Three Pieces of Advice from Venture Capitalists and Top Executives
For the fourth year in a row, the Harvard Business School Association of Boston hosted its Business of Food panel discussion. The event brought together industry executives, venture capitalists, entrepreneurs, and others with an interest or stake in the food and beverage industry. While food innovation is a passion of mine, what struck me most at the event was how similar the industry’s challenges and opportunities are to what I see elsewhere, whether it’s in healthcare, financial services, or industrial goods. Given the broad applicability of what I was hearing, I decided to distill some of the evening’s key takeaways into three universal pieces of advice for startups. Frankly, anyone in an innovation or product role would do well to heed this guidance.
Understand your customers’ true needs, regardless of what you sell. While market research comes with a cost — both in terms of dollars and time — its value is lasting. It’s pretty easy to get insights into what customers have bought in the past. Yet past purchases are a poor indicator of what customers actually need. Instead, it’s important to look at the jobs that customers are trying to get done on a daily basis. These jobs tend to be stable over time. That’s what I mean when I say that the value of a market research investment is lasting. New technologies can make it easier to get a job done, or they can make certain jobs rise or fall in importance. But the jobs that you uncover today are likely to be the ones that customers are looking to solve years into the future. Companies that understand these needs are the ones that are best positioned to adapt to changing environments and become true partners for their customers.
Sysco is an example of a company that truly understands this. For years, Sysco was a trucking company that delivered food supplies to businesses. But as (Sysco Boston President) Chuck Fraser described the challenge, anyone can sell you competitively priced green beans and French fries. As the industry became more commoditized, it was Sysco’s understanding of its customers’ underlying jobs that allowed it to adapt and thrive. Many of Sysco’s customers were small businesses who were good at getting food to their customers, but who weren’t very good at some of the business aspects of running a restaurant. Now, Sysco is as much a technology company as it is a trucking company. It offers digital tools that help restaurants build more interesting menus, create better marketing materials, and make determinations about what mix of items will drive the highest profits. Sysco has gone from being a delivery vendor to an indispensable partner for many of its customers.
Figure out a funding plan, and be prepared to answer the hard questions. I’ve written in the past about how difficult it can be for startups to get funding. It’s worth repeating. John Burns, a general partner at Breakaway Ventures, reaffirmed what I’ve often said about how difficult it is to receive funding from a VC. At Breakaway, the team took a deep look at 534 companies to find the 3 it was willing to invest in over the course of a year. Those aren’t good odds, but they’re pretty typical.
A big mistake that startups make is that they assume their value is in having a great idea. Great ideas are easy to come by. VCs want to know that there’s a market need that your idea is filling, that the potential market is large, and that you have the right team and solution to fill that need. And they’ll expect you to have the data to support your claims. While it’s tempting to focus on why your business is great, be prepared to talk extensively about the market you’re trying to play in.
Get familiar with new trends that will influence your industry. For a portion of the evening, the conversation focused on several trends that have been around for a while, such as sustainability and natural foods. But as the discussion deepened, we began to talk about less publicized trends that experts agreed might have big importance moving forward. This covered topics such as “eating alone together,” where groups can satisfy different tastes while sharing a communal meal, and the rise of plant-based diets and flexitarians (often called casual vegetarians). While these two trends may not be important for everyone, they remind us that someone does need to be responsible for spotting emerging trends before they’re mainstream. Being able to spot trends before the rest of an industry — and vet whether they’re truly trends at all — can give companies a valuable advantage.
Startups that are looking to establish themselves and grow will face a number of challenges. But by following three straightforward pieces of advice — understanding customers’ jobs, building business cases that focus on the market, and keeping an eye out for trends before it’s too late to capitalize on them — they can give themselves a leg up.
Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.