What if you build it and no one comes?
What is the number one reason start-ups fail? Is it lack of cash? Is it pricing? Bad marketing? All of these factors, as well as many others, may play a role, but according to a recent CB Insights report …
The number one reason start-ups fail is no market need.
In fact, the top three reasons cited by CB Insights are:
No market need 42%
Ran out of cash 29%
Not the right team 23%
This analysis was based on post-mortems of 101 start-ups … admittedly not a huge statistical sampling … but should be big enough to give one pause.
I understand too well how lack of capital can stop you in your tracks when you’re trying to get a new business off the ground. Cash is king, right?
And the wrong team, even though you’ve worked hard to put what you think is the right organization in place, can make all the difference between success and failure.
What’s harder to square is how anyone can put so much hard work, capital and energy into starting a new business … only to discover that there is no market for the product or service.
CB Insights specifically pointed to the problem of “tackling problems that are interesting to solve rather than those that serve a market need.” This is undoubtedly a serious problem. I’ve seen it on countless occasions.
Often, however, the problem is not a lack of intent or effort when it comes to understanding and responding to specific market needs. Rather, it is the process used in trying to understand what those market needs are.
While I like the movie Field of Dreams, I also know that an “if you build it they will come” mindset has been the downfall of way too many start-ups.
All the market research you can do, all the focus groups, surveys and competitive analyses you can perform, all the prospective buyer personas you can develop, mean nothing until you get a real product in front of a real buying customer with cash (or a check) in hand. I know this first-hand. Focus group participants, for example, will tell what they think about your product. But talk is cheap. And until customers pony up with an actual purchase, the feedback you receive is limited at best.
Three basic principles, each of which is often overlooked, are critical to mitigating up-front risk and aligning products with market needs:
- The Minimal Viable Product principle,
- The Parallel Customer/Product Development principle, and
- The Fail Fast, Learn Fast, Fix Fast principle.
Minimal Viable Product
There is often a tendency to want to thoroughly understand the needs of the market and to fully develop a product based on that understanding prior to launch. The problem with this approach, as noted above, is that one’s understanding of the needs of the market changes once a product is actually in the marketplace. The Minimal Viable Product (MVP) concept, popularized by Eric Ries, says that a product should be developed initially with the most basic set of properties needed for purchase by early adopters. A prototype is an example. The MVP is the most pared down version that can still be released. An MVP has three key characteristics:
- It has enough value that people are willing to use it or buy it initially,
- It demonstrates enough future benefit to retain early adopters, and
- It provides a feedback loop to guide future development.
In a prior newsletter I talked about how disrupters understand the need to get new products in front of early adopters quickly. Those early adopters help them test initial assumptions regarding market acceptance, vet the new product in the marketplace, and evangelize the product to the majority of buyers.
Parallel Customer/Product Development
The processes of developing new customers and developing new products do not occur in series. Rather, they are parallel processes with many feedback loops. These feedback loops inform the development of the product beyond the MVP to ensure market acceptance and growth. Steve Blank has said the key to entrepreneurial success is to “Get Out of the Building”. What he means by this is that start-ups fail when entrepreneurs wait too long to gauge real customer interest in their product … by getting the product in front of buying customers … by learning from those customers … by refining the product … by getting the product in front of additional buying customers … you get the picture.
Fail Fast, Learn Fast, Fix Fast
The process described above is the essence of failing fast, learning fast and fixing fast. It’s the embodiment of each feedback loop in the parallel customer/product development process. Kevin Roberts, former chief executive of Saatchi & Saatchi, popularized this maxim. Not being afraid to make small mistakes, and to learn from them and respond to them quickly, is the key to start-up success. This approach will prevent the costly mistakes, the ones that can do in a new product launch from the get-go. Don’t assume you understand your market and develop your product accordingly, before you ever get it in front of buyers. Be willing, eager no less, to make mistakes and to learn from them. Don’t assume you have to have it 100% right from the start. It never works that way.
Want to learn more, please contact me.
For over thirty years, Mike has been actively involved, as a coach, entrepreneur, scientist, business executive and management consultant, in the areas of executive leadership, organizational development and change management, strategic planning and execution, and financial analysis. He has provided strategic, operational and financial leadership to small and medium-sized firms, as well as Fortune 500 companies and large government organizations, in a broad range of industries. Mike holds BS and PhD degrees from the Georgia Institute of Technology and has had additional training in finance and accounting, strategic planning and management, leadership development, and succession planning, from various top-tier institutions.