Did you know that 20% of startups fail within the first year? 50% fail by the end of the third year, and roughly 70% do not survive past five years.
When starting a business, founders begin with a set of assumptions. They assume the new business is a good idea, product, or service (solution). The founder’s second assumption is they know who the customers will be, and that these customers need and want this solution. Lastly, founders assume the problem their new business addresses is frequent and intense enough that customers will be willing to pay for the solution.
Validating these assumptions helps establish product/market fit.
Mistakenly, for some founders, these assumptions are good enough to start spending money buying supplies, developing marketing materials and launching the business.
But this “ready, shoot, then aim” approach fails to establish product/marketfit. Neglecting this step can unnecessarily cost time, money, and resources. And in fact, failure to establish product market fit, next to running out of money, is a leading cause for startup business failure.
Customer discovery is a best practice to validate (or invalidate) initial startup assumptions before spending money to launch a business solution no one will pay for.
Begin customer discovery with 3 fundamental questions:
1. What problem does the product/service/solution solve?
Describe the problem to others and see if they understand it, that the problem makes sense (as described), and they agree it’s a problem worth solving.
If a founder can’t accurately describe the problem, or prospective customers can’t completely understand the problem… then perhaps it’s not a problem worth solving.
2. Who has this problem? Who are the prospective customers?
This is important to understand for several reasons: these are the people who can validate the severity of the problem; these prospective customers might be willing to test your solution and provide helpful feedback for product/service development and improvement; and their input may inform product differentiation, packaging and display decisions, marketing messages, and go-to-market strategies.
3. Is the problem frequent or intense enough that a person will pay for the solution, and if so…what would people be willing to pay?
If the problem is not intense or frequent enough, a customer will be less likely to pay for it, or pay a lot for the solution.
As a founder gathers input during the discovery phase, it’s OK to adjust (pivot) the problem and/or solution based on “customer” feedback. Keep in mind, it’s more cost effective to refine the problem and solution during discovery, rather than after the business has launched.
So how many people should a founder interview during customer discovery?
Statistically it’s a good goal to survey and/or interview at least 100 people, and to make sure the sample demographic is aligned with your target customer(s). Get input and feedback from a wide variety of people and prospective customers, and remember the greater consensus a founder can gather, the more likely the business idea has a good product/market fit.
In addition to customer discovery, it’s equally smart to conduct a competitive analysis to know the competition, the competitive landscape, and understand the startup business’ competitive advantage (value proposition). Additionally, a competitive analysis can validate and perhaps pivot some of the initial assumptions including the problem, the solution, who the customers are, and how much they are willing to pay.
It’s essential to know what makes the startup business different from, and better than, the competition. What types of customers will buy more from the startup, than competitors…and why? Answers to these questions should become the foundation for developing a brand strategy and go-to-market messaging.
Last but not least, to avoid obsolescence, customer discovery and competitive analysis should be an ongoing practice to adjust for changing customer needs, shifting market demands, and evolving competitive solutions.
Failure to do customer discovery and perform competitive analysis is a costly step for founders to skip when launching a new business, and a fatal practice to neglect once a business is established. Yes, it can be hard work, but this upfront effort and ongoing protocol will go a long way to prevent becoming just another business casualty statistic.
Alex Taylor is the director of entrepreneurship for NewBoCo, where he mentors startups and early-stage businesses.
