_ Insights _MVP: The Ford Analogy
17/03/2021

MVP: The Ford Analogy

Arnaud Montpetit President

I am fascinated by the sheer number of horror stories I hear about managers and entrepreneurs who dive head first into expensive projects based on false premises—projects that are often completely disconnected from their market—with no testing methods, no validation tools, and no safeguards in place.

As a digital consultant, I am drawn to these terrible tales and look for every, possible way to change the narrative. My suggestion is that we need to be more strategic, and I want to explain the benefits of an iterative approach, like Design Thinking.

Over time, I’ve come to realize that—ironically—it’s the fear of failure that propels managers towards even bigger failures, and the false belief that a great idea is all that’s need for a quick return on investment.

The ability to say “I validated this, I was wrong, my initial idea was faulty, and we need to change course” is a key advantage when it comes to management.

I’ve often come up against a wall when trying to explain to clients and colleagues why some projects deserve to be thought about and executed in an iterative way. I’ve put together a little analogy that seems to work really well. Let me share it with you in the hopes you can get something out of it, too.

The Henry analogy

For the purpose of this analogy, say you’re the owner of an engineering firm.

A prospective client comes to see you. Let’s call him Henry Ford. Henry places a business plan on your desk for a new idea, the automobile, and asks you to build it for him. His budget is $2 million. His business plan contains 7 functional parts that you estimate will cost $5.5 million to produce:

  1. A motor ($1 million)
  2. A steering wheel ($250,000)
  3. Two pedals ($500,000)
  4. Four tires ($250,000)
  5. Real leather seats ($500,000)
  6. A gold car body ($2 million)
  7. Tinted windows ($1million)

Henry is so convinced his idea has value that he’s sure he’ll start seeing returns on his investment over the course of the first year. That’s why he needs to determine two key elements before giving his project the green light:

  •   The exact price tag for his finished product when it hits the market
  •   A full marketing plan indicating precise steps to be taken

He is adamant: People with money—his target audience—want to be able to get around in a car that has a motor, two pedals, and four tires. That said, Henry believes that in order to make money and overtake the competition (that is, bikes and horses), what matters most to his target audience is a seat made of real leather, a gold car body, and tinted windows. He pressures you to take on the project as is, with only the one iteration.

Unlike Henry, you are skeptical. You’re aware of how competitive the market is. After all, horses have been around forever. Will the rich really want to own an automobile? Can you really let Henry build his product with just the one iteration, without even knowing if the fundamental premise of his project has any merit?

You have three options.

  1. The linear approach

You see this as a business opportunity. With a quick calculation, you estimate that the automobile will come with a $750 price tag and Henry will sell a million in the first year. This is good news, since a horse costs $1,000 and a bicycle costs $500, and there are millions and millions of those being sold. Henry is sure of his business plan and you convince him to get the project done for $5.5 million. You and your team develop the product in 2 years, the budget runs over, and Henry ends up paying $6.5 million in all.

Then the product hits the market. If it’s a success, everyone is happy, and Henry becomes a millionaire. If it’s a failure and no one wants to buy an automobile, Henry loses $6.5 million and he will initiate legal action against you for not adequately advising him.

In this scenario, Henry is exposed to too many risks.

  1. The executing approach

For you, it’s crucial to get the project started quickly, respect Henry’s budget, and ensure he makes money within the first year, as requested, so he can pay you for the subsequent phase in his project. You notice that Henry’s business plan doesn’t place much importance on functionalities 1, 2, 3, and 4. That’s because, for Henry, what sets his idea apart from a horse—his key competition—is functionality 6: a gold car body.

So you decide to remove functionalities 1, 2, 3, and 4 from the plan and invest the entire budget into functionality 6. Your team works for four months to build a gold car body—the item that will allow Henry to make money quickly. Then you will get to work developing the rest.

Eight months later, Henry launches his new product on the market: a gold car body with no motor, no steering wheel, no pedals, and no wheels. It’s truly a beautiful car body, no doubt about it, but the target audience is incredulous. “I thought the point of your product was to get me from point A to point B?”

Not only has Henry wasted $2 million on a useless product, he hasn’t even answered a fundamental question: Do people even want an automobile?

In this scenario, you took Henry’s false assumptions for granted. He now finds himself with a product that should give him a competitive edge, but instead has no value for clients, as it does not answer their need to get from one place to another.

  1. The Design Thinking / Lean Startup approach

Henry’s idea does not convince you and you keep coming back to the initial question: Does the target market even want an automobile? As part of your strategic mandate, you question Henry’s business plan and instead recommend an MVP, or Minimum Viable Product, that includes functionalities 1, 2, 3, and 4. It will even cost less than his planned budget.

You let Henry know that this MVP will not generate a quick ROI or bypass the horse as a key means of transport in the initial development phase. However, it will quickly validate if the automobile has a place on the market. If his “base” product works, Henry can then invest with confidence in a second phase to make his product that much more attractive. He may even be able to convince investors to be part of this adventure.

If his idea doesn’t work, it may prove a costly error but Henry will have spent millions less than if he had invested in an unproven idea. He can go back to the drawing board with new knowledge to work on a different idea.

The advantage of this approach for Henry is that he can quickly get his product into consumers’ hands. He can ask questions like “Dear target customers, would you enjoy my product even more if it came with a gold body and real leather seats?” And his customers may reply “Dear Henry, a black body works fine for me, but I would pay good money of you could include air conditioning!” Wow! Now there’s an idea Henry never even thought of—and neither have you! Good thing the initial idea was put to the test, and the next phase will be different than planned in order to better meet the needs of the market. Henry thanks you profusely for your sensible advice.

Kill Your Darlings

In this analogy about Henry Ford, it seems pretty self-evident that the best approach is the third one. In real life, where projects are far more complex, far less defined, and managed by a variety of stakeholders, it’s unfortunately approaches 1 and 2 that are still being prioritized today. Many managers throw themselves into projects with premises that aren’t properly defined with no method for testing the idea. And although sometimes they have the best of intentions, they still end up falling flat on their faces.

Specialists believe that it’s our infamous misplaced ego that too often gets in the way. This drives managers to dismiss data that puts their idea or approach into question.

In the book Design A Better Business, the authors put it this way: Kill your darlings as quickly and cheaply as possible. In other words, you need to find a quick and inexpensive way to demolish your preconceived idea by speaking to your target audience as soon as possible.

The best way to do that is by using an iterative approach like Lean Startup or Design Thinking. Best way? More like the only way. This approach will force you to quickly focus on an MVP—a Minimum Viable Product—to determine the key product elements you need to demonstrate before you continue. Every iteration will deliver more learning that will help you better define the project’s next steps. With this in mind, there’s no need to plan a project too far in advance. One comment from your target audience may steer you in a completely different direction.

Keep in mind that the “V” in MVP means “viable” and not “commercial” or “profitable.” Being viable in this context means being able to quickly access information that will help you make better decisions!

Fermer le formulaire