Building a startup is tough. Statistically, 90% of startups fail. A compilation of startup failures by CBInsights reveals that the majority of them never find a product market fit. Some of these startups spend millions of dollars just to come to this realization. Luckily, there is quite a bit that founders can do to validate their idea, find their market, and understand their customers.
Start With a Mission
Remember that you’re building a business, not an app or a website. A business should be driven by a mission that identifies its goals and strategy. Even if you’re in the early stages of building, it’s super important to start with a mission. The mission should be a big idea that serves as a guiding principle for the company, which can be as simple or complex as needed. It’s typically best to start simple, nothing is set in stone. You can always expand or change your mission as company objectives change. Alternatively, you can create an internal mission, and an external, customer facing mission.
For example, Airbnb’s mission is short, simple, and to the point: “Belong anywhere.”
While Uber’s mission is a bit more lofty and complex: “Transportation, as reliable as running water, everywhere for everyone.” This likely was not the mission when the company started in 2011, but given the global impact seen by the company, this mission makes perfect sense for what the company is accomplishing, and continues to try to accomplish.
For a great overview of startup missions statements, be sure to check out Inc. Magazine’s comprehensive list.
Understand Your Business Model
A lot of startups run with an idea and build a product without fully understanding their business model. In other words; just because a few friends told you that you have a great idea, it doesn’t necessarily mean anybody would pay for it. We’ve spoken with a lot of startups that “had a great idea,” but experienced much difficulty getting traction with their business model.
A business model is a strategy for generating revenue and delivering value to your customers. It identifies your market, customers, solutions, revenue streams, and much more. There are numerous tools out there to help build your business model, but we prefer the Lean Canvas, which we think is an ideal plan for entrepreneurs.
Truly understanding your market and customers is much more difficult than it appears, but this tool helps.
We’re always surprised by how many entrepreneurs fail to do adequate research before pursuing an idea. You don’t need to hire a research firm to get an initial understanding of the market. Rather, aim to use the information from your business model to research your customers and competitors.
We have developed a research sprint for clients because of this common failure. Learn more about it here.
Understanding your market size and growth is absolutely critical to the success of a startup. Whether the market is huge and broad or small and niche, it’s important to ensure you’re entering a market that is growing.
Making sense of the local market size is just as important. When a startup launches, its product typically isn’t instantly available worldwide. Instead, it starts with a local economy, then grow to other cities (or demographic groups) and beyond.
If you want to start a successful business, you simply must be in the right place at the right time. If you’re local (or relevant) economy isn’t big enough, then your chances of survival are small. For example, if you’re trying to develop a restaurant delivery service in a small suburb, you’re probably going to have much more difficulty there than in large cities like New York City or Chicago where there are vastly more customers and demand.
Competition is usually a good thing. Unless you are starting an ambitious startup like space exploration (think SpaceX), then you will almost certainly encounter competition. If you don’t have any competition, then there is a good probability that there are simply no customers in that market.
Competitive analysis is a great way to enhance your business model. While reviewing competitors and understanding the market, you should answer the following questions:
- Who are your competitors?
- How are you better, faster, or cheaper?
- What’s your unfair advantage?
Google has a few great tools for conducting simple market research:
- Google Trends, which shows you search trends for key items
- Google Insights, which breaks down search data by location
You can also contact us if you would like help with customer research.
Customer development is one of the most important aspects of finding product/market fit. Many entrepreneurs underestimate the importance of it, instead putting faith in the belief that “if you build it, they will come.” This is far from reality. You simply can’t build a successful product without the help of your customers.
Customer development is the process of identifying, interviewing, and understanding your customers, their pains, and their needs. In order to build a product, an entrepreneur must understand what the right product is. So: How do you do this?
- Find your potential customers: Go to meetups, find them on social networks, get introductions from friends, search your network.
- Talk to your potential customers: Set up a meeting, lunch, or drinks to sit down and begin to get a deep understanding of your customers’ needs.
- Identify Pains and Needs: Get an idea of their pain points and what their needs are. Try to extract as much detail as possible.
- Notes: Take notes. Lots of notes.
People love to talk, especially when somebody is listening. Learn to become a good listener and you’ll both enjoy the experience.
Once you have this data, refer back to it often. And continually get new feedback as your product evolves.
Customer development is a great way to identify what kind of product you must build to find a product/market fit. Likewise, the process can even help you find your first customers. The people that take time to talk to you will be even more vested in your idea as they feel that they are part of something big.