Of course, the is nothing wrong with fundraising – it is the oxygen of the startup ecosystem. However, let us try and imagine the world where the startup lifecycle is not only about the next investment round. Apologies for this shocker of a statement, but I strongly believe that the main area focus for startups, from day zero, should be the market (read – clients). This is where the product-market-fit comes in. It means creating a situation when you are constantly besieged by an army of dedicated clients, who are willing to pay you money for your product again and again.
Let’s take a closer look at the most common mistakes in the product-market-fit that we have observed first hand in Blue Lake Accelerator working with companies from Central and Eastern Europe (CEE) and Ukraine in particular. I will stop using the term ‘startup’ and substitute it for ‘company’ one that is aimed to satisfy the client’s needs, generate revenue, and scale. With this in mind, let’s try to understand where to begin when obtaining the product-market-fit for your company.
A company always starts with an idea, but that is, of course, hardly sufficient. The next step is to formulate hypotheses, work with the available market data and obtain a clear understanding of your target audience. To keep it simple – know your client and his/her needs at the earliest possible stage. A familiar story in the CEE region is when talented technical specialists are focused on creating (what they believe to be) something truly special only then to obtain a poor (if not 0) response from the prospective clients. This observation is backed by a recent report by TechUkraine, in which they identify the most common internationalization challenge for Ukrainian companies – a clear go-to-market strategy. If not careful, any company can easily find itself in an uncomfortable position where the problem that it is trying to solve does not exist. My personal experience shows that it’s what hurts. How to avoid it? Go to your clients, understand their pains, and then build the best solution ever to hit the market or create a new market altogether!
Focus is everything
Let’s assume you’ve passed the challenge above. You are doing things right and putting the market first. What could go wrong? The most immediate example that comes to my mind is that every second pitch I hear contains statements ‘…our target market is the EU or US’. Ukrainian companies are frequently guilty of this, claiming the EU as their target market. The ‘but’ here is 27 different markets that are seldom analyzed separately and treated as a single homogenous area. I have seen that movie too often when the team is trying to do everything for everybody everywhere, knowingly following a losing strategy. Keep it simple – focus on a single market to start with. There is always a way to scale after.
Skipping market validation is a very bad idea
The market is selected. What is the next challenge? In my experience, many of the founders substitute their own experience, gut feeling, feedback from family and friends, or general stats for the systematic market validation process. We are not talking about complex and expensive sales and marketing strategy here, that particular story deserves a separate paragraph, if not a book.
The market validation process can vary case by case, but there are some common themes. I include a quick cheat sheet of these below which can be useful for young companies to get the ball rolling:
Step 1. Develop customer hypotheses. Step 2. Create a long-list of potential customers. Step 3. Shortlist of potential customers. Step 4. Form the customer approach strategy and start connecting. Step 5. Interviews with the consumers. Step 6. Analyse-it. Step 7. Get results. Step 8. Revisit your initial hypotheses and start again.
I want to stress on Step 5 as the trickiest one from my experience. With rare exceptions, it almost always means talking to real people. Online surveys are great, but they rarely give the full picture. Carefully identify who is the right person to talk to, but do not mix up a decision-maker and an end-user of your product. Asking people how things work in their space, what are their pain points, and how much they can pay for your solution – pays off. You will be surprised by what insights you can easily get from these conversations.
Sometimes market validation results may not be what companies expect, and that is ok. It is better and cheaper to make changes sooner rather than later. A clear understanding of the actual client’s needs, pains, and requirements, and how the product can make their lives better (or not) is a must.
Quick wins are not an option
Your product is ready to use and the first customers are in. Yet it is too early to celebrate until you can be sure that you’ve got the right customers, which in most cases means recurring revenue. It is far too easy to be diverted from the long-term strategy by one-off, quick wins. Keep constantly researching, changing and talking to your customers to get truly impressive results. Marc Andreessen writes in his blog: ‘Do whatever is required to get to product/market fit, including changing out people, rewriting your product, moving into a different market, telling customers “no” when you don’t want to, telling customers “yes” when you don’t want to, raising that fourth round of highly dilutive venture capital – whatever is required.’
There are no universal fit solutions. Every company has a different product, market, approach, and strategy to succeed. My goal was to address the most common pitfalls that I observed in the early-stage companies, especially those from the developing economies.
I deliberately left untouched ‘next level’ issues of getting product-market-fit, such as: how to evaluate the market size, how to track progress, how to understand if you need to change the product/team/market or how to redevelop strategy. All these and other questions deserve separate articles that will be covered soon so stay tuned! Meanwhile, I hope that this article may help young ambitious companies to move closer to finding the market fit for their products.
Prepared by Lyubov Guk, Partner at Blue Lake Accelerator for Vestbee