Most startups fail. But if you want your startup to avoid that fate, one thing you must do is to grow faster than the market into which you are selling your product.
Your startup's survival depends on your ability to overcome the natural reluctance customers have about doing business with you at any price.
How do you discover the right group of customers and build a product that relieves their pain? You need to discover them before your venture runs out of money. I call that discovery process prototyping -- building cheap, crude, fast versions of your product; giving it to customers; and studying what they like, don't like, and believe is missing.
The purpose of prototyping is to try, fail, learn and try again. Often a startup will cycle through this process eight times and fail in the first seven. But the eighth time through, it discovers the right product. The good news is that if your startup is competing with a big company, you can get to a winning version of your product after the eighth try faster than that big company can get its first version to market.
Here's an example. One startup is growing at 500 percent a year and expects to go public in 2014. Its success flows from a product that saves companies huge amounts of money in storing copies of their data.
The founder observed that those copies were stored in different ways, including magnetic tapes, hard disk and paper hived away in boxes. Companies kept anywhere from 13 to 120 copies of their data. He wanted to give them a way to copy their data at a much lower cost, cutting the number of needed copies down to one.
Companies found it painful to realize that keeping all these copies was a waste of resources that they could have been investing in activities that would help them become more profitable.
The entrepreneur saw a huge market -- over $30 billion -- open to his startup if he could free up potential customer resources in this way. He developed a product costing between $50,000 and $1.2 million depending on customer data volumes that was in such demand that his startup began growing at 500 percent a year.
The startup's product delivered what I call a Quantum Value Leap, meaning a huge increase in the ratio between the value of what the customer gets from a product and the price it pays the seller. Some of this startup's customers cut their costs for backing up their data by nearly two-thirds and for every dollar they spent on the company's products, they saved $15.
If you find unrelieved customer pain and soothe it with a product that provides a Quantum Value Leap, customers will beat a path to your door.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.
Peter Cohan is president of Peter S. Cohan & Associates a management consulting and venture capital firm. He is the author of Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision (Berrett-Koehler, 2012).