If you don’t have product market fit, you don’t have a business.
You might think that simply running out of cash would be the main reason that start-ups fail, but the product-market fit is listed in the as the top reason (a whopping 42% of top 20 reasons according to CB insights).
How crazy is that?
Founders pour so much time, money, sweat and tears into building out their ideas, yet so often do not venture out of their bedroom/garage to ask anyone if they actually will use what they are building; let alone if they would pay for it.
This is eminently more disturbing as it is one of the simpler and cheaper parts of starting a business. Get a prototype (smoke and mirrors) or demo that you can show people and get out there and see what people say. If there is categorically no interest at all, you should probably stop whilst the stakes are low and you have not lost anything. If there is some interest — ask a lot of questions, go back to your desk, iterate on the feedback then go back and show more people, then repeat the process.
In Sandpit Lab, where we identify potential new digital marketing technologies with our corporate partners and clients, we try to fail fast; testing use-cases and hypotheses, using mock-ups and asking a lot of questions. In order to get to a point when a minimal viable product (“MVP”) makes sense, we bring in other non-competing companies to check that there is a wider market for the product and not just a point solution for the first partner/client. Getting too focused on a single client is often the death of a start-up; the product becomes too skewed to the individual customer needs that it no longer works for the wider vision.
When we bring a new portfolio company into The Sandpit, they enter a four-month Proof of Concept (“PoC”) stage. This is effectively our due diligence, and it is essentially focused on product-market fit. We test the market in two practical and extremely insightful ways;
Firstly, we go out to 10 prospective B2B clients and attempt to sell the product; if they all say yes, great we have a home run, but more likely we will get a mixture of answers, so we dig deeper. Why would you not buy this? Are you using something else that does the job for you (competitive landscape assessment)? Is it too expensive and would you buy it if the pricing was lower or structured differently (pricing analysis)? Does it need to do more or have different features (product analysis)?
Secondly, we put together a round-table event for several hours with all of the players in the portfolio company’s ecosystem: potential direct clients, agencies, channel partners, experts, and we ask them the same sorts of questions; What do you like and not like about this product? What would the barriers be in your organisation to buying this, and who would sign it off? Is the pricing right? What should the product roadmap look like? What is the single most important thing the product does? What should the key marketing message be? Who would be the influencers in the market for this product?
That covers initial product-market fit, though during the PoC we also check the quality of the product (code) and really get to know the founders to see that we are aligned in business vision and as people. We don’t want to work with prima donnas or people who won’t listen and learn. Not listening and learning often goes in tandem with building something that the world does not need, thus failing the product-market fit test, and entering the failed start-up statistics in the 42% category.
It is really important to realise that checking product-market fit is not a one-off activity. If Apple had stopped with the first version of the iPhone it would now be obsolete. Customer feedback, industry roundtables, seeing what competitors are doing and constantly asking the market about your product should be a constant exercise, month after month.