By Matthew Cushen
There is one business column I read religiously each week – Mark Ritson, a Marketing Professor who writes for Marketing Week. I’m loath to tell you about him as he is the insightful, entertaining, provocative columnist that I aspire to be. You’ll read him and judge me harshly.
He writes about the perils of ‘product orientation’. His audience are marketing professionals – the guys and girls in a big business that are paid to wake up every morning to be the conscience of the market and customer that a business serves. But he observes that those marketeers “quickly lose the perspective of the market as we spend hundreds of days a year inside a company that is launching or managing a product. We start to think the product is the centre of the world, not the customer that we are designing it for.”
This happens in big business and it should be one of an entrepreneur’s big advantages to be close to their customer. But unfortunately, many start-ups fall into the same trap – a focus on the product, service or experience they are building rather than an obsession with their customers’ needs and desires.
I’ve read way too many investment pitches and business plans that wax lyrical about product features and service design. But it becomes clear they are beautiful solutions desperately trying to find a problem to solve. At Worth Capital we find this particularly so with ‘tech’ start-ups. We raise an eyebrow when a business describes themselves as proptech, fintech, healthtech etc.. This is an immediate signal to us of a business focused on their product rather than the market need. As well as a lame attempt to tap into overinflated valuations for these ‘categories’ of investment.
But this isn’t just our point of view. A report published a few weeks ago quantified the top 20 reasons that start-ups fail. It was compiled by CBInsights a US research service that follows start-ups, VC funding and trends. As well as being American they also have a heavy bias towards tech. But my experience suggests it should be still be a salutary warning for any start-up, anywhere and in any sector. It found the number one reason a start-up failed (42%) was ‘no market need’. The next was ‘ran out of cash’ at 29%.
When we look at potential investments our number one criteria is the market – are there customers that will have a reason to care about the product or service (generally this means that it is solving a pain point or creating an unrealised need) and is the market large enough within which to scale.
So we look for evidence of real empathy with the consumers in the market and an understanding of exactly what is being solved for. For example, we invested in a business providing a quoting and finance tool for small tradespeople. One of the team was an electrician employing around 10 people. It was his insight in the cash flow challenge that led to the proposition. And it is still his empathy with the market that ensures the proposition stays relevant as it evolves and the sales pitch to the audience is authentic. And by the way, after our investment, Richard and his business Kanda was taken onto YCombinator and have now raised cash from a number of US venture capital funds.
Just to re-iterate the point, Seth Godin is a smart entrepreneur and marketeer. He says we are “moving from an era of finding customers for our products [brands] to an era of finding products [brands] for our customers”. It’s a nice turn of phrase and one I believe should be true. With large businesses still finding this difficult, it’s a fantastic opportunity for entrepreneurs to lead the way. But unfortunately, many are falling into the same trap. Hopefully you are not one of them. Obsess now, tomorrow and every day about your customer – their pain and their desires – and use that as the driving force for your product or service. Not the other way around.