If you’ve ever been on the creative end of a business endeavor, you’ll know that coming up with a ‘big idea’ is actually the easiest step. Once you’ve designed a new SaaS concept or mapped out an innovative app design in your head, you are faced with the next question: where does your product fit into the market?
The excitement begins to dwindle as you realize that putting your ideas into action will take a little more planning than you originally envisioned. By conducting thorough product-market fit research, however, you may well find that you’ve got a revolutionary concept on your hands.
One of my guests on the Success Story podcast, Russ Heddleston, struck gold with his idea for a file-sharing service. Heddleston is the co-founder and CEO of DocSend; I was fortunate enough to speak with him about his journey from seed fundraising all the way through to selling DocSend for $165 million in 2021.
Russ’s co-founded startup was a raging success. For every DocSend, however, there are thousands of startup concepts that flop – so how can you ensure that your idea hits the jackpot? The answer, as I learned in Heddleston’s interview, is product-market fit research.
Today’s article is going to focus on what you can do as an entrepreneur to make sure your product is a winning concept (preferably before you make a sizeable investment of time and money). Interested? Let’s get into it.
In 2019, the failure rate of startup small businesses was at 90%. That’s a disheartening figure for any entrepreneur with a dream – but only until you realize that there are some key differences between those who fail and those who succeed.
For instance: 38% of failed startups go downhill due to a lack of funding, which is the most common reason for failure. After funding, the next most prevalent reason is a lack of market need (at 35%) and being outdone by competition (20%).
That’s 55% of failed startups who fall flat due to one entirely avoidable reason: insufficient market research.
So, how can you avoid making this same mistake? Quite simply, you need to know how to read the market and assess whether there is a need for your product.
Fortunately, this is a topic Russ discussed in detail during his interview – so let’s see what he had to say.
If you haven’t yet heard the February 7th Success Story episode with Russ Heddleston, I highly recommend that you listen to his incredible business insights. In the meantime, here’s a brief overview of his story:
Russ grew up in South Dakota, where tech was quite scarce – but he became interested in the tech world regardless and went on to study computer science because it was “fun and interesting.”
After graduating from Stanford University, Russ went on to work for the likes of Microsoft, Dropbox, and Trulia, as well as several startup companies where he gained entrepreneurial experience by proxy.
Russ then decided to start his own business and launched a company called Pursuit – which he sold to Facebook.
He went to work for a while at Facebook and learned even more about the business world. It was after Facebook, that Russ co-founded DocSend in 2013 with $1.7 million in seed funds.
In just eight years, the company’s sale value had risen to $165 million; the company sold to Dropbox for this figure in March 2021.
It’s an amazing story, but it wasn’t without trials and setbacks. So how did Russ go from a small startup exit in 2011 to a multi-million dollar sale in 2021?
The DocSend concept was a genius one, as it solved a problem for its target audience: it created a secure platform for sharing documents via links, which meant that images and documents no longer needed to be sent via attachment. This allowed document senders to track views, opens click throughs and other important metrics.
This is one of the most important factors to consider when starting out on an entrepreneurial endeavor: does your idea fill a need? Logically, it stands to reason that if there is no need for your concept, there will be no demand for your product. Hence, the importance of market research.
Let’s take a look at some valuable advice Russ handed down during his interview pertaining to product-market fit research.
How should people look for product-market fit in those early stages to validate their idea?
Upon asking this question during Russ’s interview, I half expected that he might give the stock standard answers: line up your goals, come up with a working hypothesis, so on and so forth.
Instead, he said “aim small” – not in the sense that you should lower your confidence levels, but that you should leave room for your concept to develop.
It’s okay if your idea turns into something different after that initial pitch deck. Leaving room for growth is preferable to scaling back your ideas later on.
The concept Russ touched on here is called the Lean Startup model, and it’s become quite popular in the entrepreneurial space. Lean startups essentially launch the most bare-bones, cut and dry version of their product – the “minimum viable product” – in order to collect feedback and re-evaluate their idea if necessary.
By following the lean model, you can use minimal resources whilst gaining valuable insights into how your concept might perform later on down the line.
Starting small is an excellent way to begin, but it feels like we’ve missed a step along the way. Before you can think about presenting a pitch deck or lean launching your product, you need to have at least a rough idea of whether your idea is viable.
So, what determines this? Isn’t any idea viable with enough funding and brainpower?
Unfortunately, the marketplace of ideas and products doesn’t shift to accommodate a new concept – it needs to happen the other way around. Entrepreneurs need to find space for their idea and make sure that there is already a demand for what they want to sell.
Russ listed some valuable questions that all entrepreneurs should ask in assessing their idea for market fit:
To whom is your idea so important that they’ll still open up your website tomorrow?
How does that person’s life change as a result of your product or concept?
Are you replacing something?
Are you consolidating things?
Are you saving someone time?
Are you saving them stress?
What are you doing for your target customer?
By asking each of these questions with regard to your concept or product, you’ll essentially be enacting the way that potential investors and customers will respond when they first see your product – and that will tell you everything you need to know about the viability of your product.
For example: Say you are starting a social media platform. Its features are instant messaging, photo sharing, and face filters.
Are you replacing something? No; there are already several social media apps with these exact features that take up most of the market space.
Are you consolidating things? No; these three features have already been consolidated in almost every other popular social media app.
Who would find your idea important enough to invest in with time or money? Likely no one, as most people have already settled on a social media platform – and since yours does not offer any new groundbreaking features, they are unlikely to switch.
DocSend, on the other hand, was able to fill a need that had not yet been addressed. It paved the way for other mega file-sharing apps of today, like Dropbox. It is absolutely essential that your product resolves an issue or solves a problem.
We’ve established that product-market fit is integral to the success (or failure) of your startup, so let’s delve a little deeper into this metric; what is it, and how exactly is it measured?
According to Josh Porter of Rocket Insights, product-market fit is accompanied by these three success indicators:
Porter says that, through this process, “your customers become your salespeople”. In order to get to this point, however, you need to assess your product’s value prior to making it available for public use.
Originscale Corp founder, Bhaskar Ahuja, lists the following steps to measuring the product-market fit of your startup concept:
List your target market. Write down exactly who has a use for your product: how old are they? Where do they live? What is the rough size of the population/how many people have a use for your product? What is the location of your target demographic?
Identify their needs. Does your target audience lack the product or service you want to provide? Are you filling a need or solving a problem for those people?
Create a survey for your target market. This gives you a simple method of gaining feedback without actually launching your product. Seek responses from your target demo and see firsthand whether there is a need for your concept.
Create a prototype based on your feedback, then make improvements as more feedback comes in. You should continually test each prototype within your target market and make changes as the need arises.
Track customer metrics. If you have a high customer turnover rate, you can be fairly confident that an aspect of your product needs to be fine-tuned.
Considering that 80% of SaaS companies do not achieve product-market fit, this isn’t a step you can reasonably skip when launching a new business idea. It is essential that your concept fills a gap, solves a problem, or introduces something completely untouched.
That’s all we had time for in this email, but Russ had plenty more to say in his interview. We touched on topics like:
If you’d like to hear the full interview, be sure to check it out over on my Success Story YouTube channel.
And, if you’re an aspiring entrepreneur with a big idea, remember to conduct thorough research on how your idea fits into the market as a viable product. Ask yourself: how does my product solve a problem?
Thanks for tuning in, and I’ll be back with more Success Stories next week!
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