Why is your startup missing funding? Top aspects that founders often overlook.
An experienced investor and startup advisor, Pasi Pohjala shines a light on the concept of the product-market fit and reflects on other steps when building a successful venture.
Pasi started his career journey over 20 years ago at Nokia, focusing on business development and customer care. Working closely with new initiatives got him involved in developing a fresh corporate environment and corporate venturing. Eventually, he left the famous company and pursuing entrepreneurship as a career. Pasi’s tech background, combined with a wide range of business-related expertise, and his natural entrepreneurial drive, mixed at the correct ratio and created a perfect formula for becoming a startup developer, advisor and investor.
“Unless I had made the decision to leave my comfort zone which was Nokia and jump into the unknown, I would have spent the rest of my life asking myself question: What if?”
Pasi shares his insights into the challenging world of startups through the questions we were lucky to ask him:
What do most ventures miss to become successful on the market or to attract investors?
Over the years, I have met dozens of founders. What I noticed is that they often can be very delusional about their idea. They are convinced they have created a fantastic solution, a magic pill, but there isn’t any demand nor a problem to be solved. It usually happens when teams skip early testing to identify the issue, prove the relevancy of the product for the market and calculate how it would perform.
As an investor, I require the problem and the solution to be outlined very clearly, together with providing a strong indicator of how effective the solution is or can be. Otherwise, I am out.
It is always a good exercise to try and take a more critical approach towards the project. But since their idea is almost like their baby, being objective may come as a real challenge. In that case, having an advisor or somebody who is not that much involved in the process is necessary. Those people will be able to tell if something will not work and certainly needs fixing. Teams need to be ready for receiving criticism, and if first negative feedback knocks you down, you should have never started this journey, in my opinion.
I have been on the other side of the table, been hammered with questions from the investors and been rejected as well…
Let’s imagine three pillars on which the startup is standing. Amazing product, exceptional team and a suitable market with great demand. Which one is the most vital?
It isn't easy to choose as you need them, and it is even more critical that they are balanced. But if I really need to select just one, let it be the team. The saying goes:
“Good team can make a bad idea fly, but a bad team can never make even the best idea take off the ground”
I stand by this quote and the majority of the people in the Finnish angel investor network.
Talents can identify missing aspects from a product to be a good one and then change the direction or reorganise the strategy. The same goes for the demand. After a couple of trials, eventually, the correct market fit will be there. However, a good team is not only determined by the skills people possess but the energy and attitude they have and how functional they are. Risk-taking goes hand-in-hand with an enormous amount of stress, which is very likely to affect the atmosphere and relations inside the team negatively. Therefore, it is crucial to stay resilient, open-minded, and accepting to maintain a healthy environment in the team and be a successful entrepreneur in general.
The founders must be strong enough in order for investors to believe in your startup.
You have mentioned product-market fit several times. Why is it important?
If there are not enough people willing to pay for your offering, then you can’t create a scalable business out of it. Despite all the fantastic qualities that the product might have, there will be no demand if it does not fit market needs. PMF does not only increase sales but also the attraction of investors and customers wanting to help improve your product. Statistically, 80% of startups succeed in finding a PMF. So it is crucial to get to know the potential customers and to test as early as possible. Testing involves building and launching several product ideas.
Another pro-tip for bringing a product to a market is that it should be clear what the product is and how it works and why customers need it.
Suppose you are launching in an already crowded market. It is important to differentiate, but startups can always choose to follow the Blue Ocean strategy. However, when creating a new marketplace, there is a risk of irrelevancy. Meaning the audience is just not ready for the product. Implanting a product is usually a costly and time-consuming process. I would recommend doing it if only there is great potential and enough funding. Otherwise, it is more efficient to tailor the product to the current needs and habits of the customers.
How can startups avoid premature scaling, spending too much money on growth before it has developed PMF, since it is easy to confuse early adopters with actual customers?
Staying critical is the key; having advisors by your side is a huge plus. Budgeting wisely and forecasting, keeping all the business operations equally advanced, instead of focusing on upgrading one particular dimension.
What is the magic moment of PMF, or it simply does not exist and is instead an ongoing and everlasting process?
It is a magical moment indeed. During a Slush keynote speech, CEO & Co-founder of Segment, Peter Reinhardt, refers to it as a rush of adrenalin, a loss of control over the product as customers starting to dictate their vision.
You don’t realize it until you obviously have it…
But of course, after comes the challenge of retaining the market. Again, it is entirely the company’s responsibility to keep the value proposition high and give the people what they want.
What made you join the NSS mentor program and the greatest value you get from this experience?
I liked the concept and was eager to learn. Moreover, NSS provided the opportunity to really examine the teams, get to know the founders, and look deeper into their ideas, which help me expand my investments carefully.
To meet, work, and possibly get invested in by mentors and angel investors like Pasi, apply for NSS program! Follow us on Linkedin for more useful content and to be updated on our activities!
