If your Startup’s Product isn’t Irresistible it will be Resisted
I work with dozens of very early stage startups each year. One in ten succeed seemingly effortlessly. Most of the others will probably fail, but that’s what the odds predict. Some don’t fail quickly, though. Many struggle for years, hustling for the attention of investors and customers, but they never quite get it. I know startup CEOs who think if only they work a little harder, craft just the right pitch, perfect their feature set, or network better, success will come. What they don’t realize is the problem is not with their work ethic, their product, or networking skills — it’s with their customer. That is, their company’s solution is not irresistible to the customer, and no amount of growth-hacking will get around it.
And the one in ten where success seems preordained? The common theme is that their product provides an exceptional solution to a huge problem, customers and investors can’t resist getting excited about it, and sales and fundraising comes (relatively) easy for them.
But how do you know if your startup’s product or solution is irresistible? This article is about how to find out.
Background
Last year I wrote an article about the ten slides you need to get investor interest, based on my experience of seeing hundreds of pitches per year. In brief, you need to prove the following:
Makers and Breakers
1. There’s a problem
2. It’s a huge problem
3. You have a solution
4. It’s an exceptional solution
5. Your solution is irresistible to someone who will buy it at a profit to you
Value Changers
6. Your team can do this
7. The regulatory pathway is known and achievable [I work mostly with life science companies; for tech companies my slide seven is “Your revenues (actual or projections) are incredible”]
8. IP gives you a competitive advantage and FTO has been considered
9. The requested investment will take you to a major value-inflection point
10. There is a history of exits in your space at enticing valuations
Slide five — your solution is irresistible to someone who will buy it at a profit to you — is the hardest to prove and the most important. Irresistibility is what investors are trying to assess from your pitch, even if they don’t put that name on it. Startup investors have seen (and invested in) enough companies to know that if you don’t have an irresistible solution that does, or one day will, provide a profitable income stream, then you don’t have a repeatable and scalable business, and they will pass.
While this 10-slide pitch guide is geared toward convincing an investor you have a fantastic business, it applies equally to companies not raising money. After all, you are your biggest investor, and you must convince yourself (and family and co-founders) that what you’re doing is worth your time.
Why Irresistible?
I’m sure you’ve seen the statistics for the failure rate of startups. Depending on the industry and whom you ask, it’s somewhere between 70% and 97%. The reason for startup failure is remarkably consistent, though. Post-mortems of failed startups have found the main reason a startup doesn’t make it: no market need. The company’s product was not an exceptional solution to a huge problem for enough people. In other words, the product wasn’t irresistible, not enough people bought it, investors could predict that it would not take off, and the company failed.
Let’s consider a way to assess irresistibility.
Problem-Solution Fit
Problem-Solution Fit is the core concept behind the broader term “Product-Market Fit.” That is, in Product-Market Fit your “Product” is the Solution for a person with a Problem, and your “Market” is that person — that is, your customer.
There are two sides to Problem-Solution Fit, illustrated in the figure below.
The Solution part is up to you — it’s all about your technology, your new idea, innovation, or clever business model. How well does your solution solve your customer’s problem? It must be exceptional — that is, ten times better than the status quo or competing solutions. If not, you’ll be lost in the noise and you won’t attract enough customers. Most startup founders intuitively understand this and go to market only with technically exceptional solutions. And if they can’t, they’ll move on to another problem to solve.
The Problem part of Problem-Solution Fit is not up to you, though — it depends on the person with the problem. But how do you know if there is a person with a huge problem you might solve? I teach entrepreneurship courses at UC Berkeley (LAUNCH) and for the National Science Foundation I-Corps program, which are based on Lean Startup methods created by Steve Blank. In these courses, students focus only on understanding their potential customer — their wants, needs, fears, and their problems. Students do this by guessing who might have a problem (a “Customer Segment”) and what is the problem (and then if you can solve it, your “Value Proposition”). Then students try to find out if they are correct (or more often where they are at least a little wrong). The way they find if their guesses are correct is by talking to people, which we call interviews. This guess-and-interview process is called Customer Discovery.
Customer Discovery
First, a note about the term “Customer Discovery”: many people start a Lean LaunchPad or I-Corps class with the idea that a “customer” is the person who buys your product and “discovery” means finding more of them, so it’s like business development or “growth hacking.” However logical, that’s not the way we use these terms. Instead, a “customer” is anyone who could affect whether your solution is adopted, and “discovery” does not mean finding them, but understanding them. Customer Discovery means adopting an obsessive fascination with everyone in your stakeholder ecosystem, and then understanding what makes them tick.
