just starting to adopt the ideas of lean startups, the term is starting to show its age.

The world has changed a lot since 2009, and I think we need a concept that goes beyond MVP. Many of the fastest growing startups right now – Instacart, Homejoy, Airbnb – they facilitate real-world transactions of goods, services, and money. Sometimes this is called online-to-offline: technology facilitates the transaction, but it is just the beginning.

Transactions are the New Products

When I was in DC, I met a woman working on an interesting app idea: a marketplace bringing together piano players and piano owners who rarely use their expensive instruments. The idea was that pianos could be listed on the marketplace and players, who often couldn’t afford a piano of their own, could play their instrument. When I asked this woman what her current plans were for the project, she said she was trying to wireframe the marketplace for a web and mobile application, figure out payment processors, etc.

She was thinking about a minimum viable “product”, assuming that the product would be the biggest risk factor. When in fact, it was whether anyone would be willing to actually “do the deal”.

Would a piano player actually fork over cash to go to a stranger’s house and play the piano? Would a home owner allow someone they didn’t know into their house and potentially bang up their precious piano? The only way to find out is the make the transaction happen, manually if necessary.

Introducing the Minimum Viable Transaction

A Minimum Viable Transaction is the simplest possible exchange of goods, services, or cash that allows an online-to-offline entrepreneur to extract maximum learning. After you execute a few MVT’s, you’ll have a way better idea of the market need for your business and how difficult it will be to execute. Often the “product” is nothing more than text messages, emails, and web forms. The real work is bringing the various parties to the table to do the deal.

Note: this is similar to, but not the same as, “sell before you build”. Because it’s not enough to get someone to “pre-order” software. You really want them to go through the experience of the transaction, whether it is going to get your hair cut on a scheduled appointment or recruiting two friends to go out for drinks with three strangers of the opposite sex.

To build a successful online-to-offline business, you need to validate the market with a Minimum Viable Transaction (Click to Tweet)

The Biggest Risk is Not the Tech. It’s the Market

One more story: before we settled on Ridejoy, my cofounders and I were thinking about related peer-to-peer sharing businesses. One idea we tested was renting/lending camera lens. They are expensive and rarely used, so perhaps there was value for both lenders (extra cash) and borrowers (lens for one-time use for cheap).

We didn’t build any software because we knew the hard part was getting people to part with their precious lenses. We hit up our photographer friends and tried to see if they would let us borrow and lend out their lens. We also hit up people on Craigslist who were trying to sell their lens, and asked if we could “rent” it for a few days and pay them for the time.

What we found that 1) our own friends, who presumably trust us a lot, were very nervous about letting us rent out their lenses and 2) people who are selling their lenses are NOT interested in renting them out. They want to get rid of them. We saw that the transaction was going to be too hard, and software was not going to magically make it better.

So don’t get hung up on your product, especially if your business idea involves real-world interactions. Go execute an MVT.

Photo Credit: pamhule via Compfight cc

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11 Comments

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  1. Great article to help people see and think about potential problems before they arise.  I’d add that while clearly there can and will be unforeseen problems the same is true in some degree with opportunities.  I can imagine the responses that could have been gathered in 1996, and therefore conclusions drawn, when asking would be buyers and sellers of cars, houses, groceries, music etc. about their willingness to buy/sell via “online” market places.

  2. Hey Jason,
    nice article and good examples. The MVT sounds quite similar to a concierge MVP. Is there a main difference?

  3. The thing about renting out expensive camera lenses, should be applicable to cars and homes too.
    Only about 1% of my friends would even think of putting up their car or apartment on rent (on airbnb, RelayRides or Getaround).
    Just because the same you chose to survey have you a particular response doesn’t necessarily mean, it is applicable to the whole county/world.
    Providers on collective consumption services are usually open to experimenting and don’t mind taking risks (provided the service gives some kind of assurance).
    Heck, I’d seriously think of lending my lenses/body if your service existed :)

  4. AnonTechie  It may be true that there is a market for camera lens lending (I saw one launch on ProductHunt recently) but it was definitely going to be hard for OUR TEAM to execute on it, given the various challenges we encountered in our MVT. And that’s what matters. We aren’t VC’s who can just invest in an idea or market – we have to be positioned to execute.

  5. ChrRuss  Great point and I’ll share what we discussed on Twitter: I’d say concierge MVP ppl doing manual work to figure out the software product to build while MVT is focused on new or unique online to offline experiences where market demand is unproven

  6. jasonshen ChrRuss  My first tought was the same. I see no differences between this and the Concierge MVP.

  7. Hi Jason,
    Found you thru search to your Treehouse article and ran across this. Awesome concept. So true. Have you read 4 Steps to the Epiphany? It’s premise is very similar. Currently, two of my entrepreneurial efforts are experiencing risk in this way. MVT is such a great concept for reducing risk. Thanks for sharing!

    Kindly,
    adambloom

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