The Lesson Oil Teaches Us About MVPs

John D. Rockefeller is the 7th richest person to ever live. Many refer to him as the father of trust, the king of monopolists, the czar of the oil business, or the creator of the modern corporation.

It's easy to look at the business model that made him billions through the lens of horizontal and vertical integration or to study his control of supply chains.

However, there's an important lesson on Minimal Viable Products (MVPs) that the early oil refining industry has to teach. This lesson shifted the perspective I have in starting a new business and what the real purpose of an MVP should be.

In the early infancy of the oil industry it was chaotic. Much like moonshining is viewed today, "bootleggers" could drill crude oil wells and build out a refinery with little money needed. This caused an "oil rush" in 1859, while the U.S. went from producing 2,000 barrels of crude oil to 450,000 in just a years time.

Rockefeller, who started as a book keeper, set up shop trading dry-goods in 1859. He wasn't involved in any of the action happening in oil yet. Silently he observed businessmen making quick fortunes in oil refining. This continued for 4 years while he traded grain, pork, and other staples.

It wasn't until 1863 that John D. Rockefeller would build his own refinery -- entering the arena to compete with the other 20 small factories that lined the banks of the Cuyahoga River.

Competition was fierce. Natural selection was killing off oil wells just as fast as people could put them up. Outside of the supply the wells provided barrels to store the oil were expensive, transportation was a problem, and the prices per barrel of crude oil fluctuated wildly. It wasn't a promising environment to be operating a business in by modern day standards -- you ate and then starved.

Refining oil did not insure a firm's survival. The only businesses that could survive required adaptation. Rockefeller recognized this early on and focused on the costs involved in the process he could control. This strategy lead to Standard Oil becoming one of the first refiners to expand its scope outside of drilling.

But what does any of this have to really do with an MVP?

A minimal viable product is just the drill used to find oil.

I believe the perception of business has become a misaligned with the core of what serial entrepreneurs understand. In college, I studied Economics and Entrepreneurship but there was conflicting information taught. It took me a while to sort through what I feel is closer to reality today.

Economics is all about the market. In school of classical economics, Adam Smith coined the concept of the invisible hand which described the self regulating nature of a market economy. At the core of this principle, the "market" always decides. Entrepreneurs have the freedom to pursue what they choose to be valuable and if they market doesn't view it with the same value they fail to stay in business.

Meanwhile, in entrepreneurship they would tell us to keep a bug list and find pains/problems people faced to solve. It's the customers pains that a business solves for which keep it in business and to some extent this is true. Yet this is exactly where people get it wrong...

Entrepreneurs jump straight into solving the pains while never testing the market to see if it's profitable.

They jump straight into the business of selling oil without seeing if they have a fruitful well.

When starting any business venture your minimal viable product is similar to the drill. The purpose of it is not to solve the problem as a whole but instead to "tap" the market -- proving that you have a supply of oil to really sell.

Solving customers pains comes second to the market in the very beginning days of nurturing an business idea to sprout.

Imagine this:

I notice people find it a pain to take the trash out so I decide I'm going to solve that pain for them with a product. It's my million dollar business idea. So I our business is going to be the rumba but for taking out the trash. Immediately at once I do market research and see last year 10% of all U.S. households paid a professional service to clean their homes and market for household cleaning products is supposed to reach $312M by 2027. Immediately I get to work building out an MVP for my robot. I spent time and money on development only to see that no one wants to buy my robot. Why? The market is there right?

The market doesn't believe it's worth the cost. Instead of developing a first iteration of the robot a better MVP to test the market would have been to sell the service of me physically going into people's homes on call and carrying their trash out to the curb for them. I would have seen that the "oil well" was not very deep doing this.

It's obvious becomes obvious why you need to test the market first before trying to solve for specific pains. Entrepreneurship is about pivots. Rockefeller understood that adaptations brought advantages. Customers have endless alternatives to your product it's impossible to solve their pains with your MVP, but at least you can test the waters.

The goal of an MVP should just be to see if there is room to profit. Even if it's a new industry like AI you want to see if there's room to grow. It can be a race to the bottom if you don't quickly start digging your moat, something I am watching many "products" that are just another variation of ChatGPT struggle with today.

My role as a Product Manager is to continuously build our startups moat everyday so we can maintain our share of the market and continue to grow the profits we have. If you skip the step of drilling and try to go straight into expanding the scope of your business like Standard Oil did you may be left with a hard learned lesson: without demand you don't have a business.

Rockefeller understood a crude oil well was only an MVP and continued to expand his moat in the market through integration. First drill for demand then integrate for value.

FOOTNOTES

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