CB Insights surveyed 101 startups early this year in February to understand why start-ups and small companies failed and the top reasons they discovered were:
1. No Market Need
2. Ran Out of Cash
3. Not the right team.
4. Getting Outcompeted
5. Pricing/costly issues
6. User Unfriendly Model
7. Products Without a Business Model
8. Poor Marketing
9. Ignore customers
10. Product mistimed
(Access their Infographic here – Click here)
Interestingly there is just one word that replaces all of the above and that word is validation. Most B2B SME’s set out with a great vision, in our observation we have noticed that most founders and business owners have:
Passion (Deep desire & interest in a problem/domain) and Purpose (Make Money/Save Money/ Social cause/ Customer value) but lack the Process. They have the Desire and know the Destination but lack the resilient discipline.
This poses a huge threat. What makes all the difference is validation and having an innovative mindset that’s also lean, agile and metric-oriented. As teams grow in size the focus shifts from building a great product/service to improving the customer base. Price wars are won with crazy discounts backed by capital from investors or sales-infused capitals. This also has a deep impact on the bottom-line.
In the context of the market, what’s unique about B2B SME’s products and services?
1. It is ROI-driven:
Your customers really want to know what’s the return they are getting by transacting with you; this simply means that they are able to justify and get approval from their management.
2. Multiple stakeholders and Buyer Profiles:
Unlike B2C, here the stakeholders are many, right from the user, the buyer, the decision maker to the user’s supervisor, the growth direction givers and many more. It’s interesting because deals get vetoed by one of the stakeholders.
3. Client Relationships:
Relationships matter because it ensures that there is an element of connectedness that helps see the value proposition in context; again it’s all multiple levels right from the gatekeeper all the way up to the decision makers.
4. Risk mitigation:
When a product/service is bought, one of the biggest buying criteria question is “Will this hurt my/our reputation?” All the way to “Will I make/save money” that can have a tangible impact on my promotion and growth. The risks then get tied to a person’s reputation rather than objective analysis of risks.
5. Broken vs. Growth:
When something is not broken in the system, the reason for the change is zero, no one wants to unnecessarily introduce a product/service just because it is better because changes are organizational and its needs to be justified.
This simply translates into five important observations:
1. Marketing/Sales cycle time is longer
2. Marketing/ Sales are tiered and layered with multiple touchpoints
3. Marketing/Sales needs to address touch points
4. Marketing/Sales boils down to ROI and risks involved
5. Marketing/Sales also needs to address switching costs
The playbook of doing business is not about building a solid traffic pipeline, authority and setting up a funnel with the website as a platform and social and content to fuel the touch points but it goes beyond and here’s something that usually gets’s missed.
Here are top 3 reasons why SME’s struggle with Growth:
Reason 1: Lack of Problem: Market Fit
Reason 2: Lack of Product: Market Fit
Reason 3: Lack of Solution: Scale Fit
Reason 1: Lack of Problem – Market Fit
“Before investing months or years of effort towards building a product, the first step is determining if this product is something worth doing.” – Ash Maurya, Running Lean
What’s the market?
- A number of potential customers
- People who share the pain, problems or opportunities
- Channels for these people to connect, discuss and share purchase decisions
The whole idea is to see if the problem really matters to the market and the biggest questions that B2B SME business should be asking are:
- Is this the top 3 problems potential clients truly face?
- Will potential clients buy and adapt to this product if offered now?
- If the problem is solved, is there a great and easy way to distribute it?
“About half of all resources allocated to product development and commercialization in the U.S. go to products that a firm cancels or produces an inadequate financial return.”
– R. G. Cooper (Winning at New Products)
The story of PicturePhone
After much research, in 1970 AT&T finally launched the Picturephone.
The leadership believed that at least a million units would be in use within 10 years of launching. They pulled it off the market three years later due to a lack of consumer interest.
Did it meet with a monolith failure, yes but why?
As it turns out, users found the equipment too big, its controls unfriendly, and pictures too small to actually enjoy viewing. Blinded by their own vision, the company ignored negative user feedback rights from trials and developed a product that failed to meet customers’ needs and wants.
Reason 2: Solution Market Fit:
“What do you uniquely offer that people desperately want?” – Andy Ranhleff (Founder – WealthFront, Co-founder- Benchmark Capital)
Questions for yourself and company:
1. Do we really understand the market’s landscape and the key pain points that we are solving?
2. Are we truly positioned to target our early adopters?
3. How are our early adopters and why them?
4. What’s our Customer Acquisition Cost and Life Time Value of our early adopters?
5. What’s the churn rate like? Is it increasing or decreasing?
Questions to potential customers and early adopters
1. How would you feel if you did not use our product/service?
1. Very disappointed (You are onto something awesome)
2. Somewhat disappointed (you are getting something awesome)
3. Not disappointed (It isn’t helpful/useful)
4. I no longer use it (it’s useless totally)
2. What would you like to use as an alternative if our product wasn’t available?
3. What is the primary benefit you have received from our product?
4. Have you recommended or product/service to anyone?
5. How could our product be improved to better meet your needs?
Sean Ellis has a great way to validate, if 40% of people are saying they’d be disappointed, I tend to say you’ve found product/market fit, and if you’re less than that, you haven’t”
The other ways to measure Product: Market Fit from an analytical perspective are
1. Net promoter score
2. Why do people sign-up?
3. Why did they buy?
4. Why did they visit certain pages?
5. What problems were they trying to solve?
6. What frustrates them?
7. Why are they canceling (Exit quick interviews)?
The story of Zune
In 2016 Microsoft decided to take on the iPod. The company launched Zune, which promised to do everything that Apple’s device could do, and yet, despite great promises, the Zune failed on the market.
Why did Zune fail?
Microsoft admits that they were just chasing Apple’s iPod and created a product that offered no reason for customers to switch.
Learning: It’s hard to know how the market will react to product and marketing messaging. Hence why it’s crucial to test these things beforehand. Ask potential users for feedback and test their responses to marketing messages.
And then listen to that feedback.
Reason 3 – Product: Scale Fit
These are factors that are most important when it comes to scaling:
Access to capital:
Few companies who have achieved product-market fit had struggles in keeping with working capital, building strong networks with investors to access capital when the need is the most is what we have observed scaled start-ups have as an advantage.
Niche teams with the right distribution:
Growth is never one side story. You need the right people to help in the whole supply-demand chain. Right from the frontline to the top line.
Robust business and pricing models:
Business models are absolutely important, The most obvious flaw is when a B2B business model’s value propositions generate more expenses than income from clients. The business will inevitably disappear, even with the most successful value propositions.
Optimizing delivery and pricing globally:
In the global landscape pricing and delivery is different, the purchasing power varies and hence the delivery cycles. Learning to price in context can help companies sustain growth.
(The price of Microsoft 365 Home in India is ₹ 4,619.00/year, roughly about 65$ and the same in US market is $100)
Continuous Competitive advantage:
The context of growth is always competition inclusive. Having a clear idea of the business models competitors operate and the flaws in them give B2B businesses the window of opportunity to scale.
Failing with any one of the above reasons can mean death to your business, no matter how great your product or service is. Great products and services must be problem-market fit, product-market fit, product-scale fit.