Don’t underestimate the “product–market fit” phase
Thor Angelo (Denmark) is a serial entrepreneur, investor, and startup adviser. Angelo has a background as co-founder of the international growth company LanguageWire, and today he is involved in interesting companies such as OrderYOYO, MyMonii, GroupCam, and Shoptagr.
Over the past 3 years I’ve seen more than 300 different pitches. I’ve helped 50 go further, some with just a bit of advice, others with a network and connections, and I’ve helped about 20 of them with investments, time, and execution.
My advice on and help with these ideas and startups and to the people behind them are starting to form a pattern. There are several things that I say to them all again and again—things that everyone needs to hear.
The most important of them is, Don’t underestimate the product–market fit phase.
Short introduction
In 1999, we were three young lads with an idea in a PowerPoint presentation, and we started the company LanguageWire. We all had master’s degrees in business economics, so we were thorough, we’d learnt how to write reports, and we’d used 6 months on making a 60-page business plan. It was a complete waste of time; we never followed it.
But (later) we were very successful and had offices in eight countries, over 100 employees, almost DKK 150 million in annual turnover, and were among the 30 largest translation companies in the world when I made my exit in 2012.
What made the difference was when we started to get customers and helped them translate. In that way, we adjusted our product and business. As the Lean Startup movement manifests, it’s a matter of starting and getting five customers. It can’t be said often enough: Get five customers. Now. Today.
It’s not until you get customers that your idea is really tested. Your mother-in-law or a good friend will always say to you, “What a super-good idea! It sounds really wild.” But a customer who’s going to pay for your service or product will always be 100% honest; will he pay money for what you’re offering him? Forget your mother-in-law and get five customers. That’s the only way to get your idea verified. If the idea can’t fly, then it’s a matter of finding that out quickly, so you don’t waste 2 years in the basement and only then face reality.
When you meet your customers you will with 99% probability adjust your concept so it better suits your customers’ wishes. Lean Startup calls this a pivot; that is, you adjust something in your concept and try again. It can be the price, the product, the target group—whatever it takes for you to get a way in. And that is precisely what I’ve acquired enormous respect for over time in my work with startups: get your idea tested on real customers now! Then you’ll be in a position to adjust your product/concept so you hit the market’s bull’s-eye 100%.
(Note: One of the Lean Startup principles is that processes and products may be manual and work heavy at first—as long as you do have a plan/idea to be able to automate them later. So go out and be the product at the start. Do everything manually in the beginning; later, you can develop the software or buy the machines or the cheap labor that can make you more efficient.)
One of my most successful startups, which right now is flying with over 30 employees (28 recruited in just 5 months) and a total investment of over DKK 5 million to date, has used 18 months to find the correct product–market fit. In that period, we were only one or two people employed part-time. We have changed the concept fundamentally once (large pivot) and changed target groups twice (medium-sized pivots). That has also meant that we now have a different, third target group than when we started 2 years ago—an extremely instructive observation when you consider how sure we were about our concept 2 years ago. But a lot of work with potential customers has led us through these three pivots and to where we are today, with the perfect concept and target group.
LanguageWire started back in 1999 as a portal for the translation branch. At our investor meetings, we were already having to change the concept to a trading platform for translation services. No one believed in the idea of a portal. We started with the trading platform concept and got customers. Upload the document for translation, get some offers from translators from around the world, and choose the offer you like the best. But after 6 months and the first 200 jobs, we had to change the concept as our customers couldn’t be bothered to trade on the platform. They wanted more service. So we made a large pivot and changed the concept to one where we were the translation company, running the trading platform in the background. It worked better and we had more success.
After 2 years we had to change our product. We launched an extra product, so there were now two different qualities to choose between. Before we had just a translation, but after 2 years we had a cheap, low-quality translation and the more expensive, high-quality translation. That was the last large pivot we made, so after 2 or 3 years with three pivots, the concept was in place and we were ready for growth.
A third example is another of my startups, BillyTracker, which in theory is a fantastic idea: small GPS gadgets for small children (before they get mobile phones), so you can see where they are via an app on your smartphone. Relax completely at the playground or in the woods; your son is just over there. It’s a concept we’ve worked with for 3 years now, but we still haven’t found its perfect product–market fit. Who is the perfect target group? Children? Dogs? Your wife/husband? And what is the perfect user situation? Holidays? Trips? Everyday life? We’re still testing everything with our customers before we step on the accelerator and go all-out with the team.
Another piece of advice I may just squeeze in here is that I’m one of the few business angels/startup people who do not recommend that you quit your job and spend all your time on a startup in the idea phase. Finding a correct product–market fit takes time. Book five meetings with potential customers, hold them, and 2 months will most likely have passed before they have all had the time needed to digest the discussions. And in that period, there is nothing to do apart perhaps from a little product development. Forget the social media, website, and so on. They’re a waste of time. The product–market fit phase can take a long time—3 years perhaps. Ensure that you maintain a low burn rate (editor’s note: don’t burn too much money); keep your job in the meantime, so you don’t come under pressure from personal financial difficulties. You and your business will have time to prepare for the next successful startup. When I started LanguageWire, I worked as a waiter and bartender at night to be able to afford to work during the day on my startup, which didn’t pay any salary for the first year.
Everything starts small (and by chance)
Do yourself a favor: when you hear about successful startups such as Facebook, GoMore, and Airbnb, find out what their first 3 years were like. They all started quite small and by chance, and no one could predict how large they would become in reality. They started small, tasted the market, had a long product–market fit phase before they hit the bull’s-eye with the concept, and bang! they were on their way.
Exercise patience, maintain a low burn rate, find five customers, get a perfect product–market fit, and fly…
Good luck!
I like to begin where winds shake the first branch.
Odysseus Elytis