Building early-stage growth strategy around customer-value fit
There are two reasons early-stage startups struggle in Southeast Asia: they can’t acquire customers fast enough or can’t acquire customers sustainably. Survival is much harder in the first case than in the second. In my previous startup, we failed partly because of the first.
In the first case, the founders tend to focus more on building the product than on identifying the right target market. The side effect is they skip solution-market fit. At best, they would have a great product that are nice to have for the broader market, than a sufficiently good product that a particular market segment must have. When founders don’t build must-have products, they are at risk of building products that customers don’t want. Achieving product-market fit becomes significantly hard and so it does acquiring customers and grow. The founders only have two options; pivot or shut down.
In the second case, the founders usually tackle a competitively huge market. Early customer acquisition and fundraising could be more straightforward than in first case. But often the founders tend to be driven more by the prospect of rushing for a winner-take-all spot than the prospect of gradual wins starting from a deeper core of their market. This leads to premature scaling by spreading too thin, which risks diluting the startup’s value proposition over time. Hence, maintaining good unit economics become challenging. The founders have three choices; they can continue burning money while building compelling sustainable growth narratives to keep fundraising, scale down, or shut down.
Achieving customer-value fit
One common approach to both problems is customer-value fit; founders start by segmenting customers by values that appeal to them, and then narrow down further to the segments that truly see their solution as a must-have solution. This would be their target market.
The target market would usually only make up ≤ 20% of a hypothetical customer base. Yet, they create 80% of the value; they spend time on the app more, purchase more, or they even recommend the solution to others.
Growth is a complex problem, but customer-value fit reduces that complexity by allowing founders to channel their energy on the 20% customers that create 80% of the value for their startups.
Understanding the elements of value pyramid can help founders in the discovery process of customer-value fit:
For instance, mobile/console gamers appeal to emotional values (fun/entertainment). In Southeast Asia, functional values tend to have the strongest appeal. As a perspective, below is a matrix that presents some example of customer-value fit for startups in Southeast Asia:
In my approach, I made assumptions on which target market each startup aims for. The actual target market might be different in reality (e.g. Carousell might target all genders instead of my guess of only female). But that’s not the point. The point is to illustrate what various kinds of values startups can possibly create and how they fit their customers’ needs.
Case study: Gojek’s customer-value fit
As a further illustration, below is a hypothetical example of how Gojek achieves customer-value fit across its ecosystem of apps:
1). Go-ride: Ride-hailing services
Demand: Office workers (customers) want to avoid traffic congestion during weekday rush hours to get to their office and back home. Traffic congestion wears and frustrates people out, but most workers can’t afford personal drivers. Go-ride is valuable to them because it provides an easy access to affordable motorcycle taxis (values).
Supply: Conventional motorcycle taxi drivers (customers) have low income. Go-ride recruits them as their drivers, provide them access to riders, and let them take the majority cut of the gross fare (values).
2). Go-food: Mobile food delivery services
Demand: Gojek could simply convert their Go-ride customers into target market. But a more effective option could be the customers/visitors of the restaurants whose menu already listed in Go-food’s app directory (customers). The reason is food delivery services offer different set of values than what Go-ride offers to its users. Go-ride is valuable due to its convenience, cost-saving, and time-saving nature. But Go-food is valuable because it provides easy access to variety of take-home food (values).
Supply: To create the demand, Gojek enters partnerships with restaurants (customers). Gojek would list their menu on Go-food’s app, so customers can order their food using the app. For the restaurants, Go-food is valuable because it allows them to make more money by adding in delivery sales channel without taking a huge risk by investing their capital in fleets; Go-food provides access to Gojek’s app customer base and fleets (values).
3). Go-pay: O2O Mobile e-wallet services
Gojek’s growth strategy was to launch Go-pay e-wallet service, which allows users to top-up their balance offline by giving cash to the drivers. This allows online payment participation without needing bank accounts. This is a big improvement in Southeast Asia, where 70% of the population are unbanked.
Go-pay offers functional values their existing target customers need: avoid hassles, simplifies, and provide access — Allowing for growth through retention and acquisition of new users.