How to Define an MVP Feature Set Using the Pareto Principle

When selecting which features to include in your Lean Startup-based product’s first release, it’s important to make sure that each feature’s impact is measurable against your business goals. This article defines a process to produces and define a list of features with the highest impact on your goals and the least impact on your budget.

What is an MVP?

In the Lean Startup world, MVP stands for Minimum Viable Product. Conceptually, this represents that the product is constructed with only the most required features to get into production and start soliciting customer feedback.

Why build an MVP?

The key word is feedback. You could spend your entire budget on a huge product based on a grand, yet untested vision only to find out that a large percentage of the features you thought were so necessary go completely unused. Approaching the release as an MVP allows you to make many small bets instead of one large one; the MVP is your first small bet which you will then follow with subsequent iterations – each of which is based on measurements and feedback.

What is a KPI?

The first step is to define your Key Performance Indicators – or KPI’s; these are the metrics used to measure your product’s ongoing success rates. Money in the bank is always a good sign, but initially the metrics may lean more towards indicators of adoption and use.

Some sample metrics may include:

The number of new user signups over the last 30 days
Number of repeat logins over the last 30 days
Average session time over the last 30 days
Number of minutes spent using a particular area of the product in the last 30 days
The number of shares on social media over the last 30 days

The Pareto Principle

The Pareto Principle, otherwise known as the 80/20 rule, states that, within a given system, you will typically find that 80% of the results are a direct consequence of 20% of the efforts.

For example:

80% of your production comes from only 20% of your staff
80% of your products usage is across only 20% of its features
80% of your profit comes from only 20% of your customers
80% of a city’s traffic is on only 20% of its roads

The bottom line is that focusing on only the top 20% of a prioritized list allows you to mitigate the law of diminishing returns.

How do you define an MVP feature set?

To get started, create a spreadsheet with the following columns:

Feature (Feature is the name of the specific software feature.)
Cost (Cost is the total estimated cost to implement that feature.)
KPI (KPI is the name of the primary Key Performance Indicator affected by this feature.)
KP Factor (KP Factor is a discretionary value between 1 and 100 indicating how much this feature is perceived to contribute towards its primary Key Performance Indicator.)
Value (Value is a formula =(KP Factor/Cost)*100)

The entire process hinges on the output of the Value formula. What the formula tries to do is come up with a number that shows how much bang-for-the-buck a feature delivers based on its cost and ability to drive KPI.

Determining the KP Factor takes some interpretation. For example, let’s say you have a feature called “Social network sharing” and one of your KPI’s is the number of social network shares: this could presumably have a KP Factor of 100. A feature like “User account creation/login” affecting the “new signups” KPI may be 100 also, while something like “Dropbox integration” may not perceivably affect a KPI at all.

To build the feature set, go to your spreadsheet and list all the desired features for your product, their estimated cost, KPI and estimated KP Factor (the Value should calculate automatically). When your spreadsheet is complete, sort by the Value column. Eliminate any line items close to the top that are outside of the initial budget; then eliminate all but the top 20% of the features. What is left is a good representation of your MVP feature set.

Although this technique may not be perfect due to the discretionary nature of the KP Factor and the impact of budgetary constraints, it should prove to be a useful tool in helping to define a Minimum Viable Product that is capable of driving your business towards its primary goals.