Three Reasons You’re Starting-up Wrong

Matt Ryczek By on October 16, 2017

Fighting a bear with your own hands is dangerous, challenging, and only true if someone witnessed it. Much like a good story, the validity of a story or, in this case, a product relies on the validation from the audience or customer. Entrepreneurs often believe their product is the greatest; it solves their individual problems and has been tested flawlessly, but when they launch they flat line. The success of brands like Apple have bred arrogance among the start-up community with an attempt to create a business that the consumer has never seen before or doesn’t know it needs yet. This is a fallacy. Many start-ups spend countless hours and capital fighting a bear no one can see. These entrepreneurs ignore the market conditions. They rarely create user profiles to establish a direction in design, price point, and adjacent consumer purchasing transitions. Products often fail for one of three reasons: 1) the market is not large enough to support a business, 2) the business targets the wrong market as a primary driver, or 3) no one cares.  

The absolute worst point for an entrepreneur to hit is a position of failing success. What I mean is they establish a product, go through R&D, launch and start selling. They sell enough to hold an interest in the business but they continue to miss sales and growth targets. Typically, this is due to a market not being large enough to support a business. It sounds complicated, but it really is basic economics. You have the number of units sold multiplied by net profit to have your operating cash flow: capital. From this, you will pay overhead expenses and plan for the future by reinvesting profits (I know it’s more complicated, but for now, we’ll keep it simple).  The hard part is many start-ups ignore their initial targeted approach and assume the market opportunity exist, but often it doesn’t. Two years ago, I was on a team that was building a scooter that was towed behind a bicycle – I hated the idea; a rather expensive “add-on” product is an uphill battle. We studied the bicycle market and consumers to draw some conclusions. First, we knew the user would not strap this scooter onto a bike worth more than $500, we also knew that the user had to have a bike to use or purchase this add-on, and if they did not then the purchase of a bike is required for consumers to purchase ours. Now, you can argue that this was a vapid idea to begin with; however, by considering these barriers before the designing and engineering processes, we were able to address a scooter that stood by itself as a product. The law of curiosity and innovation drove us down the path of a Kickstarter funded Electric three-wheeled scooter, Cycleboard.

You might be saying that you have a market, there is a huge opportunity and you have enough to support your business. I would advise you to target the right primary market. Marketers and “business people” like nice textbook demographics; their target audience profile male, white collar professionals, ages 25-34 – It’s crap. When start-ups do this, they are developing a product or business that is centered around stationary data points that do not stretch to adjacent industries. This causes massive gaps in the opportunity to disrupt an industry from their launch since they target the wrong market. The point here is when you build a business by focusing on the wrong market, it can kill it before it ever launches. This goes from customer service, materials, to locations, supply and distribution chain design. Understand the life of your consumers before you develop a product or business. Analyze their habits; think of gym users living in New York rather than female, career-driven, in their late twenties. Then, think about the other industries that share that profile. Innovation will drive you to places you could only dream of. Eighteen months ago, I was on another team building the next best Kickboxing bag (I can’t share the details, sorry the lawyers said so). However, the original focus was on the commercial market and highly-skilled users; so, we observed, studied, and analyzed the market and again, drew conclusions about the users. We found that the user probably won’t be the most skilled, and discovered the revenues source of commercial was limited to licensing and classes that were offered. We scraped it all and focused on the home user, which drove the innovation down another path that now has a fully online platform with live streaming classes. This pivot created multiple changes to the physical product and a way to better serve this new target demographic while generating multiple revenue streams in addition to commercial.

Lastly, some ideas are just good ideas or hobbies. Some start-ups face the reality, after capital is spent and homes are mortgaged, that no one cares about their idea. It is a sad reality, but a business must be needed/wanted enough to get customers to give up their cash to turn it into a feasible business. I worked with an entrepreneur on a razor blade brand. He was a barber and loved the novelty of the traditional tools such as a straight blade razor, but re-branded as a more modern brand. He mortgaged his house and sold assets to free up capital to invest; he was ready to go. Before we jumped in we looked at the market. Over an $80 billion industry, 97% is controlled by three main brands, and another 10,000 private labels are registered in this industry. We could draw a few more conclusions that the market, frankly, didn’t care enough to change their shaving habits or separate from their cash. We decided his capital was better suited to open a second barber shop and not waste fighting for a market that seemingly didn’t care.

Overall, your customers are your business secret to success; it is nearly insane to not consider their perspective on your product while you develop your business. Small pivots in the service or product could be the difference between failing success and industry leading. Find a firm that offers this type of loyalty and perspective. Do not rely on friends and family; they love you and care too much to see the larger picture. A firm should be willing to support you explore this (I know we do and often for free), it is only in the best interest of firms like ours for you to be successful.