Recently, I’ve had an increasing number of meetings with founders who have developed a solution before identifying the problem they hoped to solve.
This invariably happens because a founder has a specific skill, whether it’s coding, cooking or a specific health care specialty, and they’ve decided to build a product to bring that skill to market.
But they haven’t done the hard work of identifying the problem their solution can solve up front, so they have no idea if what they are building has a market.
There is a related issue, where a company I’ve been advising has a product in market, and has had some success in generating customer interest and revneue, but it’s now unclear how big the overall market is, and how big the company can become. Their first clients came from personal relationships with the founder, and there is uncertainty as to how far the product can scale beyond that approach. That’s a real challenge as the company starts to plan for its next fundraise.
Starting a company from nothing is incredibly difficult. If you’re going to go through all of the pain and suffering that comes with the challenge, you have to do the work of defining your Total Addressable Market (TAM) for your offering. Just as important, you need to understand your Go-To-Market (GTM) strategy for getting your product into your defined market.
You’re working to identify two key things here.
One, is there a market for what you want to build, and how big is that market. There isn’t necessarily a right answer here, as long it aligns with your expectations and funding strategy. If you’re going to raise traditional venture capital, the expectation is that you have a path to $100 million in revenue and a $1 billion valuation. You can self-fund yourself to a business that generates less than $1 million a year. And there are all kinds of variations and permutations in between. The key is to know what you want to be, and to define a target market that has the potential to deliver on those expectations.
Second, what is your sales and marketing strategy going to need to look like, and how expensive might that be. If you’re building a B2B product that sells to Fortune 2000 companies, and it’s a sales process that’s going to require sales people building relationships and nurturing a 12 month long sales cycle, you had better recognize that up front. It may lead you to tweak your offering so that there is an easier GTM approach that’s less time consuming and less expensive. It may lead to you shifting your market focus to an easier market to start with. Or at the very least, it will give you a realistic view of the cash flow requirements you’ll have to deal with to get the business up off the ground.
I’ve seen entrepreneurs sink six figures of their own money into the building of a product the no one wants. I recently met with an entrepreneur who invested their full budget into the development of a product, with no funds left over for marketing, and no clear view as to what their Go-To-Market strategy should be. And I’ve advised companies that successfully raised their seed round, only to find that they hadn’t fully defined their TAM, and the opportunity wasn’t going to be big enough to raise a Series A without major changes to the business….which they might not have the runway to execute.
Your thinking about target market and your marketing strategies will certainly evolve over time. But you have to do this work up front, and then revisit it regularly, to ensure your funding strategies, cash flow plans and staffing plan are all aligned. Otherwise, you’ve essentially launched yourself into the search for buried treasure without a map.