Case Response: What Now? Product Release
March 3, 2012 § Leave a comment
As you can tell from the title, the next case study from Peter Levine focuses on a product release dilemma. Similar to his last post, Peter has already posted his response. In order to avoid reading ahead, I’m trying to only read the posts on my phone, which is easier since the Reader app is what notifies me when a new post is up :).
SpiderNet has been planning to release version 1.0 of its product in Q2 of this year. However, after the new VP of Engineering looks into the schedule and deliverables, he informs you that the product will be delayed, possibly by six to nine months, due to stability and feature completeness.
In your discussion with the team, you determine that there are two options: release on time with reduced features or delay by six to nine months with the full 1.0 feature set. The company co-founder/CTO is adamant that eliminating any of the v1.0 features will result in an uncompetitive product and releasing “a piece of crap” will undermine the credibility of the company.
Product management advocates releasing something in Q2 provided that the next release follows within nine months. Prior to now, everyone agreed that product management is responsible for release decisions. Your CTO team wants to make an exception to the rule, claiming that this is a strategic decision and can’t possibly be left solely to product management.
According to product management, while the first release will fall short of what was promised, the three most important customer-facing features are able to be released on time. In his view, the minimum viable feature set has been met and getting something out sooner is the best approach.
SpiderNet still has about a year of cash in the bank, so could theoretically weather the delay, but getting any sort of customer traction before requiring additional funding will be very difficult. Do you side with your co-founder/CTO and wait six months or do you press the company to release a minimally viable product by the end of Q2?
Gut response is to release on time with reduced features. There are two key things mentioned that make me strongly feel this way: 1) SpiderNet only has about a year of cash in the bank; 2) Minimum viable feature set has been met.
As co-founder and CEO of SpiderNet, you need to be concerned with how much runway you have left. The rule of thumb is to always have at least 18 months of cash in the bank. To summarize, it takes roughly 3 months to raise capital and it’s safe to assume things will take 3 months longer than expected thus leaving you with only 12 months to execute your plan. You’re already down to 12 months. Subtract 3 months for fundraising and at most you have 9 months assuming no hiccups occur along the way. The estimated delay for product release is 6-9 months. Just by looking at the numbers you should know that delaying the product for the full v1.0 has a high chance of ruining your company because you won’t have enough cash to continue operating.
I’m having a difficult time remembering exactly where I read this, but one of the key reasons a startup fails is because it runs out of cash. Yes, it comes across as obvious and stupid, but there’s much more to it. Every action you take consumes finite resources (time, money, energy). While time is always constant, certain actions you take can require more time than necessary (efficiency). Furthermore, certain actions can have significantly greater impacts on the money and energy consumed. For example, the time and energy spent in hiring the first VP of Engineering wasn’t that much, but the impact it had on the time, money, and energy required to identify, address, and recover from the dilemma it caused was significantly greater – something that could have been avoided if you had invested the necessary time and energy in the first place.
Back to the main issue. Even in the best case scenario of no hiccups and a 6 month delay until product launch, you’re still left with only 3 months to raise the additional capital you desperately need. A sub-issue will arise as a result of this action: You’ll be trying to raise capital while trying to gain customer traction at the exact same time. Not only will you risk not having enough traction to satisfy existing and potential investors, you will also have less than ideal terms in the event that you do get another round of funding.
MVP (Minimum Viable Product)
Seed funding is all about the people. Angels are taking a bet on you and your team being capable of accomplishing something. The idea isn’t the most important thing at this stage. The original idea goes to show that you have something that might succeed, and proves you aren’t crazy, in a sense. Many successful startups have been created because the entrepreneurs had to do something else because their original idea wasn’t working well (i.e. pivot).
Depending on what you’re doing, seed funding can lead to a prototype or a minimum viable product (MVP). Accomplishing this can show investors that you’re capable and lead to your next round of funding. Ideally, you want a MVP and use that to start gaining some traction with customers. Doing this will allow you to negotiate more favorable terms in your next round of funding, and can help in making it easier to raise funds.
In the case of SpiderNet, you already have a MVP. Yes, your co-founder and CTO wants to wait and release the full v1.0. Yes, he says reducing features will make it uncompetitive and you’ll be releasing “a piece of crap” that will undermine the credibility of your company. Is this true? From his perspective, definitely. This is his baby. He wants it to be perfect. This is true for everyone in the same position. However, he needs to understand that this has become a part of something bigger than him. He is the co-founder and CTO so he has a lot of merit, but he needs to understand that he also has responsibilities towards the investors, employees, and you as co-founder, CEO, and friend (hopefully). He should also be aware that he can either get over the disappointment and continue working towards achieving that perfection, or risk having the company and his baby die. Harsh, but it’s the unfortunate truth.
The product may not be exactly what you promised, but as long as it does what customers need then they will use it. The “nice to have” features can wait until the next release. If things work out, you will have released your product with 12 months of cash left. If it takes you roughly 9 months until your next release, then you’ll have those 9 months to gain some traction with a 3 month buffer. You may even be able to achieve your next release before or during your fundraising process, which should allow you to negotiate better terms. The key thing to remember is that the journey is far from over, and that with these decisions, you, your co-founder, and your company can continue working towards achieving your vision.
Update: My response seems to be more in line with what Peter thinks should have been done :).