Validating Your Idea Without Writing one Line of Code — Part 1: Finding Your Market.
Achieving product-market fit can take valuable time, and consequential mistakes happen in this phase, leading to startups that are doomed to fail. Therefore, a structured approach is all the more critical when validating a market and idea. Here's part one of a series of three articles.
Since 2021, I have made it my goal to guide startups to a product market fit in a structured process. Experience with more than 12 startups is encouraging: the approach saves precious time, increases focus, and identifies problems with the market early. That does not always lead to success, but it helps founders to avoid investments of resources into unpromising markets and ideas.
It’s time to explain the process and share examples to help more startups successfully achieve product-market fit:
What is Product-Market Fit?
The product-market fit describes the stage of a startup company where they have successfully identified a target customer and serve them with the right product. And this is crucial: If you don’t have the right product or your targeted audience doesn’t buy, you need to figure out why and work on it.
You might find another audience or market, but you need to work on your product and improve the value you deliver to your customer. There are examples of companies sold without achieving a product-market fit, usually because they went viral. But there is no example of a company that has built a successful business without achieving the product-market fit.
“The only thing that matters is getting to product-market fit.” Marc Andreessen
Product-market fit means creating enough value for the right customers. Enough value means your customers either pay for your product or — when monetizing with advertising — pay with their precious time.
In other words, once you achieve product-market fit, you’ve answered the questions of who, what, and how:
Still, 90% of Startups Fail.
CB Insights analyzes annually why startups fail and identify several reasons directly related to a lack of product-market fit, including the fundamental reason — lack of market demand — and others, such as flawed business models or pricing/cost issues.
Despite the abundance of resources available, such as books and blog posts, most startups still fail. The reason for this is not a lack of knowledge or frameworks but rather a lack of focus on achieving product-market fit. Many founders become overwhelmed by operational tasks, particularly fundraising, and lose sight of the bigger picture.
Often, founders are convinced by their solution and vision, and a firm conviction leads to either hearing only positive feedback or reducing research. I’ve experienced that many times and often, it happens unconsciously. Again, a structured approach, e.g., by using interview scripts and a data input sheet, can help solve this.
“Many entrepreneurs who claim to embrace the lean startup canon actually adopt only part of it, neglecting to research customer needs.” Tom Eisenmann, Harvard
Step-by-Step Product Markt Fit Process
Raumpioniere, a Swiss startup in prop tech has decided to participate in our program that I initially launched with the accelerator RealGrowthHacking. The team originally wanted to start scaling but realized that the basis for growth still needed to be added. So we went back to assess the market and compared the different options, and this was not an easy step, but due to the openness of the team and the founder Atilla Färber, they soon had a clear idea of the buyer persona and could test it.
Another founder, Ruben Feurer, contacted me a couple of months ago: He was also about to launch a new product called Agree and, with his team, has already built a prototype. After some discussions, we decided to start the product-market fit program together, despite the product’s more advanced status.
An assessment helped me to understand what’s needed and create a suitable approach. Understanding the needs is crucial for such collaborations since most founders don’t come to us when they start but when they experience the first serious issues. Therefore, we need to understand what has been done before.
The structured approach toward product-market fit contains the following steps, which I will explain in more detail:
1 — Market and Ideal Customer Profile
When thinking about your target customer, it’s essential to understand the economics behind such as the size of the market, the urgency for your solution, and the uniqueness of your offer to this market. You need to research and compare different markets by attractiveness to identify this.
A founder, Ruben Feurer, contacted me a couple of months ago: He was also about to launch a new product called Agree and, with his team, has already built a prototype. After some discussions, we decided to go back to assess the markets. Even though the team had a feeling about it, it still needed to be validated.
Starting with a smaller segment of a big market is a strategic approach for new businesses looking to enter a new market. It helps you focus on a specific group of customers and their needs and use this success as a stepping stone to grow into more significant markets.
