Ready, Aim Before You Startup
Every day we read about amazing startup successes. We hear about these brilliant 'unicorns'. What we rarely hear about is the many more startups that fizzle and die. The sad truth is, most startups fail. Taking the leap to start a new venture is a tremendous risk.
You can’t completely de-risk your new company, but it turns out that there are three things you can do to increase your chances of success from the start.
According to a study published last year by CB insights, the number one reason startups fail is lack of market need for their product. Let that sink in a minute…
Forty-two percent of failed startups claimed they folded because the market didn’t need their product.These companies either spent the time and money to build a product that the market didn’t need, were unable to find the market segment that needed their product, or were unable to reach their market and convince them to buy.
There are many reasons your company may die that you cannot impact, but believe it or not, this is one you can. Below are three ways you can increase your likelihood of success, before you even start building your product:
1. Start with the market, not the product
Many entrepreneurs begin their journey with a product idea. They have an idea for a product they want or one that would help some people they know. Based on that idea, they start to build.
That insight, that idea for something new is critical. But these entrepreneurs often find that there isn’t actually a market for their idea.
Alternatively, entrepreneurs who avoid getting stuck on that initial idea, who instead, “talk to 50, 100 or more potential customers get a lot of market data and have a much deeper customer perspective of the market. They tend to get better traction and better results,” explained Steve Mankoff, General Partner at TDF Ventures.
This research is about truly understanding the market, their pain points and their needs and behaviours. By talking to potential customers and surveying the market, you can determine whether or not there truly is pain related to your initial product idea that these customers might pay to solve. You may also identify a greater need that you hadn’t seen. You may find that there is no viable opportunity there, saving yourself a lot of time, heartache, and money. Or perhaps your initial germ of an idea may lead to an even better idea.
You may have heard the quote, 'fall in love with the PROBLEM, not the solution'. Don’t get too stuck on that initial idea. Take time to go deep on the market and truly understand the people that comprise it. Focus on identifying and solving a true pain for them. This will make it possible to redirect or 'pivot' as needed to find the best solution, one more likely to succeed in the market.
2. Focus Initially on a Narrow Market
Entrepreneurs looking for funding know that investors are looking for returns so they want to see big opportunities with big markets. To sell their ideas, founders will identify the broadest possible market to go after and try to paint a tremendous vision of how their innovation will capture the hearts and minds of many. But, pitching investors is different from building and selling early products. Actually trying to serve that broad market early on is a good recipe for failure.
The key to building a successful product (and then a successful business) is to start by focusing in on a much narrower target segment that feels pain around the problem you solve and truly needs your offering. Different segments of the market will have different, sometimes competing requirements and meeting them all will likely be impossible. The narrow targeting approach affords a much better chance of meeting and possibly even exceeding their needs, turning them into happy advocates for your business.
Many founders fear being pigeonholed and being unable to expand past that initial market. But it is much easier to expand from a base of happy customers than a pool of indifference.
3. Validate Your Idea BEFORE you build
As you home in on the problem you want to solve and the solution idea, you can further reduce risk by validating that product idea before starting to build it. It is rare for the first solution to be the final one. So it is important to build prototypes, test, and iterate in this phase as well. Bruce Cleveland, Founding Partner at Wildcat Venture Partners and Author of Traversing the Traction Gap warns founders to, “get a statistically relevant sampling of the market that you want to go after, with people you don't know, before you lay a single line of code or spend a dollar on rent or on salaries. If you can do that, you're going to dramatically improve your odds of success.”
This step can also help you identify the best initial segment to target - the one with the deepest pain and willingness to pay for a solution. In addition, it’ll help pinpoint adoption blockers that need to be solved.
Treat Your Startup as a Science Experiment
What questions should you ask? How much research should you do?
Think of your startup as a science experiment. Define your hypothesis and then test it by trying to DISprove it. As humans we are more likely to hear information that reinforces our beliefs, this tendency is called 'confirmation bias'. So do your best to ask unbiased questions and listen for information that proves you wrong.
Racing Against Time and Money
Market research isn’t expensive. With a plethora of online survey tools or a handful of $5 coffee gift cards, a would-be startup founder can gain a lot of market insights. But it does take some time. As a startup founder, it never feels like there is enough time. Founding a startup is a race against the clock and depletion of funds. It always feels like the pressure is on to be the first to market and secure the market before someone else comes up with the idea or money runs out.
The tricky parts will always be learning to ask the right questions and making the trade-offs - how much research is enough, when to trust your gut. However much you choose to do, market research and validation increases the chances of developing a solution that customers actually want and are willing to pay for.