The only thing that matters

Previous parts: First part , Second part , Third part

This article is about the only thing that is important for a young startup.

But first, a little theory.
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If you look at a huge number of startups, say, 30 or 40 or more; this will be enough to ignore those who are lucky and find coincidences - two obvious facts will appear before you.

The first obvious fact: the level of luck is unrealistically different; Some of these startups are incredibly successful, some are very successful, many are so-so successful and only a few, of course, failures.

The second obvious fact: there is a huge difference in the three main parts of startups - teams, products and the market.

In any of the selected startups, the team will vary from excellent to disgusting, the product will vary from a masterpiece of engineering to a poorly functioning one, the market will be either agitated or phlegmatic.

And now you are wondering - what is more correlated with luck: a team, a product or a market? Or, more precisely, what leads to success? Or, for those of you who are students in start-up failures - What is most dangerous: a bad team, a weak product or a poor market?

Let's start by defining terms.

The caliber of a startup team can be determined by the suitability of the CEO, leading experts, engineers, and other key personnel in relation to the upcoming actions. You look at a startup and ask: can the team effectively withstand what is going to happen? I prefer to pay attention to efficiency rather than experience, since The history of the high-tech industry is full of successful startups, whose team basically consisted of people who have never done this.

The quality of a startup product can be determined by how impressive this product is to the customer or user who uses it. How easy is it to use the product? How many additional features does the product provide? How fast does it work? How expandable is it? How he "polished"? How many, or better, how few, in his work mistakes?

The size of the startup market is the number and rate of increase in customers and users of this product.

Let's assume that you can seriously earn money, that the price of one attracted customer is lower than the amount it brings.

Some people viewed my classification from this angle: “How great can a product be if no one wants to buy it?”. In other words, does the quality of the product affect how much the consumer likes it? Not. Product quality and market size are “two big differences”.

Here is the classic scenario: the world's best operating system application that no one uses. Just ask any developer who targets the BeOS, Amiga, OS / 2 or NeXT market what the difference is between a great product and a big market.

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When you ask the founders or the VC which of these three factors is most important, many of them will answer - the team, which is the obvious answer, because at the beginning of a startup, you know more about the team than about a product that has not yet been created or a market that has not yet been investigated.

Plus, we grew up on slogans like: “people are our most important assets” - in any case, in the USA. Good attitude towards people passes through our entire culture, following a chain of school programs to increase self-esteem to the inalienable rights in the Declaration of Independence on life, freedom and the pursuit of happiness, so the answer that people are the most important element of a startup seems to be correct.

And who wants to take a position when the team is not important?

On the other hand, if you ask the engineers, they will answer you that the product is important. This is a product-based business: startups invent products, customers buy and use products. Apple and Google are the best companies in the industry right now because they create the best products. Without a product there is no company. Try to have a great team without a product, or a huge market without a product. What? Then let me go back to product development.

For me personally, there is a third position. I argue that the market is the most important success factor for a startup. Why? If the market is huge and has a huge number of potential buyers, then the market pulls the product out of a startup. The market must be filled, and it will fill when the first viable product appears. The product does not have to be great, it just has to work. And the market doesn’t care how good the team is until the team creates the product it needs.

Simply put, consumers knock on your door to get a product. The main goal is to answer all calls and e-mails to those consumers who want to purchase the product. And if you have a large market, the team can be updated very quickly and without interference. Such is the history of contextual advertising, Internet auctions and TCP / IP routers.

Conversely, if you have a disgusting market, then you can have the best product and a brilliant team, it will not be important, because you fail.

You will erase your legs in search of consumers for your amazing product that do not exist, and ultimately your team will lose fortitude and disperse, and your startup will die. This is the story of video conferencing, office software and micropayments.

In honor of Andy Raclef, who previously worked at Benchmark Capital, who formulated this concept for me, let me introduce you to Raclef's Law on Startup Success:

The number one killer of companies is the absence of a market

Andy presented it this way:

1. When a great team confronts a bad market - the market wins.
2. When a disgusting team confronts a great market - the market wins
3. When a great team confronts a gorgeous market, something unimaginable happens

You, of course, can spoil everything even with a great market - this happened and not even rarely, but if you assume that the team is knowledgeable and the product at the heart is acceptable, then a great market will lead to success, and a bad market will lead to failure. The market is the most significant element.

And neither the star team nor the fantastic product will be able to repay a bad market.

So what?

