By Märt Ridala, editor of Pilveraal.ee
Here is my advice to investors and teams on how much money and time you should reserve for starting a new service creation project.
I have now been working with ICT service creation and development for over 10 years. I have been doing this in different telecom operators, in startups and IT companies.
I have seen too many times that you get into a new development with big enthusiasm and too little resources and the whole thing dies halfway through the MVP creation.
A service is usually a technology provided by a vendor or open-source community that you then develop into a form suitable for your customers.
It consists of:
- “Backend technology” provided by a vendor or open-source community. (In many cases the vendors claim that their technology needs just “a little design and translations” for launching to the customers….well, it never is so.)
- A user interface, web-page, mobile-app that your customers will use and that you usually need to develop yourself.
- All the processes and systems around it. Like buying, billing and service support.
It usually makes sense to first test the market traction of a new service by creating a MVP (Minimal Viable Product). To see if your potential customers are really interested in such a service or you and your colleagues just think it would be a cool and useful thing.
There is actually a nice rule of thumb for how “Minimal” your MVP should be – “If you are later not embarassed with your first MVP, then you launched it too late”. So how does this embarassingly minimal service cost? Is it possible to make it in a weekend hackathlon. Well….unfortunately not.
True cost of MVP
If you have a clear definition of what do you want to launch as your MVP (and yes there are methods on how to reach that definition) then it takes:
- at least 3-5 persons fulltime for a year
- at least 0,5 MEUR investment
to launch a proper working MVP.
Yes, that is quite a risk and a huge investment, but if you are an investor or looking for an investment then it makes sense to calculate with these sums…and that is for the MVP. Then you need at least twice as much to make it into a proper product.
Low budget solution
There are ways to minimize that risk and move in smaller steps:
- Make a fake prototype and interview and pilot with friendly customers with that.
- Have less people and smaller investments, but do it slower.
- Co-creation with customers – where you work very closely with some (business) customers and create the service with them. This method has its downsides like longer creation time and a big influence by one customer who might not represent the whole market segment, but it is a viable option.
About the author: Märt Ridala writes at Pilveraal.ee about IT, innovation and management. Follow Märt in Twitter
Märt has been working in the IT sector for more than 15 years in the biggest Estonian IT service providers MicroLink and Elion. Currently Märt works as the E-mail service development manager at TeliaSonera – the biggest telecom in the Nordics. He is also one of the co-founders and owners of www.recommy.com service.