#7 Tips to Make Your Consumer Start-up Stand Out
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
An entrepreneur gets excited about an idea and starts thinking about making the product. If the objective is to raise venture funding and build a business that can IPO, more due diligence is needed. 15 deals out of 4000 per year are responsible for 97% of VC returns in the US. That’s a 3.75% chance of being meaningful even after successfully raising venture funding.
It’s easy to give and receive feedback on building a business, however it is simplified and the work of applying it to a particular business situation remains homework for the founders and their executive team.
The Asaro tribe has a saying “Knowledge is only a rumor unless it lives in the muscle.” To develop a strong muscle for startups, one should look at a broad spectrum of startups from Apple, Google, Facebook to Sprig, Webvan, Jawbone and Juicero. This avoids survivorship bias which is using data for only successful companies and ignoring the failed ones which might have done similar things.
Looking at company history for businesses like Tesla and Evernote shows that there were moments where they were less than a day away from going bankrupt and were lucky to have survived to keep building. Let’s go over the 7 things one should think about for a consumer startup.
1. Team - This is one of the few things that can determine the outcome for a startup and the founder has the most control over. Having a diverse team with deep expertise in different domains and being generalists is a good place to start. The objective of the team is to have insights and do experiments to get to product-market fit.
2. Capitalization Table - This table shows the equity held by each investor and employee in the company. The market need exists for a product and the solution with early feedback is known to satisfy the customer. The challenge remains to build a business which is capital efficient and build it within the amount of funding that the founders can raise. Plan on raising funds at each step that gives 10%-20% equity to reach the next milestone. Prefer a valuation is set at the seed round and keep clean terms for a simple capitalization table. If too much equity or favorable terms are given out early, it can make it difficult to raise future rounds.
3. Product-Market fit - Consumer products have to be simple and if they solve a real problem, they get word of mouth growth. PayPal is a good example of finding product-market fit, it started as a company that could encrypt and transfer money between two devices and found it’s real use as enabling payments between buyers and sellers on Ebay. Some companies like Facebook get enormous user growth for free at the early stages or like Google get distribution as being a search for Yahoo. It is great to be lucky with early growth or ride a rising wave but focusing on product-market fit is a diligent way to get there.
4. Simplify - The biggest challenge for consumer startups is that the product has to be very simple to understand and use. Founders are usually very deep in the problem space when they are building a product and talking to investors is focused on the future. Talking to the consumer is the solution and how it is delivered today. It is common to see multiple startups pursuing the same idea and usually it is the solution that is simpler to use that wins the mind space and word of mouth. iPhone is the epitome of making it simple.
5. Moat - There is always competition in the market and if there is none when you get started, growth and profitability will attract new players. In Indian e-commerce, it’s Snapdeal, Flipkart, and Amazon and the winner will get to make a profit if it has a moat or defensible strategy. A product can be very successful and still fail to make a profit.
6. Raving fans - At the early stages, the focus should be on raving fans for the product and if that happens to be 20-30% of the users, learning and satisfying their needs will get word-of mouth started. These are the users that are coming more often and interacting or buying your product. Every city has a local street side vendor that gets popular and these vendors do not advertise or know much about business but they have raving fans that go tell their friends and bring them along to try.
7. Balance - The product, marketing, team, and strategy are all moving at a different pace and it varies from month to month. They all are rarely perfect at the same time and the metric that is not working should not be ignored if growth is going well driven by another factor. It is easier to correct problems sooner and keep the growth going rather than have the growth stall and fix an ignored problem. Facebook has been very successful in keeping itself ahead of its growth and Twitter has found it much harder to reignite its growth.
At a startup there are very limited human and financial resources and it is appealing to expand on one vector that is working and this usually causes a stall in future because that niche or opportunity is satisfied. The skills practiced at a smaller scale in the early days are good preparation to take more risk at the next level. It is a learning process and the objective is to build the right company and product.