According to a study in 2018, 42% of startups fail because of “No Market Need.” Another way to say this is “Poor Market Fit” or “The startup didn’t know who their customer is or what they wanted”. That second one isn’t quite as catchy….
Regardless of how you say it, it boils down to the fact that the #1 reason that a startup fails is because they built something no one wanted. How do you fix that? Easy. Don’t build it…yet.
I am not saying that you should give up on your dreams and get back to your day job. What I am saying is that with time and some elbow grease, you can really build and test your idea without any money and without any tech.
This might seem like strange advice coming from the founder of a firm who builds and designs tech for startups (thebigpixel.net), but it is often the best solution for someone just starting up and we recommend it to all of the “idea stage” founders we talk to.
The Two-Sided Marketplace
If you are an idea stage founder, then you are probably dreaming of a new venture that is a “two-sided marketplace”. That simply means that your idea is to somehow connect two different groups of people. There are a million ways to do this:
- Connecting a driver and someone who needs a ride (Uber, Lyft).
- Connecting a handyman with someone who needs their house repaired (Porch, TaskRabbit, Angie’s List).
- Connecting a nice place to a vacationer or renter (AirBnB, VRBO).
- Connecting a car technician with someone who needs a wash (Spiffy).
While not all startups and new ideas go this route, it is a very common starting point. In fact, out of the dozens and dozens of startups I have worked with or advised over the years, I would roughly guess that 75% of them fell into this category or something very close to it.
So why do I mention this? Because the two-sided marketplace is ideal to test and work with without any tech at all. In this scenario the startup is a connector or middleman. Your company’s job is to connect a customer and a vendor.
Instead of diving in and spending all your seed money on code and design, we recommend most startup noobs grab their phone, an Excel spreadsheet (or Airtable… love Airtable) and “become their startup”.
Here is a brief explanation of exactly how to do that and what you can expect when you do.
Step 1: Find some customers
Now there are a million amazing ways to define your customer, research them, profile them, learn what their favorite toys were as children. All of that is great and completely necessary at some point. The beauty of this approach is that there is very little risk right now so you can just make some assumptions.
- Who are they? Men? Women? Old? Young? Rich? Poor?
- Where do they hangout? Physically and online.
- Where can you find 100 of them? Can you get their phone number and/or email?
As you find people interested in your service, put their name and contact info into your spreadsheet.
One last quick note: it is REALLY easy to rely on friends and family here, and while they probably have a role to play at this stage it is super important to get outside of the bubble of people who love you. They have a tendency to be kind. You need the brutal honesty of a stranger here.
Step 2: Find some vendors
This is a very similar process to Step 1, but this time you are looking for the business side of the equation. People/companies that want to sell something on your marketplace.
Entrepreneurs usually think of their customers first (which is why I made them step one), but it is actually easier to start here because vendors have websites and easy to find contact information. Get their rates, hours, and anything that is relevant to your idea and put them in your spreadsheet.
You also don’t need quite as many vendors as you do prospective customers. Ten or twenty ought to be enough at this stage. I would keep them relatively local if possible. Ideally they are all in your area so that the local people you find can easily hire the vendors.
If your idea is something that can be remotely connected, then you probably want to at least keep them all in the same timezone so that you keep things simple.
Step 3: Connect them!
This is where the magic happens. Once you have some vendors and people looking for your vendors, it is time to connect them. But I am getting a bit ahead of myself.
At this point you have a sheet of potential customers and a sheet of vendors who can fill their need. Your job is to “be the tech”. It is time to get on the phone. Email will work here too, but phone is much better because you will learn a lot more about your customers and vendors if you can hear them.
At this stage, you want to choose one or three vendors that you think would be perfect for the customer (don’t overwhelm them with a list). Your job is to be the matchmaker. Tell them why the vendor is fantabulous and why they are exactly what they need. The key here is to do everything you can to schedule the service. You don’t need to take payment at this stage, but you should do everything up to that point.
What you don’t want to do is just pass off the vendor information and think you are done… Everyone is “interested”, but the trick here is to close the deal (or get as close as you can). A close will teach you a ton and really see how much traction your idea really has. If you just give them the vendor’s contact info, then you really haven’t learned much.
Got it? Good. Now go do it at least ten to twenty more times. Oh! And did I mention that you shouldn’t charge anything yet? You should talk about money and how much your service should cost a lot, but I don’t recommend charging yet. Your goal here is to see if your idea has legs and to prove it out. At some point money comes into the equation, but not quite yet.
So, this sounds like a lot of work right? It absolutely is, but the good news is that the only cost is time. If you are serious about your company then that is a currency you should be happy to spend.
So what should you expect to gain if you find and connect 10 to 20 customers to their dream vendor?
- A firm grasp of who your customers are and who they aren’t. Also you should have a solid start on good ways to find them.
- A stable of vendors who have benefited from your service. This will be a huge help when you have an actual product to sell.
- A wealth of knowledge on what works and what doesn’t. You will also learn the weird quirks about your industry that you didn’t know before you started. Every industry moves a bit differently. It will take years to fully grasp it, but each lesson will make your end product a lot better.
Keep in mind that at the end of this exercise you may come to the conclusion that there is no business here and that is just fine. All you have lost is some time. Many founders learn that after spending thousands (or even millions) of dollars and potentially years of their life. Better to learn this sooner rather than later.
Unless you are racing to market for some reason, there really is very little downside to this strategy. With that said, I find that many founders balk at doing this kind of work. They would rather dive in, spend money, and build their app… My guess is that the allure of building and the sexiness of a “startup” is just too great.
But if you can resist the temptation to jump in and build, you will be smarter/stronger/faster from the experience.