The hardest part of doing customer discovery right is that your technology or idea (the Solution part of Problem-Solution Fit) is not part of the interview. Remember that this process is only about the obsessive fascination with the customer and their wants, needs and problems. As soon as your solution is introduced into the conversation, the focus shifts to your idea and away from your customer. This is not to say it’s worthless to talk about your idea with people — you may learn something about how well your solution works— but you won’t learn the unvarnished truth about the customer, which is customer discovery gold, and it’s an opportunity lost.
The second hardest part of Customer Discovery is the sheer volume of these conversations needed to learn anything useful. In a classic Lean LaunchPad or I-Corps course we require at least 100 interviews “out of the building” — meaning with people you don’t know. Consistently we see teams discover something huge and surprising not in interview number five or ten, but only after interview 40, and the learning just grows after that.
So, you’re talking to 100+ people you’ve never meet before, obsessively fascinated with them and understanding their problems, but how do you know if a person has a huge problem? In these courses we teach that if they get animated, grab you by the lapel, or steer the conversation to something they are passionate about, or their pupils dilate with excitement when describing the needs, wants, and problems, then you’re on to something big.
Most teams just know it when they’ve found it, though. I’ve taught more than 300 teams in this process and have experienced the excitement when one has found the huge problem — they’re buzzing and beaming with optimism and it’s infectious. I had a team in a recent course with a technology relating to an electrical switch that they thought would be a “must-have” for makers of satellites. In talking to dozens of satellite engineers, they learned that switches were not as big a problem as they had thought. While reluctantly discovering this disappointing fact, though, the team was asking broad, open-ended questions about satellite designers’ wants, needs, and problems, and not discussing their switch technology. In doing so they found an unexpectedly huge problem — not relating to switches at all, but some other aspect of satellite construction — one that they could solve with more work back in the lab. This team left the course thrilled to be scrapping their original idea and couldn’t wait to get to work on creating an exceptional solution to the huge problem they discovered.
Finally, I’ve seen many teams discover that their customer doesn’t have a huge problem, but then conclude it’s because their customers are not sufficiently educated about the issues. Don’t fall into this trap — no amount of marketing from a tiny startup will convince enough people to make this a winning endeavor. You’re on the lookout for an existing huge problem, not one you create in the mind of your customer.
Putting it Together
You’ve talked to customers about their problems and now have a sense for how big those problems are. You’ve also tested your solution and have an idea how well it solves these problems. Let’s put it together.
I’ve added a little color to the Problem-Solution Fit figure above. If you find your early stage startup in one of the red or orange boxes, your decision should be easy — you would stop what you’re doing and find a better use of your time — and most founders get this. The yellow boxes (an “Intriguing” Problem-Solution Fit) are quicksand, though. A great solution to a big problem should be an easy win, right? Indeed, it’s a scenario that is almost impossible for most founders to resist. However, this is the area that I see most struggling companies fall into, and they can be there for years. They get some sales, but not much. Some investor interest, but it’s hard. They slowly run out of money. They beat themselves up with self-doubt and by blaming themselves, and it’s hard to watch.
A note about the second part of what you need to prove to investors on slide five: “your solution is irresistible to someone who will buy it at a profit to you.” Be sure that when you’re testing your customer, you’re considering also the people in your stakeholder ecosystem who have the money to buy the solution — it must be irresistible to them as well. For example, if you have an improved artificial knee implant, it may be irresistible to the patient, but it must also be irresistible to the insurance company paying for it. Your enterprise software may be a thrilling must-have for an engineer, but it’s equally important that you impress the company’s CFO, or whoever will write you the check. Finally, even if your user and buyer are the same person, you must be able to profitably sell at a price that her or she can afford.
Wrapping Up
If your startup delivers an exceptional solution to a huge problem, you’re on track. (To be fair, there are other reasons for companies don’t make it, even if they do have an irresistible Problem-Solution Fit.) If you don’t know yet, try the customer discovery techniques discussed above. To learn more, you could read a book and watch some videos. However, this process is hard and there are many ways to get it wrong, so you’re better off with a coach. Look for opportunities to take a Lean LaunchPad course or consider the National Science Foundation’s I-Corps program.
If you conclude that you’re not quite in the green “Irresistible” box in the table above, what can you do? Two suggestions:
If it’s because you found a huge problem and your solution is not exceptional, but it could be with more development, then keep at it. That part of the equation is up to you.
If you’re not there because your customer’s problem is not as big as you had guessed, don’t fall into the trap of thinking you can change the customer, or that amazing educational marketing will save you, because it likely won’t. Instead consider if your current strategy is actually the best use of your time. You’re an entrepreneur — you’re a smart person and have dozens of great ideas. It may be that one of those will be the one where you make entrepreneurship look easy (even if it’s not).
