One of the critical success factors for an early-stage startup is entering the market in a smart way. Sometimes entrepreneurs think they can just create such a great product that selling it will be very easy. However, this is almost never the case.
The entry market
An early-stage startup should define their customers as precisely as possible and focus first on solving a problem for them. It’s much easier to create a working solution and operating model for a group of similar customers, rather than trying to serve many different customer segments. In order to scale rapidly, a startup can’t customize their product for every customer, which means that customer needs should be quite similar.
If a startup is serving very different types of customers, their needs are probably different. This makes it difficult to know who to listen to. The startup can also lose visibility into how they are reaching product/market fit. Different types of customers may also want to work in different ways with the startup, increasing your operational complexity – and startups can’t afford operational complexity.
The startup’s entry market should be a small group of similar customers who seem to be the easiest first group of customers to acquire. When evaluating which is the best entry market, many things matter. Of course, looking at who could benefit most from the startup’s product is important, but also other business fundamentals matter – like how easy it is to reach the customers, how open the customers are to trying out new solutions, geographical location, and so on.
People often don’t realize that a niche product can be a huge business if it’s possible to scale globally (and startups should by definition be creating globally scalable businesses).
For example, if your market is Finland (5.5 million people), and there are 2,000 potential customers that can pay €200 every year for a niche product, that means the market is €400,000 – too small to be sustainable. But if the situation is the same in all Western countries (roughly 1 billion people), then the market size is €80 million. That’s of course not huge, but it’s significantly bigger than the initial estimate.
Once startups have scaled within their initial niche, it can often be easier to then expand the product and reach new customer segments, which can multiply the market size – which means the entry market is different from the total addressable market.
Go-to-market strategy refers to the set of integrated tactics which a company will use to connect with customers. Sometimes startup entrepreneurs say something like “we’ll write some blogs, sell first in our home market and then move abroad”, but that is not a go-to-market strategy. A go-to-market strategy covers the structural choices about how a startup enters the market. It includes things like channels, pricing, possible partners, business model, and entry market – basically, everything that matters when a startup is entering a market. Finding an effective go-to-market strategy is an essential part of reaching product/market fit.
Startups almost always have limited resources and have to come up with a cost-effective strategy to enter the market. The best go-to-market strategies are often “hacks” to get the product in front of potential customers with minimum effort and in a way that makes the product seem attractive.
The pitfall for many first-time founders is to settle on an initial plan about how to enter the market. For example, the initial plan might often be to do direct sales. However, for most startups there are usually five to ten different ways to enter the market, which means it’s beneficial to take your time to come up with and evaluate different options. Often the best and most effective go-to-market strategies are not the obvious ones. Another thing to take into consideration is that the go-to-market strategy is about entering the market – the long-term plan on how to acquire customers can in some cases be different.
Examples of go-to-market strategies
The different go-to-market strategies mentioned below are not a complete list and there are many other possibilities, but this should help give you some ideas.
1) Direct sales
Selling directly to the customer is the strategy that most startups think about first. There are two options: inbound and outbound sales. Outbound sales are the traditional way of pushing a product to potential customers and inbound sales means selling to a customer when they signal their interest somehow. Usually startups start with direct sales and it almost always works, even though it can also be very expensive.
2) Indirect sales
Here, a partner or distributor sells the product for the startup. This can be very effective for a startup but often hard to achieve as an early stage company. There are many different variations in indirect sales, but in all cases the startup needs to offer a great value proposition to the third party that will sell your product.
3) Give away and monetize
This is about giving away the initial product for free (or very cheaply). After that, the startup has some way to generate more revenue from the customer such as selling additional features or selling data.
4) Systemic or industrial interlock
This means integrating the startup’s product with some other offering where customers are likely to buy the product. For example, a taxi company could aim to integrate their offering with an airport portal, TripAdvisor, or a similar service where there are a lot of people who are probably potential customers. This is one of the go-to-market strategies that can be very effective, but finalizing a deal with some relevant offering is the challenge.
5) Thought leadership
Startups create value by solving a clear problem. However, you can be creative when it comes to monetizing your offering. For example, one startup who created mobile analytics software had the initial plan of simply selling the software. However, they started to use the software themselves and publish rankings and information about different mobile apps, creating their own media presence in the process. Their media presence became so popular and interesting that another company bought the startup.
6) Going “viral”
For products sold completely online using marketing funnels, like apps or hardware products in e-commerce stores, many aim to go viral. This means that the product organically spreads to customers through social networks. This is achieved when every new customer brings one or more new customers – then growth will continue organically. This is hard to achieve, but you can make it more likely by giving a promo code to users. For example, the food delivery service Wolt gives an invite code to its users. If you invite a new user to Wolt with your code, you get a €5 gift card to Wolt.
How to know if you’ve reached product/market fit
Reaching product/market fit is often described as a binary thing (yes/no), but it can be hard for an entrepreneur to identify when you’ve achieved it (since reality is often not that black and white). In some cases metrics can help, sometimes an entrepreneur just “knows” it, and in some cases it’s something you can only identify some time after it happened.
Reaching product/market fit is the number one goal for all early-stage startups. It requires a lot of work from the moment you get the initial idea and identify a problem you could try to solve.
Most startups don’t ever reach product/market fit and instead disappear as either the resources or the belief in the product runs out. But this is not a bad thing as there is no point in building companies around products that don’t create significant value for anyone. The startup ecosystem is also there to support entrepreneurs who have failed.
Keeping the startup small and agile while searching for product/market fit is smart as the goal should be to learn and iterate as fast as possible. In their best form, early-stage startups are machines that can rapidly find new solutions to significant problems.
However, even after a startup has achieved product/market fit, they should never stop developing their product and way of operating. And the same iterative development process based on customer feedback can be applied to bigger companies too. However, for bigger companies it’s often harder to iterate at the same rapid pace as startups.
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