Obsess over meeting customer needs not the product
Worth Capital’s Matthew Cushen says firms that can show a clear market need for their product and the scope to scale are most attractive to investors
There is one business column I read religiously each week – Mark Ritson, a marketing professor who writes for Marketing Week. I’m loath to tell you about him as he is the insightful, entertaining, provocative columnist that I aspire to be. You’ll read him and judge me harshly.
This week he wrote about the perils of ‘product orientation’. His audience are marketing professionals – the guys and girls in a big business that are paid to wake up every morning to be the conscience of the market and customer that a business serves.
He observes that those marketeers “quickly lose the perspective of the market as we spend hundreds of days a year inside a company that is launching or managing a product. We start to think the product is the centre of the world, not the customer that we are designing it for.”
This happens in big business and it should be one of an entrepreneur’s big advantages to be close to their customer. Unfortunately, many start-ups fall into the same trap – a focus on the product, service or experience they are building rather than an obsession with meeting customer needs.
No market need: The number one reason for failed businesses
I’ve read way too many investment pitches and business plans that wax lyrical about product features and service design. But it becomes clear they are beautiful solutions desperately trying to find a problem to solve.
At Worth Capital we find this particularly so with technology start-ups. We raise an eyebrow when a business describes themselves as property tech (proptech), financial tech (fintech), healthtech etc.. This is an immediate signal to us of a business focused on their product rather than the market need. As well as a lame attempt to tap into overinflated valuations for these ‘categories’ of investment.
But this isn’t just our point of view. A report published a few weeks ago quantified the top 20 reasons that start-ups fail. It was compiled by CBInsights a US research service that follows start-ups, VC (venture capital) funding and trends. As well as being American they also have a heavy bias towards tech, but my experience suggests it should be still be a salutary warning for any start-up, anywhere and in any sector. It found the number one reason a start-up failed (42%) was ‘no market need’. The next was ‘ran out of cash’ at 29%. The report is available here.
When we look at potential investments our number one criteria is the market – are there customers that will have a reason to care about the product or service? (generally, this means that it is solving a pain point or creating an unrealised need) and is the market large enough within which to scale?
Understand consumers in your market
So we look for evidence of real empathy with the consumers in the market and an understanding of exactly what is being solved for. For example, we invested in a business looking to provide an online platform to landlords.
There are many start-ups in the same space, and many with much better tech building capability than our investment. (They typically describe themselves as proptech and lead on the UX.) But our guy is a landlord with multiple rental properties. He has first-hand experience of all the gripes and niggles that landlords talk about and has identified a clear opportunity for tenants (having their rent payments contribute to their credit score) that creates the potential for them to recruit landlords (who love the thought of tenants that are motivated to pay on time and in full each month).
We expect his cost of customer acquisition to be much less than others in the space. And by the way, Mike and his business RentalStep won the October 2016 Start-Up Series and was also just announced as a winner of £100,000 of free funding from the Treasury to help him develop the idea.
Just to re-iterate the point, Seth Godin is a smart entrepreneur and marketeer. He says we are “moving from an era of finding customers for our products [brands] to an era of finding products [brands] for our customers”.
It’s a nice turn of phrase and one I believe should be true. With large businesses still finding this difficult, it’s a fantastic opportunity for entrepreneurs to lead the way. But unfortunately, many are falling into the same trap. Please make sure you are not one of them. Obsess now, tomorrow and every day about your customer – their pain and their desires – and use that as the driving force for your product or service. Not the other way around.
Are you seeking investment? Startups.co.uk, with Worth Capital, has the Start-Up Series, monthly competitions giving two companies every month the chance to win equity investment of £150,000 each. To find out more visit: www.startups.co.uk/thestartupseries