The 5 Transitions of Successful Startups
Contemporary wisdom extols the value of seeking problem-solution fit and product-market fit in a startup’s evolution. However, solely focusing on these two fits to guide a startup journey is flawed because products (or, services as the case be) do not enter the market by themselves. A shared vision and the might of an effective organizational machinery is needed to introduce them in the market, and to build traction over time.
So, if these two fits is not enough, what else is needed? In my work with startups and established companies, I have learnt that all founders must strive to achieve, not one, not two, but FIVE distinctive fits over time. Only when these fits are effectively obtained, can the startup improve its chances of survival and success over the long haul. These five fits are described below. Do note, that the first component of each fit is market/customer oriented, and the latter is internal/organization oriented:
This ensures that ideas for service or products are generated and analysed in the context of their potential customers. It brings the discipline of being customer centric from day one - in board-room or garage-based conversations. Founders need to understand deeply who their potential customers are and how their business idea fits in the daily lives of the customers.
Business potential of the product or service needs to be established within the larger competitive landscape. Simultaneously, the founders need to have honest conversations among themselves on how their individual and collective capabilities are geared to tap the opportunity.A shared vision built around the estimated size of the opportunity and clarity on founders’ equity distribution are the other requirements of this fit.
This helps avoid “solution looking for a problem” situations so often seen in startups. In addition to understanding the customer’s broader context, the proposed product or service is developed to solve real customer problems and to provide meaningful benefits to the customers in the local markets (to avoid a me-too effect). This may entail rapid prototyping, piloting and validating the solution with potential customers. The erstwhile product-market fit is partially subsumed under this fit, and partially under the next.
Products or services are never launched in the market in isolation. It is an entire organization that enters the market - complete with the product/service and other pieces like the sales engine, pricing strategy, distribution channels, marketing support, logistics and customer service. These moving parts of the organization must work in cohesion for the purpose of acquiring paying customers at a steady click.Products per se are rarely a problem for struggling startups, it is usually more about unit economics, marketing, and sales. Hence, this fit is an acid test – startups launching themselves without this fit face enormous market risks.
Last, but not the least, this fit ensures that the startup maintains its interests beyond the launch and builds cost-effective traction in the marketplace. It requires a serious commitment to pursuing profitable growth through brand-building, sensible unit economics, scalable processes and systems, talent development, financial accounting and performance tracking.
Founders should resist the temptation of launching their products or services in haste. Instead, they need to pursue a wholesome series of health checks, i.e. the five fitments, for their venture’s long-term success. They will need to strategize and develop organizational capabilities to not just launch, but to grow, adapt and endure.Venture/angel investors and mentors must guide the startups to look-ahead and plan for meeting all five fits, early-on in their stage of maturity.
(Observations and recommendations shared above are personal.)