Building Demand vs Building Product in Startups

When it comes to startups, there are two ways they approach a market with a ‘promise’ at a broader level. Both of these strategies come with a set of pros and cons but with a ‘particular condition’ to determine which strategy might be the need of the hour.

Let’s take a look at both the contenders -

Demand generation before product

With this approach, a startup tries to gauge the market before investing in the actual product building. Once there is sufficient demand in the market, the startup gears up to deliver.?

Under this approach, a startup may approach the market with or without an actual MVP but with a set of features, functionality, or solutions that they promise to deliver.??

Product before demand generation

With this approach, a startup works on an MVP, or a fully functional, ready-to-use product. They may approach the market with a limited rollout of an MVP or a free trial of the final product/MVP.

Under this approach, the startup first spends time, effort, and money to bring the ideal product or an MVP followed by demand generation efforts.

Now, which strategy of the two approaches mentioned above is better for startups? To avoid any confusion, it is better to use a specific industry and see if one of the above strategies promises to deliver better results than the other.

But, in most cases, there will be a condition or constraint that may provide some guidance to help us with this decision.

Condition 1:

If a startup has a sufficient runway, ideally higher than the product cycle (from R&D or manufacturing to Point of Sale).

Under this condition, Both the first and the second approach may work depending upon the below constraints

Constraint 1: Execution and Delivery Speed?

If a startup is confident in its speed of execution and delivery, then it can consider the first strategy. This will not only save their time, effort, and money but will also ensure that the revenue pipeline is healthy due to the existing demand in the market.

If a startup is not confident in its speed of execution and delivery, it may consider the second option as a safer choice. This will ensure that they will be able to deliver as per the promise. This approach has an edge when it comes to face-saving and ensuring that brand image is not affected due to overestimation of current capabilities.

Condition 2:

If a startup does not have a sufficient runway (this may vary with the industry and product cycle)

Under this condition, we can still consider both approaches (if the product cycle till the point of sale is relatively smaller than the runway period) but the first strategy might work better.

Let’s look at the constraint below:

Constraint 1: Execution and Delivery Speed?

If a startup is confident in its speed of execution and delivery, the startup should go with the first choice. As mentioned above, this will save the time and resources of a startup running low on funds and a smaller runway. Since the demand already exists in the market, the revenue realization can help them stay afloat a bit longer and maybe save them from the impending doom.

In this scenario, there doesn’t seem to be a better choice as the smaller runway already works like a temporarily inherent constraint.

There is no dearth of business approaches and strategies in the world but the above holds to a larger extent given that the conditions and constraints are properly analyzed to make an informed decision.

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