The most straightforward question to answer in high-growth entrepreneurial endeavors is “Why do so many startups fail?”
The next question is: Why are many bright, determined entrepreneurs — innovators who are willing and able to risk reputation, money, time, and resources to build technology-based businesses — failing to solve the market problems that lead to sales?
It could be an issue of execution. A company may burn through its cash before it reaches critical milestones that lead to breakeven or additional funding. Sometimes the competition is better than you, or a recession or black swan event (think pandemic).
Perhaps the startup founders failed to validate the market and customers before they created their business plan.
CB Insights has collected hundreds of post-mortems on startup failures from founders and investors since 2014. This data is not a complete set of statistics, but it does provide some insight—the No. The No. 1 reason for company failure is no market need. This error has been acknowledged by all types of startups, from pre-seed businesses with less than $50,000 from friends and family to unicorns (private companies valued at $1 billion or more). The number 2 reason for failure? Failure was reported as the No 1. The startup ran out of money.
Although product-market fit can be difficult, the industry is better than us. Here are three suggestions to help entrepreneurs make difficult-minded, practical market validation, and customer validation their starting point for new businesses.
1. Change your mindset and your mind.
Focus on your customer’s pain and stop thinking about your product. You want to discover evidence of an issue so widespread, so well-understood, so prevalent that everyone in your target sector recognizes it and raises it.
It is not essential to look for exciting solutions. Do not try to solve problems that aren’t going away. Do not ask your friends or family for validation. Everyone wants to validate you, whether you’re your partner, spouse, college roommate, or attorney. You’ll have plenty of chances to trust your instincts later. Instead of trying to prove your assumptions wrong, you should set out to find evidence to support them. You can’t prove your ideas wrong, but if they fail, then you haven’t done enough research. Continue exploring until you find the perfect product-market fit or exhaust your options. Failure in one business idea allows entrepreneurs to come up with new ideas.
2.Customers should be part of your validation team.
Would you mind getting to know your target customers down to their shoelaces? Listen to customers, and you will learn about their problems. Talk to people using alternative solutions or competitors. Ask them about their preferences and dislikes. Examine the barriers that prevent you from changing. Inertia is a formidable competitor. Customers don’t buy technology. Customers don’t buy technology. These benefits have value. Customers will be pleased to share their perspectives with an entrepreneur learning mode about the value proposition for solving those problems.
Honest customer feedback is essential to creating a solution people will buy. Be sure to include proof of customer engagement in your business plan. An investor will be attracted to evidence that your business has been listening and meeting with customers. Companies at the concept stage are more likely to be funded if there is early validation.
3.Add external data to boost your credibility.
A few lists of potential customers or companies can be purchased for very little money. Roundtable of mentors and advisors that understand the market your business is trying to target. To reach leaders at Fortune 1000 companies in your area, you can use local business associations, civic groups, and community forums. You can network to meet vice presidents and general managers in the areas you want to serve. Request an information-gathering telephone call. You might be amazed at how willing business leaders will be to speak with entrepreneurs who want to learn.
Look online for speakers who are essential to the industry. You can download proceedings and presentations. Trade groups offer free reports and surveys. Increase your resources by building strategic relationships. These can be from key suppliers or information from rivals. Join their email and marketing mailing lists. They have the same customers and markets that you do.
Start a company with a simple way to organize and collect information about customers and markets. Good habits and validation muscle memory will become second nature as you grow your business. Potential early adopters can be great contacts, especially if you can show how their ideas influenced the design.
Here are some additional tips. Building a product and a business is not the same thing. Whatever your resources, from talent to technology, karma, or capital, nothing will be as crucial as a well-validated product-market match.