This approach allows you to dominate the segment first, establish your company as a leader, and expand your reach and customer base over time. By focusing on a specific segment, you can also learn about your customers, their needs, and the best ways to reach and serve them, which will be an advantage when expanding to a bigger market.
If you are looking for external funding from VCs or Angels, you must ensure that your potential revenue in 7–10 years is above $100m or — even better — $200m. That way, your startup has enough potential for an attractive ROI for investors.
Determine the Ideal Customer Profile and Buyer Persona
Once your market is identified, define to whom you are precisely selling. Define your ICP as well as you can with as many attributes as you know. If you’re a B2C business, create the buyer persona directly.
“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” Andy Rachleff
The buyer persona helps to understand who the person is that will buy your product. In B2C, it is the person you’re selling to, and in B2B, it is the person who will decide in your target company to buy or not buy a product.
Working with ICP and Buyer Persona
The beauty of ICP and Buyer Persona is that they are tools that can be used and updated throughout the startup journey. So they are living documents that you should initially review after each interview and adjust as needed and later for strategic realignments.
In the case of Agree, they have developed a customer profile. But what often happens is that a founding team creates a persona once and then forgets about it. This is understandable, as it is abstract work at this stage, and they develop a good feeling for the market, the ICP, and the buyer persona through the interviews. So why keep it up to date?
Nevertheless, we have done this step again with Agree since the ICP and persona should also be communicated to the team. A structured approach offers clear advantages: Several people do interviews, and this information must be brought together.
To build a thriving organization, information needs to be shared.
And I often see that a crucial question cannot be answered: Where and how to reach my persona? Such gaps usually happen when the interviews are not coupled with the persona and the persona is not updated.
Success Criteria of Step 1 — Market and Ideal Customer Profile:
In conclusion, finding an attractive market is essential before you even start assessing a startup idea. Your market lays the foundation of your startup's success, or Marc Andreessen's words: “Markets that don’t exist don’t care how smart you are.”
What is Product-Market Fit?
The product-market fit describes the stage of a startup company where they have successfully identified a target customer and serve them with the right product. And this is crucial: If you don’t have the right product or your targeted audience doesn’t buy, you need to figure out why and work on it.
You might find another audience or market, but you need to work on your product and improve the value you deliver to your customer. There are examples of companies sold without achieving a product-market fit, usually because they went viral. But there is no example of a company that has built a successful business without achieving the product-market fit.
“The only thing that matters is getting to product-market fit.” Marc Andreessen
Product-market fit means creating enough value for the right customers. Enough value means your customers either pay for your product or — when monetizing with advertising — pay with their precious time.
In other words, once you achieve product-market fit, you’ve answered the questions of who, what, and how:
- Who is your customer, and what is their problem?
- What is your solution to their problem?
- How do you solve that problem in a way that creates proven value for you and the customer?
Still, 90% of Startups Fail.
CB Insights analyzes annually why startups fail and identify several reasons directly related to a lack of product-market fit, including the fundamental reason — lack of market demand — and others, such as flawed business models or pricing/cost issues.
Despite the abundance of resources available, such as books and blog posts, most startups still fail. The reason for this is not a lack of knowledge or frameworks but rather a lack of focus on achieving product-market fit. Many founders become overwhelmed by operational tasks, particularly fundraising, and lose sight of the bigger picture.
Often, founders are convinced by their solution and vision, and a firm conviction leads to either hearing only positive feedback or reducing research. I’ve experienced that many times and often, it happens unconsciously. Again, a structured approach, e.g., by using interview scripts and a data input sheet, can help solve this.
“Many entrepreneurs who claim to embrace the lean startup canon actually adopt only part of it, neglecting to research customer needs.” Tom Eisenmann, Harvard
Step-by-Step Product Markt Fit Process
Raumpioniere, a Swiss startup in prop tech has decided to participate in our program that I initially launched with the accelerator RealGrowthHacking. The team originally wanted to start scaling but realized that the basis for growth still needed to be added. So we went back to assess the market and compared the different options, and this was not an easy step, but due to the openness of the team and the founder Atilla Färber, they soon had a clear idea of the buyer persona and could test it.
