Entrepreneurs, beware of this misstep

After 15 years of serving on startup boards, reading startup blogs, articles and magazines, I see patterns developing around company failures or missteps.

I am going to call them “lessons learned” as a way of setting up a series for insights to reduce startup failures.

If you build it, they will come

Often founders envision a better solution to a problem. Because the solution intuitively feels like an improvement, they build it and create a company. Founders immediately begin trying to initiate sales, but the company fails when customers don’t buy it. The lesson: An intuition isn’t enough to justify building a company, and rarely does a startup founder possess the depth of experience to justify acting upon an “intuitive gut feel.”

To avoid this, the founders need to test their assumption(s). Some founders have learned this through the Lean Startup Program where the initial process begins with “customer discovery” to discern a minimally viable product (MVP). Attaining customer feedback is good, but often the exploration is structured in a “biased” fashion to elicit answers the founders desire. They build the solution, but again, the customer doesn’t buy it.

Customers aren’t to be taken lightly

What happened? Customer research shouldn’t be taken lightly. It takes effort to attain authentic qualitative information about the problem and about customer buying patterns. It requires a plethora of feedback, which means multiple interactions and trials with the customer base. They must garner meaningful data points that provide insights on users’ behaviors.

Speaking of user behavior, issues typically arise when a new solution to a market problem requires significant education on behalf of the consumer. The consequence of having to educate the consumer is buyer friction and resistance. Even if founders persist and provide the necessary training, this dramatically impacts the sales cycle and consequently increases the amount of required capital to be successful.

Beyond the education resistance, founders must discern if customers are willing to buy more than once. A one-time purchase doesn’t guarantee a repeatable model. Founders can’t build a company that doesn’t generate recurring revenue; practical utility is needed for customer retention.

As part of customer discovery, founders must research not just the existence of competition, but also the level at which the competition has a hold on the marketplace. Barriers to entry must be examined closely to help determine a launch and scale a business plan. Strategy around penetrating the market will be based upon the depth of the research and analysis of the market.

In summary, founders can build a company and customers will come, if founders do their homework.

 

Catherine V. Mott is the CEO and founder of BlueTree Capital Group, BlueTree Venture Fund and BlueTree Allied Angels located in Western Pennsylvania. As one of the more than 370 professional managed private investor networks in the U.S. and Canada, BlueTree Allied Angels has invested more than $27 million in 43 regional startup companies.