First question

You have a great team at the very beginning, and everyone wants a great team, what does this team give us?

A great team will give you, in general, a normal product or at best a great product. However, I can give you many examples of great teams that have messed up their products. To create a great product is very, very difficult.

Hopefully, a great team will give you a great market, although I can give you a lot of examples of how great teams have brilliantly entered the disgusting markets and failed miserably. Markets that do not exist do not care how smart you are.

In my experience, most often a great team opposed a bad product and / or a bad market in case it was the second or third project of the founder, whose first company was very successful. People become overconfident, and they slip. At the moment, there is a very outstanding and very successful entrepreneur who burns through with a $ 80 million investment for his latest startup, but he has nothing to show, except for a few remarkable newspaper clippings and a few beta users, because in fact, there is no market for the product it creates.

And vice versa, I can tell you a huge number of weak teams whose startups were very successful, because the markets for their products were huge.

And finally, a quote by Tim Shepard:

A great team is a team that always wins an mediocre team with the same market and the same product.

Second question

Can great products spawn big new markets?

Of course.

This is actually the best scenario.

The latest company to do this is VMWare. The product of this company was so eager for change that it spawned a new movement in terms of the visualization of the operating system, which turned into a huge market.

And of course, in this case, it’s not so important how good your team is, as long as the team is good enough to create a product at the initial level that the market needs, and will provide this product to the market.

Remember, I'm not saying that you need not the best team, or that the VMWare team was not strong enough. No, she was and remains a great team. I say that you should create a product that will strive for change at the same level as the VMWare product, and then good luck will be with you. And the point.

A little advice, I still would not count on creating a product for a non-existent market, if this is your first time.

Third question

As a company founder, what should I do?

Let me introduce to you the "Raclef Corollary from the Luck of a Startup":

The only thing that matters is product / market matching.

Matching a product / market means being in a good market with a product that will satisfy this market.

You can always feel when there is no matching product / market. Users do not appreciate the product, word of mouth does not work, the number of users does not grow fast, press reviews are more like formal replies, sales cycles last a very long time, and many deals are not closed.

And you can always feel when a product / market match appears. Consumers buy the product at the same rate that you produce it, or the number of users grows at the same rate with which you acquire new north. Users' money fills your company's bank account. You hire salespeople and technical support specialists as quickly as you can. Reporters call you, because heard about your "hot new product", and want to talk with you about it. You get the Founder of the Year award from Harvard Business School. Bankers-investors are attacking your home. You can eat for free throughout the year at Buck's.

Many startups are falling apart before the appearance of a product / market match.

It seems to me that in fact they are falling apart, because they never wait for the product / market conformity. Following further, I believe that the life of a startup is divided into two phases: before the product / market correspondence (DSPR) and after the product / market correspondence (RSPR).

When you are in the DGD, concentrate on what you need to get to the product / market match.

Do whatever you think is necessary to meet the product / market. Including changing employees, rewriting the program, moving to a new market, deny customers when you don’t want it, tell customers yes when you don’t want, pursue and receive funding for the fourth round, which will dilute your startup - do whatever you need.

When you realize this, you can not pay attention to anything.

I am not suggesting that you ignore everything, simply, judging by the startups that I saw, you can.

When you see a successful startup, you see the startup that has achieved product / market matching. And usually, on the way to this, they turned everything upside down: from the initial model to the root development process, market plans, relations with the press and the CEO of the sleeper with the VC. And this startup was still successful.

Conversely, you see a huge number of well-managed startups, in which all operations are proceeding correctly, the right labor policy, an excellent sales model, and a well-thought-out marketing plan from beginning to end. Interviews are great, perfectly cooked food, all programmers are 30 "monitors, VC are top managers on the board. Still, they are rolling down the slope, because they failed to find the right product / market match.

It's funny, but if a startup is successful, and you ask the founders what the reason for the project’s success is, they will tell you about a lot of things that have nothing to do with luck. People find cause-and-effect relationships very disgusting. But, in fact, in most cases, the reason is product / market compliance.

Because, in fact, what could it be?

Note

This article raises more questions than answers. How to go to match the product / market, if you do not know the way at the beginning? How to evaluate the market in terms of size and quality, if the market is not yet formed? What, in fact, makes the product fit the market? What role does time play in all this? How to understand that you need to change the strategy and go to another market or change the product? When do you need to change part of a team? And why not rely on a great team to create a great product for a great market? All these questions will be discussed in the next articles of this series.