4 Steps to Finding the Right Product-Market Fit for your B2B Startup

Headstart Network Foundation

January 7, 2019 4:51 AM

The most important factor that helps any startup scale is the right product-market-fit. More than 40% of startups fail even though they’ve created a high-quality product. This is because there was no market need in the first place.

As part of the Startup Saturday held by Headstart Bangalore, Prasanna Krishnamoorthy, partner at Upekkha, shared some tips to help early-stage B2B startups find the right product-market fit.

Moving from Early-stage to Growth-stage  

Market research is one of the key factors that will help startups move to the next stage of growth. Many startups invest a lot of money in technology and resources to build a product that they believe in but eventually run out of money.

This is because there was no significant market need. Customers were not willing to pay for a product that didn’t offer real value. And this leads to the eventual death of the startup. So, as an early-stage startup, it is necessary that you find the right market as early as possible.

You can move from early-stage to growth stage once you’re able to predict your customer purchase behaviour. If you have a successful run, but don’t know how to replicate it, that means you’re still in the early stage of growth.

The 4 Steps to finding the right product-market fit:

  • Founder-Market Fit

Founders need to be generalists at the beginning of their startup journey. Along with one core skill, you need to be able to oversee other activities like marketing, accounting, sales strategy, partnerships and the like.

You will also have to ask difficult questions and objectively analyze whether you’re the right fit. As a founder, you should be open to unpredictability and show a strong front to weather any storm.

Questions to ask:

“What skills are needed to succeed in your market? What credibility do you have in this market? What unique point of view do you bring to this space? Can you hire people to win this market? What softer attributes of the market does your team match with?”

  • Problem-Value Fit

As an entrepreneur, you should inherently believe in the bigger problem that you’re solving for and understand from the domain perspective the solution that you’re providing. For example, the larger objective of a home drilling machine company is to help make rooms look better.

In order to achieve this goal, the founder needs to sell his machines to carpenters, as carpenters are the people who work in this field.

So, it’s essential to not think only of the end user, but also the decision maker and influencer over the product. The ability to estimate the priority of solving this problem from the buyer’s perspective and the stickiness of the solution also allows for a good problem-value fit.   For example, selling a new software product to businesses when they were in the process of implementing GST registration would have proved to be a futile effort.

Questions to ask:

“Who is your customer? What is the problem being solved? Break down the personas/users that it impacts – map it to the decision maker, quantify the economic surplus created by solving this problem? Are you improving the individual’s productivity? What are their KPIs? Can you quantify that in hours? Where is this problem in their priority list in their organization?”

  • Product-Solution Fit

A customer should find it easy to implement your solution. Nowadays, most companies are able to sell through their websites itself. Most of the customer queries are solved online or via a phone call.

The communication should be such that the customer experiences a magic moment that makes them believe that the solution will solve their problem. The role of the sales team has evolved to become more of seamless delivery and integration. With technology, it has become easier for B2B SaaS products to achieve this.

Questions to ask – “What is the benefit/ ROI to the customer? Did it work? What is the time to deliver this? How long did It take to deliver the value after the sale? What kind of integrations are required to deliver that value? Are users giving referrals which talk about the exact value delivered? What’s your NPS (Lead indicator of solution value)? What percentage of your new customers came through referrals?”

  • Market-Scale Fit

As a B2B SaaS startup, you should be earning 10,000 dollars per customer per year in India. That is the industry average that you should be aiming for. The ideal way to verify the scalability of your business is by finding out the overall market size, and the customers that fall in each price bracket- from 1000 dollar customer to 10,000 dollars, and so on.

Targeting the Indian customer may not be fruitful as there are not many high-value customers here. Moreover, startups looking for early-adopters will not find their audience here.

Rather, the US market would be the right fit where there’s a highly competitive market. You will end up spending 20,000 in marketing for a 100,000 dollar customer, if not that is not scalable or profitable.

Questions to ask – “How many customers are there that have a similar set of problems? Do you know what channel gets your customer? Is this a new market? Who else sells to these customers? How cohesive is this market?”

Contributed by- Ashika Devi
Volunteer, Headstart Bangalore

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