The Changing Standard of the MVP Part 2: Build or Sell First

by Eric Tobias - Partner

Do you need a strong technical advantage to accelerate your go-to-market or does a strong go-to-market accelerate technology development? There’s no debate that both are necessary for any strong business, but many companies, I’ve noticed, have started from one direction and moved towards a balance as they have grown. So if most companies start from one direction, which one is better?

Build-first companies build a deep defensible technical advantage before they come to market. Typically, these companies spend months or years without revenue and heavily investing in R&D in order to build some aspect that makes them materially advantaged in the market. This might be a data set or a code base or even a partnership with access to technology that is exclusive. A great example of a company like this is Magic Leap — they went for a long time raising capital and building a rumored to be incredible product with little to no revenue during that process. Build-first companies are extremely tricky and almost never succeed due to the fact that the process usually isnt iterative enough to react to what they market really wants. By investing deeply in the technology and not beta testing and openly testing, the future of a product can be hampered.

On the other-hand, sell-first companies often are products that are built fairly quickly in order to establish an iterative cadence with early beta and alpha customers that can drive the collective vision and direction of the company. These companies often start with products that are heavily backed by professional services. These human services often manifest themselves as manual mechanisms of the product in order to prove inherency for the problem that the company is trying to solve.

Over the past few years, the balance between build-first companies and sell-first companies has shifted massively to sell-first products. With ample venture funding, and the advent of new hyped technology innovations (AI, Blockchain, etc.) it has become easier than ever to start a company, and receive meaningful funding to progress forward. There are more off-the-shelf tools to build apps like with AWS, and other developer centric applications which has accelerated the app development cycle. While this shift isn’t a bad thing — in fact it helps to more meaningfully benchmark the market over time and based on specific feedback, it has created an issue where many companies are serially underinvesting in R&D.

Products today are often point solutions aiming toward small total addressable markets. With this, entrepreneurs are building companies that are racing to define a use case through customer validation, but when it comes time to start building a meaningful and defensible product, companies are unable to move the lever to investing more in R&D.

Coastal cities such as San Francisco, Boston, New York, etc. are constantly building around new technologies but are also listening to the market. The midwest, on the other hand, has chosen to use their regionality to take advantage of unique go-to-market opportunites that often benefit “sell-first” companies. Over the past 5 years this shift has paid off in dividends establishing a ton of young technology companies that are growing, but I would be cautious over the next 5 years. Many of the solutions we are building in the midwest exist to digitize processes. In order for us to maintain the same level of growth, we need to be investing in deeper, more robust solutions in order to compete with the coastal cities. With the pressure to integrate technologies like AI and Blockchain, there is no way that small companies that invest minimally in their technology infrastructure can compete — they simply cannot take advantage of the technology, so it forces them to evolve their notion of the traditional MVP to stay competitive.

This conversation is something that has resonated deeply with us at High Alpha. Recently, we’ve started to build 2 new companies that are focused around solving big technical problems. The staffing has shifted to hiring many developers to accelerate the product over the year. Both of these companies have been worked on for 9 months already and likely won’t be seeing the market for at least another 12 months.

To be clear, it’s not a dichotomy — companies need to have an equal focus on both building and selling, but due to many factors such as the superpower of the founder/CEO, team make-up, it’s incredibly difficult to balance these two at a young stage (especially when you’re a first time CEO).

Our friends over at OpenView have discussed this in their 2018 SaaS trends, discussing the rise of the anti-lean product. With the market saturated with hundreds of simple products, there is sense that these type of products won’t cut it anymore. The real question now isnt whether or not this shift is going to happen, but in what manner. Will build-first companies slowly become larger than sell-first companies and eventually lead to consolidation of the market? Or will the sell-first companies start to transform and build robust technology in order to fend off acquisitions or risk becoming obsolete?