How to navigate the early days of a startup?

1. Basics of building startups -

A startup's most significant advantage over established companies is it's ability to learn and implement fast. Hence, every founding team must incorporate this into their everyday life and decision-making.

Today, there are many 'Wannapreneurs' meaning those who want to be entrepreneurs but looking for an idea to start with.

1. One interesting way is to look out for emerging technologies and brainstorm possible use cases.
2. Another way is to think about a problem that they and many of their friends have personally faced many times in their life but there is no good solution for it.

The next step is to validate if this is truly a good problem to solve which is being faced by a large number of people in the world through user validation.

User validation is the process of confirming that there is a genuine demand for a product or service among potential customers. It involves gathering feedback, conducting market research, and testing the product with target users.

This is done by talking to prospective customers and offering them a Minimum Viable Product (MVP) and observing their acceptance and willingness to pay.

Identifying the Target Group (TG) and then building products using customer persona is very important.

The target group refers to the specific audience or customer segment that a startup aims to serve with its products or services. It includes the individuals or businesses that the startup believes will be most interested in and benefit from what it has to offer.

The next step is to understand the market for your product well, doing Market Sizing through TAM, SAM & SOM.

1. Total Addressable Market (TAM): TAM represents the total market demand for a product or service. It includes all potential customers or businesses that could benefit from the startup's offerings, without any limitations such as geographical boundaries or specific target segments.
2. Serviceable Available Market (SAM): SAM refers to the portion of the TAM that the startup can effectively reach and serve. It takes into account factors like the startup's resources, capabilities, and market penetration strategies.
3. Serviceable Obtainable Market (SOM): SOM represents the specific market share that the startup aims to capture within its SAM. It is the percentage or portion of the SAM that the startup believes it can realistically acquire based on its marketing efforts, competitive landscape, and growth projections.

2. Taking the idea to MVP through a GTM -

The Go-To-Market (GTM) strategy refers to the plan and actions that a startup implements to effectively bring its products or services to the market and attract customers.

It encompasses various aspects such as product positioning, pricing, distribution channels, marketing campaigns, and sales tactics to maximize the startup's market penetration and revenue generation.

MVP stands for Minimum Viable Product. It is a simplified version of a product or service that a startup develops and launches to gather feedback, validate assumptions, and test the market demand.

The MVP focuses on delivering the core features and functionalities, allowing the startup to learn and iterate based on user feedback.

3. How do VCs analyse the startups?

Every VC look for 3 factors while analysing the startups at the basic level -

1. Team - The calibre of a startup?team?can be defined as the suitability of the CEO, senior staff, engineers, and other key staff relative to the opportunity in front of them. You look at a startup and ask, will this team be able to optimally execute against their opportunity? Do they have the right customer insights and understanding of this sector?
2. Product - The quality of a startup’s?product?can be defined as how impressive the product is to one customer or user who actually uses it: How easy is the product to use? How feature rich is it? How fast is it? How extensible is it? How polished is it? How many (or rather, how few) bugs does it have?
3. Market - The size of a startup’s?market?is the number, and growth rate, of those customers or users for that product.

According to Marc Andreessen, Co-founder of a16z VC firm & an Entrepreneur, among team, product & market, the market?is the most important factor in a startup’s success or failure.

In a great market—a market with lots of real potential customers—the market?pulls?products out of the startup.

Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter—you’re going to fail.

Another reputed VC puts it this way:

• When a great team meets a lousy market, the market wins.
• When a lousy team meets a great market, the market wins.
• When a great team meets a great market, something special happens.

4. Understanding PMF (Product Market Fit) -

The most famous definition of Product-Market Fit (PMF) comes from Marc Andreessen, Co-founder of a16z VC firm & an Entrepreneur.

The only thing that matters is getting to product/market fit.

He defines PMF as "being in a good market with a product that can satisfy that market." In simpler terms, it means that a startup has found the right product that meets the needs and demands of a specific target market.

Achieving PMF implies that the startup has created a product that resonates with customers, solves their problems, and generates sustainable demand. It's a crucial milestone indicating that the startup has found a strong product-market fit and has a higher likelihood of achieving success and scalability.

You can always feel when product/market fit isn’t happening -

The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening -

The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.

Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting Entrepreneur of the Year awards from Harvard Business School. Investment bankers are staking out your house.

Further, he believes that the life of any startup can be divided into two parts:?before product/market fit?(call this “BPMF”) and?after product/market fit?(“APMF”).

When you are BPMF, focus obsessively on getting to product/market fit.

Do whatever is required to get to product/market fit.?

5. How do VCs analyse/ Entrepreneurs know quantitatively if a startup has achieved PMF or not?

1. Customer Acquisition Cost (CAC): Measure the cost to acquire each customer. If the CAC is low & declining compared to the customer's lifetime value (LTV), it indicates that customers find value in the product.
2. Churn Rate: Track the percentage of customers who stop using the product over time. A low & declining churn rate suggests that customers are satisfied and find ongoing value in the product.
3. Net Promoter Score (NPS): Survey customers to gauge their willingness to recommend the product to others. A high NPS indicates strong customer satisfaction and advocacy.
4. Active Usage Metrics: Monitor metrics like daily, weekly, or monthly active users to assess how frequently and consistently customers engage with the product and how fast it is growing.
5. Revenue Growth: Analyze the revenue trajectory to determine if the startup is experiencing consistent and substantial growth.
6. Customer Feedback and Reviews: Pay attention to qualitative feedback from customers through surveys, reviews, or direct communication to gauge their satisfaction and identify areas of improvement.
7. Market Demand and Size: Evaluate the market potential, growth rate, and competition to ensure there is a strong market need for the product.

Do?comment below???your thoughts and takeaways from this detailed intro guide to startups. In my next post, I will cover 9 startups' business models and more about VC & startups.

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