The No. 1 Reason Why Most Startups Fail

February 7, 2020

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It comes to no surprise that many startups fail. Some of them teach us a lesson, others make us question how they got investments, and some others were out of luck to be at the right time.

When I wrote about the top 10 startups that failed last year, I received insights on the one reason that causes many startups to fail. It was noticeable that many shared the same tragic story about why they failed.

Yet, It’s uncommon to see the startup community speak about that reason.

What is Market-fit?

Surprisingly Wikipedia was able to answer it in simple words this time.

“Product market-fit is the degree to which a product satisfies strong market demand.”

A more practical way to understand what product-market fit is — thinking in terms of your product or solution value proposition to the customer segment that is willing to pay for that value you are providing.

The relationship between the value proposition and customer segment is called a product-market fit.

E.g., a company called Arivale Inc in 2019, that failed with a total funding amount of $52.6M had trouble finding a market fit for their product.

The company tried to create a clear path to optimize wellness and avoid disease for people. The cost of providing the service exceeded what their customers could pay for — making the service cheaper would make it harder to cover expenses. So the only option left for them was to shut down their operations; for more on this story, read Top 10 Startups that Failed in 2019.

How to find product-market-fit?

Start by defining your target customers; it’s the target customers that decide how well a solution meets their needs.

When you know the problem that your product is solving, and the approach to reach that solution — then start by searching for potential customers with similar issues — research how the product can fit into their life.

Finding the right customer segment is not about sending a one-time survey question; instead, think in terms of iteration. Create a hypothesis of your target customer segment and continually refine it and tweak your product features to dominate that specific market with your solution.

The common mistake startups make

Many startups make the mistake of trying to build for too many customer segments as possible — although there will be more potential customers that can buy your product, that comes with the drawback of fewer customers that truly love your product.

Trying to support many different customers will cause a startup to lose focus on the customers that love their product now — which in turn will make them lose their current users.

Conclusion

Any startup big or small can lose their position with no iteration on adapting to market demand and customer needs.

Finding product-market-fit can be overwhelming. Even startups with massive funding amounts find difficulties in finding the right balance between solution — value — customer needs.

A distinct customer segment is the first step towards building a solution customers love. By knowing whom, you are serving will also make decision making in the company more clear. The answers will be apparent when a question like implementing this feature is appropriate or not.

“Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves.” — Steve Jobs

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