During the snowstorm of January 2016, travel basically stopped from airports in places on the East Coast of the US like New York City. People couldn’t get out.

And even when the weather cleared up, the travel problems continued. Imagine your chances of getting out from an airport on time when more than 3,900 flights are canceled in one day. You have as much chance of flying on an airplane as a flying on a snowflake in this kind of situation.

Similarly, there has been a lot of talk about a startup winter during in 2016. The consequences don’t look great for everyone involved. Especially people waiting for startup exits.

The last plane just departed
Did startups and investors miss getting the last seats on the startup exits airplane out of startupland? During 1Q2016, we witnessed the IPO of SecureWorks, which is a tech company though not exactly a classic venture backed startup. This promptly resulted in zero excitement during the aftermarket.

If there are no new tech companies going public for IPOs, what other modes of exits exist? The traditional US tech giants are slowing down their M&A activities. The trend at Google is well known while many others are being distracted by activist investors to pursue more share buybacks. Of course Facebook is always a wild card but that’s a pretty short list.

So it seems like both the IPO and tech M&A exit airplanes really have left the airport and everyone still waiting is stuck. That’s terrible news for startups and investors.

Forget about flying
Would other types of exits be possible? As a very rough proxy of how important tech companies are, the sector breakdown of the S&P500 Index shows that tech is the largest sector at about 20% of the total index.

That still leaves 80%. Traditional non-tech companies are clearly big, but are they interested? They’re not flashy, so think of them as trains. Yes, they are increasingly getting involved in startup ecosystems, including M&A exits. Most of these are smaller deals which work very well for capital efficient startups. So that may not leave much space to cram many unicorns inside. But there are also larger outliers, like Monsanto buying Climate Corp or GM buying Cruise.

There are obviously differences between planes and trains. So before running to catch a train, it’s worth understanding what you’re getting into. But at the very least there’s an alternative way to get an exit. For some startups, the train may actually be the better choice.

There’s no way on earth we’re going to get out of here tonight
Beyond trains, is everyone else simply stuck with no hope? Sticking with the airport analogy, there’s another entire building which most people haven’t noticed.

It’s called the international terminal.

The international terminal is gigantic and has umpteen airplanes, plus high-speed trains too, with heaps of seats looking for passengers. Companies from China are leading in activity and the momentum shows no sign of slowing. Importantly, it’s not just China – cross-border M&A is a global trend.

Why is this happening now? These global companies are just starting to feel the potential opportunities, and more importantly risks, of tech innovation. For people living and working around the Silicon Valley tech sector, the mantra of software eating the world is old news. But for companies on the outside looking in, the impact is just starting to be realized.

So whether it’s late or early depends on your relative position. If you’re trying to catch a domestic airplane for a startup exit, it may be too late. Instead, check out the train schedule. Even better, head over to the international terminal where the planes and trains still have plenty of seats available.

Just in case, make sure to keep an eye on international weather conditions.

If Einstein were alive today, what would he think of our investment markets? He is vaguely attributed to have said that compound interest is the “most powerful force in the universe” but the evidence supporting this attribution is weak.

However, he would surely find it curious that we now live in a world of negative interest rates, where more than US$2 trillion has been invested in negative bond yields and banks are charging interest rates on deposits. Although the word deflation is constantly used in the media, the reality is still inflation, so whether measured in nominal terms or real terms there is no doubt that we live in a time where a certain group of borrowers are able to get paid to borrow money.

Since the driver of these interest rates is the cost of time, the financial sector has accidentally created a way for money to reverse the effects of time.

Besides being surreal, why is this important?

The obvious answer is that no serious investor should want to invest their assets into negative return assets if there are better alternatives. It is both a pessimistic view of the world and an inefficient use of assets.

Large companies are also taking a cautious view of the world, preferring to spend on share buybacks rather than new investment, with a record US$900 billion spent on buybacks and dividends in the US alone in 2014. In this case, share buybacks create the illusion of growth by shrinking the denominator, the number of shares outstanding. At an individual firm level, this can sometimes be the right strategy but can society overall shrink its way to prosperity?

For context, it helps to look at the size of investment at the opposite end of the investment spectrum, early stage companies focused on growth. Overall venture capital investment in the US was a record US$48 billion in 2014 and a closer inspection of the data shows that early stage deals received US$1.3 billion.

In today’s world, when the opportunities to create value through innovation are more exciting than anytime in history, society is investing the largest amount of money in the most pessimistic assets with the lowest expected returns and investing the least amount of money in the assets with the largest potential to create new innovation and highest potential returns. These are symptoms of a deeper problem: failure of the imagination.

As an early stage venture investment fund, this actually works better for us because it means less competition. Ultimately, however, early stage investment is not a zero sum game and so we would rather have more people invest to create more overall value.

Finally, if the perception is that there are no assets that can generate meaningful returns given the risk, investors are better off giving their money away because there is no shortage of social issues which have not been solved by markets.

Circling back to Einstein, some people may argue that he would be in favour of the current asset allocation by society because it appears to be made by rational decision making in a scientific manner. But his comments suggest otherwise. In Einstein’s own words, “imagination is more important than knowledge.”

