In the startup world these days there is a lot of noise surrounding growth. Companies are hiring “growth hackers” and “growth marketers”. Marketing heads now like to call themselves “growth heads”. Early stage startups, as soon as they get seed funding or pre-series A funding, start blowing money on performance campaigns expecting to grow and scale fast so that they can go for another funding round before their war chest is emptied.
But what is often ignored in all this obsession for growth is the more fundamental problem of achieving product-market fit. Have you identified your market correctly? Are you offering the right product to the market you have identified for yourself? If not, are you doing something to change your product offering before it is too late?
If you are an early stage startup, before you can jump on to the growth bandwagon, you need to solve these 6 problems to be able to achieve product-market fit.
1. The Problem of Market Size
So your product solves a problem. Great! But solving a problem isn’t enough. The problem must be faced by enough people (B2C) and organisations (B2B) for you to have a big enough market to sustain.
But how big is big enough? About 10 million people (B2C) or 200k organisations (B2B). These numbers are based on how many web impressions it would take you to get enough leads that would then get converted into paying customers. A simple calculation would lead you to similar numbers.
If your market size is less than these numbers then you are going to have trouble scaling the business. So it is always a good idea to solve a problem that is faced by big enough number of people or organisations.
2. The Problem of Problem Awareness
Okay, so your target market is big enough. But that is also not enough. Your target market should be aware that they have a problem that your product solves. As entrepreneurs we get enamoured by our solutions and don’t realise that the people we are trying to sell to may not be even aware that they have a problem.
So what do you do if your TG is not aware? You will have to evangelise. You will have to be a brand ambassador of your solution and create awareness of the problem amongst people. But evangelising is a costly affair.
So if you are dealing with the problem of problem awareness, have a bigger war chest. Be ready for a long lean patch that will see you only spending on awareness and not earning much in return.
If not, you solve a different problem.
3. The Problem of Profitability
Let’s say your market is big enough and also self aware of the problem. But that is again not enough. Mere awareness of the problem does not mean that your target group will spend money to solve it.
Do they care enough about the problem to shell out enough money for you to achieve profitability? If not, you have to achieve massive scale and offer your product at a cheap price.
If your TG doesn’t care much about the problem, they will seek low or discounted prices. So if your profit margins are minimal, you will need a huge market to achieve profitability.
4. The Problem of Urgency
But even an aware market that is willing to pay for the problem to be solved, is not enough. Especially in B2B. Is the problem urgent enough for your market to spend money in solving it now? Is there any lock-in with your competitors?
If the urgency is simply not there or if it is inconsistent or periodical, your profitability will be unreliable and it will be difficult to survive.
Solution? Find easy ways of marketing or create product lock-in. If your marketing costs are low you can survive the lean patch. Or if there is product lock-in, there will be less churn.
5. The Problem of Differentiation
Even if you have solved the previous 4 problems, you may still not be successful. Your product may not be unique enough for your market to buy from you only and not your competition. As entrepreneurs, we may think that our offering is unique. But unless it is genuinely different in some meaningful way from the competition, you will not have a winning formula.
Solution? Create differentiation. What you are offering has to have something unique that others aren’t.
6. The Problem of Churn
The final frontier to overcome is the problem of repeat purchase. Are you offering something that is not important and differentiated enough for your market to make them come back to you again and again? Or are you solving a problem that is temporary in nature? If yes, then you have a leaky bucket and it will be extremely difficult to scale.
Solution? You should have a massive addressable market and have to minimise marketing spends through word-of-mouth publicity. But even then, not being able to retain customers is not a good situation to be in. That’s why you should much rather focus on making customers come back to you, either through product stickiness, or through exemplary service.
