Every minute 3 startups are born in the world. At the same time, about 90 thousand US dollars are invested in startups every minute. However, statistics show that 9 out of 10 startups do not survive.
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“Product-Market Fit” is the position of a startup in the market in which its product meets high demand from users (in other words, when users and the product have “mutual love”). About half of startups are closed because the problem that their product was solving existed only in the founder’s head and was not previously confirmed by the market.
In order to avoid this, even before starting to work on a product, you need to analyze in what ways your potential customers today are solving the problem you are planning to work on and interview them about whether they would use your solution. To test business hypotheses, a simple website with a product description is sometimes also launched to test how many people will respond positively to the product before it is ready and leave their contacts to become its first users.
The next step is to estimate the size of the startup’s market. The most popular way is to subtract the average check for goods/services in your product segment and multiply it by the number of leads. When evaluating the market, you should take into account the forecasts for its growth/decline in the future of the next 5-10 years, as well as determine the market share that the startup will target in the first years of its development (the so-called “TAM” and “SAM”).
If, after assessing the market, it turns out that it is too small to build a company with a billion-dollar turnover, it is better to abandon the idea, since investors rarely invest in startups with a small market (depending on geography, up to $ 1-2 billion).
The team is what investors look at first when looking at early-stage startups. They understand that the project itself will change many times until it finds its Product-Market Fit, so the most important thing that the investor wants to understand is whether the team is strong and friendly enough to go through these dozens (and sometimes hundreds) of changes in the product.
In addition, conflicts between founders are the second most popular cause of start-up mortality, which can be prevented by doing various due diligence and making sure that each of the team members is “burning” the startup’s mission, as well as signing the necessary legal documents.
In the startup world, there is an opinion that in order to build a successful startup, you need to close 8-10 unsuccessful ones before that. The venture capital industry is very unpredictable, sometimes very subjective, and not always logical. Therefore, it is not surprising that there are so many obstacles on the path of a startup founder that you constantly need to overcome. Some of them can be tried to predict in advance (and possibly even prevent), but most will need to be addressed in the process.
But if you take care of the above-mentioned components of a startup at the beginning of this journey, you can significantly reduce the number of “surprises” that await a venture capitalist in the future.