Another founder, Ruben Feurer, contacted me a couple of months ago: He was also about to launch a new product called Agree and, with his team, has already built a prototype. After some discussions, we decided to start the product-market fit program together, despite the product’s more advanced status.
An assessment helped me to understand what’s needed and create a suitable approach. Understanding the needs is crucial for such collaborations since most founders don’t come to us when they start but when they experience the first serious issues. Therefore, we need to understand what has been done before.
The structured approach toward product-market fit contains the following steps, which I will explain in more detail:
- Market & ICP Identification
- Identifying and validating underserved needs
- Finding a true value proposition
- Launching and testing an MVP
- Optimizing the MVP
- Pricing and acquiring first customers
1 — Market and Ideal Customer Profile
When thinking about your target customer, it’s essential to understand the economics behind such as the size of the market, the urgency for your solution, and the uniqueness of your offer to this market. You need to research and compare different markets by attractiveness to identify this.
A founder, Ruben Feurer, contacted me a couple of months ago: He was also about to launch a new product called Agree and, with his team, has already built a prototype. After some discussions, we decided to go back to assess the markets. Even though the team had a feeling about it, it still needed to be validated.
Starting with a smaller segment of a big market is a strategic approach for new businesses looking to enter a new market. It helps you focus on a specific group of customers and their needs and use this success as a stepping stone to grow into more significant markets.
This approach allows you to dominate the segment first, establish your company as a leader, and expand your reach and customer base over time. By focusing on a specific segment, you can also learn about your customers, their needs, and the best ways to reach and serve them, which will be an advantage when expanding to a bigger market.
If you are looking for external funding from VCs or Angels, you must ensure that your potential revenue in 7–10 years is above $100m or — even better — $200m. That way, your startup has enough potential for an attractive ROI for investors.
Determine the Ideal Customer Profile and Buyer Persona
Once your market is identified, define to whom you are precisely selling. Define your ICP as well as you can with as many attributes as you know. If you’re a B2C business, create the buyer persona directly.
“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” Andy Rachleff
The buyer persona helps to understand who the person is that will buy your product. In B2C, it is the person you’re selling to, and in B2B, it is the person who will decide in your target company to buy or not buy a product.
Working with ICP and Buyer Persona
The beauty of ICP and Buyer Persona is that they are tools that can be used and updated throughout the startup journey. So they are living documents that you should initially review after each interview and adjust as needed and later for strategic realignments.
In the case of Agree, they have developed a customer profile. But what often happens is that a founding team creates a persona once and then forgets about it. This is understandable, as it is abstract work at this stage, and they develop a good feeling for the market, the ICP, and the buyer persona through the interviews. So why keep it up to date?
Nevertheless, we have done this step again with Agree since the ICP and persona should also be communicated to the team. A structured approach offers clear advantages: Several people do interviews, and this information must be brought together.
To build a thriving organization, information needs to be shared.
And I often see that a crucial question cannot be answered: Where and how to reach my persona? Such gaps usually happen when the interviews are not coupled with the persona and the persona is not updated.
Success Criteria of Step 1 — Market and Ideal Customer Profile:
- Finding a big enough market is the most important step in building a successful company. No market = no need!
- After this step, you have your serviceable obtainable market (SOM) with over 100m $ in potential revenue, a validated “market attractiveness”, and a defined niche.
- Time: two to four weeks
In conclusion, finding an attractive market is essential before you even start assessing a startup idea. Your market lays the foundation of your startup's success, or Marc Andreessen's words: “Markets that don’t exist don’t care how smart you are.”
Product-Market Fit & Beyond
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FEBRUARY, 22 / 2023
