How do you know there is a market for your product? All too often, smart people have clever product ideas that may not fit with what the market wants. I advocate getting to “yes” fast, but getting to “no” faster. Painful as it may be, it’s better to know quickly whether a market exists for your product and, if not, move on. Remember that some 93% of start-ups fail. We always have to be learning about what works and what doesn’t, and often learning comes from humility. Remember, the goal of a startup is to create a repeatable and scalable business. To improve the odds of success, a startup should be a “problem company,” not a “product company.”
Rather than building a product just because you have the technology to do so, identify a problem that you have the technology to solve, and, mostly importantly, that enough people will pay for it to be solved. The challenge is to identify the gap between what the market needs and what you can provide, then figure out if there is enough money out there for your product and, if so, how you are going to get it. There are five areas you need to address to make an assessment of product/market fit:
- Product Clarity: Can you describe your product and make it understandable in 30 seconds? Does it pass the “explain to my Mom” test? If you can’t explain your product clearly and concisely, it is at best an idea or a technology in search of a purpose.
- Value Proposition: Assume the market has a fixed amount of money, and that the customer has to give something up in order to buy what you offer. Why should they part with their money? That’s what the value proposition has to answer:
- The product has to be differentiated – what makes it different?
- The product has to resonate – people need to care about it, which is often harder than differentiating it.
- The product’s value must be measurable – how much better is it than what currently exists on the market?
- The Market: Who is the market? What is the market size and trend? It’s not always obvious. You need to validate your product with actual potential customers – as painful as it might be. Engage with customers and listen to their feedback. Don’t defend your product, focus on finding out what they think of it. Give them a specific price, and ask if they would pay it (as opposed to simply asking what they would pay, which they are likely to answer with as little as possible or nothing). Share as much of your vision in practical terms as you can. Be as specific as possible in identifying the target customer as possible. Customers like to think “this is made for me” when they buy a product.
- The Channel: Can you use an existing sales and distribution channel (such as established financial institutions for a fin-tech product)? If not, are your prepared to establish a channel? The cost and effort of building a sales channel must be factored into the go/no-go decision.
- The Price: If you have the value proposition for your product nailed (and you have actually listened to your customers), you will feel more confident about setting the price. Pricing should take into account comparable products and I always consider a three-tiered pricing model so that you don’t give away value or overcharge. Also, the first rule of pricing – you can never raise the price in the future. Offer a “promotional price” to test the product and get feedback, but once you’re ready to launch, be sure it’s priced appropriately. Discounting is a dangerous game and should only be used to address unforeseen market changes.
— Vishal Kapoor is Principal of Three Legged Stool and brings success in entering new markets and driving high growth business strategy and execution. He has successfully incubated new businesses within large companies, driven OEM and joint development partnerships, and built and managed engineering and marketing organizations.