Source: CB Information Services
According to a 2021 CB Insights report 35% of 111 startups stated “no market need” as one of the reasons for failing, surpassed only by "running out of cash". In a 2015 SCM World survey 467 respondents stated "Product not meeting customer needs" as the no 1 reason for product fails with 37.5%.
In our Disruption Selling Maturity Model ensuring that there is a market need the Offering serves sits right on the bottom level.
Innovators will be the first to adopt an innovative Offering. For this it must have Product Market Fit (PMF). Today we look at the capabilities an Offering must display for this.
Validation: The Offering must effectively address a relevant issue for a specific target market in a novel way. For the Innovator a Minimum Viable Product (MVP) is good enough as long as it delivers a non-traditional value proposition. Its application must drive a fundamentally improved business process providing an unassailable competitive differentiation for the customer’s own offering.
Customer Satisfaction: The Offering must effectively deliver on the promise of a non-traditional value proposition, meeting and exceeding customer expectations.
Retention: Customers must find enduring value in the Offering, resulting in sustained usage over time.
Referrals: Customers must be inclined to advocate for the Offering, fostering organic growth through positive word-of-mouth recommendations.
Reduced Customer Acquisition Costs (CAC): Obtaining new customers must become more cost-effective due to the Offering’s compelling value proposition.
Market Expansion Potential: The Offering must have the capacity to penetrate new markets or cater to different customer segments while maintaining its appeal and relevance.
Competitive Advantage: The offering must carry competitive advantages addressing specific market needs more effectively.
Feedback-driven development: An ongoing feedback loop with its customers must aid the Disruptor in refining and improving the Offering to better meet customer needs.
Sustainability: The Offering must provide sufficient margin to indicate its long-term viability.
If lack of PMF is the reason for failure in 35% of failed startups, what makes it so difficult to achieve?
The more innovative an Offering the less data on its target market is available. In its most extreme form, the market is only generated by the disruptive Offering (“Blue Ocean Market”) and hence there is no available data on it.
Building an Offering for PMF must start with working backwards from a real customer. What is it they are unhappy with? How much of a pain do they feel? Is it painful enough for them to really consider a solution? What is the one new value proposition an Offering must deliver? Is there a business case?
A great example for a successful disruptive Offering with immediate PMF despite a total lack of historic market data is represented by AWS’ launch of S3 in 2006: There simply wasn’t a self-service, pay-as-you-go BLOB storage available before. But Amazon had spent several months using their Working Backwards methodology to increase the likelihood of meeting customer expectations.
Does Amazon alway get it right using their methodology? Unfortunately no, as evidenced by the epic fail of the Fire Phone in 2014.
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