Why should the market come before the product?
The sobering reality is that the majority of startups fail because there's no market need for the product. A common mistake is prematurely developing a solution rather than starting with, or spending adequate time, on the problem itself. This misalignment between the underlying problem or need and a solution can waste time and resources, dramatically increasing pressure for some founders to scale based on a fleeting runway of cash and a lack of time.
If the market's need hasn't been considered deeply enough, taking steps backwards and starting fresh from the product and team's perspective can range from quite difficult to impossible. Although it might seem less costly at the time, masking a lack of market/product fit by adding more features, new channels, or entirely new markets instead of circling back to get the problem right can be a dangerous strategy. We call this the "it'll click once we..." phenomenon.
"Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.” (Startup Genome Study)
Pinpointing and verifying a market opportunity allows founders to set a solid foundational perspective of the product's purpose, which the brand, product development, communication, and company's future will be built upon. Michael Siebel puts it best:
"Founders often hold too tightly onto solutions and too loosely onto problems. The problem, i.e. the market, is the real opportunity."
— Michael Siebel, Managing Director at Y Combinator
Market/Product Fit — How might we pull the product out of the market?
The former VP of Growth at Hubspot, Brian Balfour, has taken a compelling position that product/market fit should actually be reversed and seen as market/product fit. By framing it so that the market precedes the product, the process of defining market needs and opportunities comes before the team conceptualizing solutions and potentially wasting time exploring how to solve the wrong problem. Better yet, when analyzing a targeted market we like to start by validating that a problem even exists in the first place.
"The problem your company exists to solve lies within your market and target audience, not within your product."
— Brian Balfour, VP of Growth at Hubspot
We like to view this process as a puzzle that's missing a piece. First, we make sure that there's indeed a missing piece (if there are multiple, we determine one piece to concentrate on). Since we're tasked with guiding the founders in creating the final piece, we think it's logical to analyze the gap so we can design the missing piece to fit its specifications rather than build the missing piece and try to force it into place (or find other puzzles that it might fit!).
We take a similar approach based on Brian's model when assessing the markets our portfolio companies take aim at; more specifically, we work with the founder and their team to define and evolve our definitions of:
How might we define our target users? Categorize these users into specific personas.
How might we define the problem these users are having?
What are the driving motivations behind these users needing to fix this problem? What's the level of urgency?
Let's return to our puzzle analogy. If the problem is the missing puzzle piece, we want to dive into who is trying to complete the puzzle and what their motivation is for finishing the puzzle. We use design to address these questions.
Because design is communication it's important to design for and engage with these target personas as early and as frequently as possible. We care far more about the dialogue taking place than how it takes place. Communication design to define the who, their problem, and their motivations can come from traditional methods like surveys, competitive audits, and ethnographic research, however, we've seen some of the most inspiring identification triggers come from less conventional mediums like Reddit or community forums. The goal is to find users who are so driven to solve the problem that once mutual interest is communicated, they have a desire to help you shape and build the solution moving forward.
Existing Solutions — How is the problem being addressed currently?
If the problem you’ve defined is urgent to your target users, the next step is to analyze the existing solutions and how well they address the problem. You’ve pinpointed a good problem if the existing product offerings are clearly lacking to meet market needs, but be careful to leave that initial bias at the door when doing competitive audits.
We’ve found that this step can enable our team to discover and document future product and brand evangelists. Find the users who desperately need a solution, especially those who have “hacked” their own since no current products live up to their needs. We tend to narrow down 2–4 key competitors/existing solutions so that we can drill into the strengths and weaknesses of each, while documenting opportunities and threats for a new product.
How does your target user currently solve the problem?
Value hypothesis — How might we align the solution with the problem?
Once there’s a solid grasp of the problem and target users have been defined, it’s time to create value hypotheses for what has the strongest chances of addressing the problem for these users. We prefer the term “hypotheses” over “strategies” or “statements" because it clearly demonstrates the experimental purpose, that these hypotheses are meant to be tested and iterated based on key findings.
"A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product."
— Andy Rachleff, co-founder at Wealthfront
The goal is to point the market at the product, not the other way around. In doing so, we start with laying out the most essential core values based on findings from external channels such as speaking with target users, competitive audits, and industry trends. For brands that have existing data from initial research or a previous product, make certain it reflects the newly defined target users.
In theory, the fewer core values the better; however, tread lightly because this can also be an indicator that your core value is too vague. Eric Ries, who introduced the Lean Startup Process, questions founders by asking, "out of all the potential customer needs your product could address, which ones will you focus on with your product?". We've found that our core values tend to land between 1-3, which allows the team to determine a few areas of opportunity to test at this stage.
Defining the product's value hypothesis
Always be asking, “how well does the core value align with the core problem?”. Now that we’ve defined the target user, their core problem, and existing alternatives, we should be able to construct a hypothesis as follows:
[Target user] needs a way to [motivation], but unfortunately [core problem]. They’re currently addressing this by [alternative solution] but we believe they’ll use our product instead if we offer [core value proposition].
Before running off with this hypothesis, keep in mind that there's no one right answer for each of the above blanks categories and it's okay to have multiple at this stage. The point of designing for product/market fit is testing and iterating, so let's get to it!
In this series, we dive deeper into our approach to achieving product/market fit, the primary "fits" that we hope to balance with our portfolio companies, and our core belief that communication is the key to long-term startup health.
Part Three — Defining Market/Product Fit
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