Entrepreneurs

Startups Don’t Need More Money— They Need More Customer Insights

When startup founders fail, they usually blame the lack of funding. But, according to three recent studies, most startups don’t necessarily need more money. Startups need more customer insights.

Startup studio Wilbur Labs surveyed more than 150 startup founders for their insights about startup failure. When asked for recommendations to prevent failure, the most common answer (given by 30% of founders) urged startups to do more research prior to launch.  The advice founders indicated they would give to other aspiring entrepreneurs reflected that the research should focus on understanding customers and their needs. Fifty-four percent advised, “Listen to your customers;” the same number (54%) advised, “Ensure there is a market for your product.” While the need for customer insights are timeless, Wilbur Labs observed, “Solving real problems that serve people better is even more critical now, given the sheer number of products competing daily for attention,”

Writing in the Harvard Business Review, Tom Eisenmann, author of Why Startups Fail: A New Roadmap for Entrepreneurial Success, described one of the six patterns of startup failure he identified. Using the label “false starts,” he explained that some entrepreneurs are so eager to get a product out into the market that they take a “ready, fire, aim” approach. They misunderstand the rhetoric of the lean startup movement – which includes mantras like “launch early and often” and “fail fast” – and don’t conduct any upfront research to validate demand for their product. “By neglecting to research customer needs before commencing their engineering efforts,” Eisenmann wrote, “entrepreneurs end up wasting valuable time and capital on MVPs that are likely to miss their mark.”

The tech insights platform CB Insights reported that running out of cash and the inability to secure financing/investor interest were the top reason startups cited for their failure, but lack of market need closely followed (noted in 35% of failure post-mortems). The report suggested that founders are more likely to be motivated to tackle interesting problems than to “make something people want,” which is the Y Combinator seed accelerator motto. Customer insights are they key to ensuring that people actually want what a startup is developing.

To increase the likelihood of startup success, founders need to view customer insights as much as a lifeline as funding is. Here are three actions to prime the customer insight pump:

Seek to create customer value not a product. Most startups are born from a product idea. Founders usually identify a way to solve a problem or to make an existing product better and then build their product.  In some cases, founders have created or discovered a technology and they set about developing a product to apply it. Instead, they should start by identifying a customer need and then explore various ways to fill it. By adopting this customer-centric mindset, the development process will be guided by what the customer finds valuable vs. what the product can do. Moreover, it puts the focus on generating insights from customers that provide clarity on what the problem is and why it exists, which can serve as rich fodder for product and feature ideas as well as directions for pivots if needed.

Start by conducting customer discovery research. In addition to following the mantras of the lean startup approach. founders should follow the methods. Lean doesn’t only refer to principles such as failing fast and failing cheap; it’s a methodology that involves market discovery. Founders should meet with customers and go deep, exploring their needs and existing challenges, and getting their feedback on possible business models and products. That way, when it comes time to test their product, it’s more likely to meet not only the minimum but also the viable standard of the minimum viable product (MVP) concept.  

Commit to soliciting and acting on customer feedback. Collecting feedback takes time and money, both of which are in short supply for startups.  Plus, criticism can be hard to hear after a founder has poured her heart and soul into the product. And some founders believe they’re smarter than customers (which may actually be true but that doesn’t make customer comments any less valuable). So, reluctance to solicit customer feedback is understandable, but it can’t be indulged. Founders must develop a healthy appetite for customer feedback and a commitment to acting on it, even if that means seriously considering input before eventually deciding not to make a change. 

Like cash, a steady stream of quality customer insights is critical to startups – and to all businesses.

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