Andy Rachleff, an ex Benchmark partner, was my professor back at Stanford. Andy, which is a one-liner black and white type of person, used to say that the single most important thing for a startup is product-market alignment.
I’m not a one liner type of guy as Andy, but I agree that product-market alignment is one of the most important elements for a startup, probably together with the quality of the management team.
Product-market alignment is key to established companies as well: That is a major reason why Microsoft acquired Skype, Why Nokia’s recent mobile phones failed and why the iPhone and iPad are dominating the mobile market.
The single customer test
Understanding the market and finding social proofs to their ideas is the thing I find most of the companies I work with in need. You come up with an idea. You know you would definitely use it and you are sure millions of others will do so as well, right ? So did the founders of Blippy and Bling Nation.
When coming up with an idea for a new product, I never consider myself the typical customer and whether I use something or not is not the right indication.
Many companies ask about future experience or a possible intent. I can’t remember how many surveys I saw where the questions started with “if you were….”
Never ask about hypothetical experiences or about a possible intent. We all know that purchasing decisions are rarely rational. We also know that there is a gap between intent and the actual action.
So what is an good indicator ? The past.
Past as the best indicator for the future
Let me explain: If someone has purchased a similar product or used a certain service that offers a similar value to your product or solves a similar problem – that is the best indication to the perceived value and the pricing model.
By understanding the decision process and the motivation for a customer to buy a similar product, you can learn much more.
Think about the different answers one would get by asking the two following questions:
Would you be interested in buying a Porsche ? (“sure I would”)
What car did you buy ? Why ? (“I bought a 2005 Honda cause it is cheap to maintain”)
The Yelp/e-Lance for luxury cars
I’m currently working with a company that is aiming to connect luxury car owners with qualified technicians. They were struggling with the business model and were thinking of charging the car owners for connecting them with the technicians. I thought their business concept is similar to Yelp or oDesk/e-Lance. E-Lance, a site connecting freelancers with project opportunities, taught us that business owners are willing to pay publishers who help them generate additional business vs. asking a customer to bear an additional cost.
Moreover, I also suggested they explore the channels luxury car owners currently use to tap into qualified technicians: Is it through personal recommendations ? Is it through business review sites ? (I used Yelp to find my last technician).
This implies a lot about the process customers go through and the experience the company needs to generate online to increase their chances to scale: Do they need to create a site that is tightly coupled with a social experience and where they can get a personal recommendation from a known person or can they rate and recommend technicians based on their own mechanism.
To summarize, product-market alignment is key and understanding customers through past experiences is key to helping companies get the right product-market fit.