Today is the final part of our series on what VCs and other investors look for in startups beyond financials. We’ve already mentioned the importance of having an experienced management team, up-to-date social media profiles, and strong information security. Now, let’s discuss a startup’s product/market fit.
According to Marc Andreessen, Co-founder and General Partner of Silicon Valley venture capital firm Andreessen Horowitz, market is the most important factor in a startup’s success or failure. In fact, he claims that “the No. 1 company-killer is lack of market.”
Product/market fit means being in a good market with a product that can satisfy that market. It’s not enough to have a stellar product; without a need for that product, it won’t sell.
Missing product/market fit is often a cause behind a startup growing too fast. Successful VC Fred Wilson has said that “getting product right means finding product/market fit. It does not mean launching the product.” Say you launch a brand-new product, but you have to spend thousands on marketing to gain only a few sales or have to spend an exorbitant amount of time explaining a complicated new industry. In this case, you haven’t proven your market exists, you aren’t meeting an addressable need, and you often won’t be able to sustain growth.
While chance certainly does play a role, there are certain ways to make sure your product fits into the market. The basic process is build, measure, learn, and repeat. Begin by building a minimum viable product, which will allow you to test and see if it has a place within an existing marketplace. Measure the response you receive, and you’ll be able to learn whether or not that product has a future – whether that means moving forward with that exact product or continuing to make alterations toward the best possible version.
How can you tell if your product has found its fit? Ideally, your product would get repeated use from customers, would sell without much marketing on your part, and would address an implicit consumer need (one not outright asked for but one that does answer a question or meets a desire). In fact, startup success isn’t even necessarily dependent on being the first to market. It’s more about first to product/market fit. Instead of trying to create a market out of the air, it’s sometimes best to reinvent within an existing market – what is typically referred to as disruption (“a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses”).
That does it for our series on what investors look for beyond financials. As you can see, it takes a special combination of traits, experience, security, and opportunity – as well as some luck – to potentially find success as a startup founder and attract the attention of VCs.
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