First, False Product-Market Fit

How do startups mistakenly believe they have product-market fit?

Startups often raise funds from well-known angels and venture capitalists, leading them to believe their product has market demand. They assume their ability to secure funding indicates product-market fit, even if the product has yet to be developed or lacks a solid customer base.
I have witnessed this situation myself, even recently, where startups prioritize building the company rather than focusing on creating a product that customers love to buy. Sometimes, founders must pay more attention to clear indicators that their product lacks market fit or accurately measure them.
Additionally, the need for strong engineers and technical talent can cloud their judgment. Rather than acknowledging the need for product improvement, they convince themselves that they have achieved product-market fit because enhancing their development efforts seems too challenging. Believing that their product is good becomes a more accessible alternative.

Why do startups fail to realize they need more product-market fit?

Many startups make the mistake of focusing on solving the wrong problem or addressing superficial symptoms instead of underlying issues. They may choose easier problems to tackle, even if it means applying temporary solutions that don't address the fundamental challenges. There is a cultural bias toward execution rather than rigorous problem definition, causing founders to fall in love with the problems or the solutions instead of gaining a deep understanding of the market.
Moreover, the tendency to adopt a "one size fits all" approach to problems hampers the identification of proper product-market fit. This lack of differentiation and tailored solutions contributes to the failure of startups.
Solving problems is undeniably tricky, and the desire for simplicity sometimes leads people to avoid facing the harsh reality of lacking product-market fit.

How can startups recognize a false product-market fit?

Excessive hiring without meaningful progressDisproportionate focus on business roles rather than engineeringLack of metrics dashboard or neglect of data analysisExcessive spending on non-essential items instead of prioritizing value creationStagnant growth indicated by flat graphsExcessive justification for missed targets without proactive actions for improvementFrequent changes to objectives and key performance indicators (KPIs), signaling a lack of clarity and progress in the business

Furthermore, impressive angel investors do not guarantee excellent products.

It is essential to debunk the belief that raising money from renowned investors automatically validates the quality of a startup. Even experienced investors make bad investments, so the presence of impressive investors does not guarantee the success or quality of a startup.
Second, Avoid Making Your Investors Your Boss
Every founder, business owner, or product owner experiences fears and self-doubt, which is normal. However, it becomes problematic when these individuals seek someone to tell them what to do out of fear and self-doubt. This behavior negatively impacts the company and hinders its growth.
Moreover, founders must recognize that their investors' success may translate into something other than their success. Success in the startup world is challenging, even with similar business models. The business landscape constantly evolves, rendering some strategies ineffective while others remain relevant. Attempting to replicate success without understanding the underlying context and factors is futile.
Furthermore, losing touch with customers is a critical mistake. Once founders stop engaging with their customers, they become aware of the needs and feedback necessary for driving product improvements. Customers provide valuable insights into what works and what doesn't, allowing for iterative enhancements. No one can fulfill this role better than the founders themselves.
Signs that indicate investors are being treated as bosses:
Hiring a new recruiter solely to please the investorsOverspending without justified returnsIncreasing burn rate without proportionate growth in key performance indicators

Third, Overreliance on Relationship Debt with Co-founders

Relationships, including those with co-founders, carry a certain level of debt. Unresolved conflicts, unfair treatment, and immoral actions accumulate relationship debt that can erode co-founder relationships. The lack of clearly defined roles and responsibilities also contributes to this debt. Additionally, trust issues and unrealistic expectations further strain the relationship. Unrealistic expectations often arise from external influences, such as media coverage of successful fundraisers, which can create false impressions of a startup's progress.

Fourth, Striving for Extraordinary, Not Ordinary

In the competitive startup environment, more than being average among smart people is required. The high failure rate of startups demands individuals to be extraordinary and significantly outperform their peers. Merely copying others and expecting success is unrealistic.
How can one strive for extraordinariness?
Understand that the people around you set the baseline; aim higher.Develop the confidence to believe that you can surpass those around you.
Signs indicating a tendency toward ordinary instead of extraordinary:
Lack of numerical goals and relying on subjective measures of success, such as invitations to conferences or press coverage.Ignoring apparent signs of stagnation or lack of progress.Becoming complacent and ceasing to learn and improve actively.Blaming external factors instead of taking responsibility for outcomes.Lastly, the Pitfall of Slow Progress or Excessive Slowness
Startups should prioritize releasing products quickly, gathering market feedback, and iterating accordingly. The agile continuous improvement approach through rapid iterations helps identify flaws and devise solutions promptly.

What Defines Real Product-Market Fit?

Founders must understand that they are not solely building a product but crafting a business model. Product-market fit is achieved when founders feel their product is in high demand and generate profit through its usage.

Breaking? It's a sign of value creation.

Product-market fit is evident when people start using and spreading the word about the product. Advertising channels prove effective, and users demonstrate high satisfaction and retention. As a result, certain aspects of the development, whether software or operational, may begin to strain due to unanticipated scale, indicating success in achieving product-market fit.

Profitable usage? It's a sign of value capture.

Profitable usage involves attracting users who align with the target audience and generate the desired economic returns. It is crucial to avoid situations where the cost of acquiring a user exceeds their lifetime value. Achieving a sustainable business model rather than relying on unsustainable practices like freemium for extended periods indicates true product-market fit.

What Should Startups Do?

Embrace the notion that improvement is possible over time.

By acknowledging that growth and learning are ongoing processes, founders can strive for continuous improvement and avoid complacency.

Take action.

Consistently execute tasks and aim to achieve 15% more than initially believed possible.

Establish an honest and relevant key performance indicator (KPI) and stick to it.

Separate revenue into retained and new users to comprehensively understand business performance.

Prioritize tracking user retention.

If a product is precious, user churn should be minimized. Transparent communication with early adopters is crucial for understanding product shortcomings and gathering feedback.

Control spending.

Narrow the focus and allocate resources wisely. Until achieving product-market fit, limit monthly spending to a predetermined amount. Consider using revenue instead of relying solely on raised funds for additional expenses.

Raise the appropriate amount of capital.

Instead of pursuing excessive funding, carefully consider the amount needed for startup operations. Dealing with fewer investors reduces the pressure to fake product-market fit and minimizes dilution. Higher valuations can be sought at a later stage.

Implement a three-month evaluation period for new hires.

Assess their significance and impact on the company after 90 days. If their contribution is not
Substantially, consider parting ways to maintain efficiency.

Do not rely solely on early salespersons.

Even the most skilled salespeople cannot compensate for the lack of product-market fit. Founders should take the lead in customer acquisition to gain direct insights and keep their market understanding intact.

Seek advice from a mentor council.

Establish a group of experienced individuals who can provide guidance and support based on their expertise and extraordinary accomplishments.
Khởi nghiệp