A lot of people misuse the term “MVP” or Minimum Viable Product. To be clear an MVP is not a beta, not a prototype, but rather an experiment designed to test your value proposition’s assumptions by measuring a behavior and learning from the results.

Back in the day, Dropbox did an MVP as just a video and Buffer was just a landing page. Both were experiments to determine if Dropbox or Buffer should even exist. Instead of guessing and building prototypes, they built the simplest of things in order to measure a user’s behavior. Today startups are building functional prototypes and calling them MVPs. They are better off building something they can learn from. Typically the first MVP doesn’t even have to be anything on a device or computer. For example, I once advised a new travel startup that wanted to give you one click access to a daily itinerary based on a map. They assumed that people wanted a map with pin points on it and times to follow. I told them to go to tourist spots and give people real maps with real pin points circled and an analog itinerary to follow. That was an MVP, it was an experiment (map) that measured (how many as a percent of total) a user behavior (did they use the map or not). Let’s take a look at how to build a better MVP.

Getting Started: Customer Segment and Value Proposition

The whole idea of an MVP is to measure an actual result against your expected result to prove or disprove your assumption. In order to do that you need data. The first place to start is to think about is your customer segment; you have to know who your target customers are going to be. Without knowing your exact segment (22–34 year old professional, urban women, single, living alone, earning over $75k), you won’t be able get the correct pool of users to test on.

After you define your customer segment, you define your value proposition. Too many people think that their value proposition is just the solution to the problem they are solving. That is incorrect: your value proposition is the delta between the current solution or workaround to the problem people are currently using and your solution. You measure your value proposition in terms of how much better your solution is compared to the solutions that exist today.

Let’s say you are solving a problem for buying movie tickets. Several solutions already exist; there are lots of web sites, apps, etc. Maybe your solution involves buying the tickets via SMS. Regardless, you have to think about what the alternatives to your solution are and compare them against that. One is simply buying the ticket at the box office. Here your alternative has value, but not tremendous value. Alternatively, let’s say you are developing a life saving cancer drug. The alternative without your solution could be death. In this case your solution would be incredibly valuable.

The Assumptions That Fuel Your Value Proposition

Underpinning your value proposition are your core assumptions. These are the things that would compel someone to buy your product or service. The job of the MVP is to test those underlying assumptions. The only way to successfully test those assumptions is by making a prediction of the result and comparing the behaviors that you measured up against your predictions. Your predictions should be based in fact, facts that would determine if you have a viable business or not. If you don’t make a prediction, then you will not have a way to determine success or failure of the MVP test.

Let’s say you are building a landing page, Buffer style. Your MVP will be to measure how many people give you their email address after your landing page described your product. You will have to drive traffic to your landing page, most likely by taking out some Facebook or Google AdWords ads. You want to measure the conversion rate of people who clicked on the ad (since you pay for click) to providing their email addresses. For example, if 100 people clicked on the ad and came to your page, but only 4 provided their email address, your conversion rate is 4%. (Not bad actually in e-commerce.)

Should 4% be your target? No. You need to determine your prediction based on facts and your business model. Let’s say you estimate spending $100 on Google AdWords to drive traffic to your MVP. If you have a conversion rate of 4%, it will then cost you $25 to acquire each customer. $25 is your CAC or customer acquisition cost. You need to estimate what your Customer Lifetime Value (CLV), or the amount of profit you expect to get out of each customer over the course of their relationship with you, is. At this stage it will be fairly inaccurate, but you need to ground your assumption in reality. (Future MVPs can test pricing.) Let’s say you make the CLV to be $21, based on a lot of factors in your business model. (I talk more about your CLV and CVC here.)

With a a CLV of $21 and a CAC of $25, you will lose $4 on each new customer you acquire. Or CLV ($21) — CAC ($25) = -$4.

For your MVP test, you will need a higher conversion rate/lower CAC rate in order to make a profit. For the first MVP test make a prediction that the conversion rate will be 5%, bringing your CAC down to $20. Or CLV ($21) — CAC ($20) = $1.

Interpreting The Results

Now with your assumptions based in some business reality, it is time to run the test. Typically the results are one of the three following numbers (remember you are aiming for 5% conversion):

• 0.021%
• 4.28%
• 17%

Let’s take 0.021%. This is an absolute failure, you can safely assume that your assumption is invalidated. Safest thing to do is declare the assumption invalid and go back to your value proposition and rethink it. If you have other assumptions associated with your value proposition, you can do some more MVP tests to determine if the entire value proposition is invalid or not. Chances are you will have to iterate your idea and value proposition some more.

What to do if you are at 4.28%? Technically it is invalid since you need 5% conversion rate in order to make any money. Should you just give up and go home? No. You should try some new UX and new design or different language and run the test again. Don’t run the test without changing anything! If your future tests with minor changes are at or over 5%, then you can declare your assumptions valid and move on to test the next one.

Let’s look at 17%. Woo-hoo, your assumptions are more than valid, you blew away your predictions. Verify that your test was fair and then declare your assumption valid and move on to test the next assumption.

Thats all there is to it! Only by clearly defining what success is and basing those numbers in a business reality is an MVP useful. Anything else is just a beta.

Build an MVP, Not a Beta was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.