Starting a company is extremely challenging. From tweaking product features to estimating demand, predicting where your company will be even two years from now seems almost impossible.
After months of researching, experimenting, and talking to successful entrepreneurs, I have finally come up with the five most successful strategies when starting your company. These tips not only work in theory but have actually been used by many successful companies. These strategies will significantly improve the probability of your company’s success. So, here they are:
1. Market Research
When you first enter a market with an offering, it’s critical to understand your target customers and their needs. What you believe is a product that will solve an everyday problem may not be what other people believe.
Let’s face it — humans are hard to predict. But, the best way to predict customer’s choices is talking to customers themselves. Send out short surveys or interview people from your target market to understand their frustrations.
There are many ways you can conduct these surveys. Let’s take a recent venture I started for example. I was working on a product to solve the frustrations of the average plant owner. To understand the magnitude of this problem, I interviewed shoppers in the plant section of Home Depot.
When conducting these interviews, it’s important to ask open-ended questions to let the speaker elaborate: prefer why questions over what questions. The what questions will leave you with a short answer, while the why helps you better understand your customer’s needs. Through these interviews, I was able to see the variety of plant owners and started getting a picture of which types I wanted to target.
Now, knowing that plant owners had trouble with watering their plants, I sent out online surveys to test the scope of this issue. Survey questions can be close-ended multiple-choice questions that are used to derive market statistics.
Some great platforms to send out these surveys include Discord and Reddit groups relating to your market. I sent out surveys on a few plant-focused Reddit and Discord groups and was very surprised to see over 100 responses.
People are willing to help — all you need to do is reach out. Additionally, you may want to consider asking for the respondent’s email to reach out to them for further discussion and beta testing your product.
To incentivize customers to fill your survey, you can hold a mini-raffle and offer a raffle ticket to each respondent. You can even incentivize detailed responses to free-response questions by offering cash rewards to the most in-depth response. Using incentives like this will get you many detailed responses that will help you better understand the market.
Most importantly, this market research will help you develop your customer persona. Your customer persona is the story of a person representative of a very specific demographic you want to target. Many entrepreneurs make the mistake of targeting the entire market. Trying to stretch your company to cover a variety of different customers will only end up hurting you because making a product for a huge variety of customers is extremely difficult.
For example, Apple could have targeted all phone users. Instead, they narrowed down their target customer base to only 2% of the market and are now making more than $50 billion yearly. Make sure to really understand and develop a customer persona because it will help you a lot throughout the development of your company.
You would be surprised by the number of people willing to buy your product with a discount. Even if customers don’t need your product, they feel they are losing an opportunity by not buying the product on a discount.
So here’s a way to lure customers (especially for customer testing) even before the launch of your product: The first type of discount is a pre-order discount. Before the release of your product, you can offer a discount for customers who order your product two to three weeks in advance. This pre-order discount not only incentivizes customers to buy your product but also gives you a forecast of your demand, so you can better plan your manufacturing and supply chain.
The second discount is a discount for people who filled out the market-analysis survey mentioned above. Offering this discount not only provides you with specific customers for user testing but also offers people a personalized discount that customers feel more obliged to use.
The last discount is a referral discount. This can actually be given in the form of payment or discounts. If users refer your product to their friends and family, who end up purchasing the product, they receive the product at a discounted rate.
Obviously, the discount or payment depends on many factors such as the number of people that end up buying the product from a referral, but this is the basic idea and is really helpful with marketing your company at early stages.
3. Customer Testing
A big mistake early entrepreneurs make is building their entire product before putting it on the market. This method is very constraining and will make it harder and more costly to tweak your product according to customer needs.
I recently attended a seminar in which the speaker was explaining his mistakes when developing his biotech company. When he originally came up with his product idea, he spent half a million dollars building and perfecting it to later realize that there wasn’t enough demand for his product. After receiving feedback from potential customers, he had to scratch his previous idea entirely and re-build his product.
Customer testing is vital to building your product. The first step is developing the first version of your product, or minimal viable product (MVP), to ensure there will be demand. Let’s look at an example.
Airbnb is a large company that provides users with rental homes almost anywhere. When Airbnb was first starting, they wanted to test the demand of their idea. They rented a one-room house near a business conference, roughly assembled a website, and advertised the service to conference members. They ended up having three conference members pay around $80 for an inflatable mattress and breakfast. After testing their idea with customers from their target market, Airbnb affirmed their idea.
Now, let’s say Airbnb didn’t get any sign-ups because conference members preferred booking a hotel. Airbnb would need to tweak their product before putting it up on the market. Without this crucial stage of customer testing, Airbnb would have wasted thousands of dollars and countless hours launching a product that customers weren’t interested in.
Similarly, it is important for early-stage entrepreneurs to test an MVP before selling the finalized version of their product. It is also important for the product-testing customers to be representative of your customer persona, so you can get a good idea of how your target customers will react to your product.
Remember to ask testing customers to carve out time to give you feedback on their experience with the product. You may want to consider a way to incentivize these customers to give you their time and genuine feedback— some entrepreneurs offer a discount on their products while some even offer it for free (don’t be afraid of this — customer feedback is much more valuable than your short term loss on the product).
After testing with a small customer group and developing a product your test customers are satisfied with, you can launch the product and start expanding the company. But, don’t forget this important stage in your company’s development.
4. Follow the Formula
If you are an early entrepreneur, it is especially important for you to follow the Projection Formula: 2T + 2P = 1/2R. No — this isn’t a magic entrepreneurship formula, but it will help you keep your projections in check.
The formula reads: building your startup will take you twice as long, twice the money, and make you half the money than your projected amount.
The reason this formula is true is simple: your customers will make decisions that you don’t expect. Following this formula will help you in making funding and timeline-related decisions with your company.
5. Find the Perfect Team
Although this advice may seem obvious, I can’t emphasize how important it is. Harvard Business School Professor Noam Wasserman finds that 65% of high-potential startups fail due to founder disagreements.
When making a team, there are two important criteria for you to consider. The first criterion is picking people that are preferably your close friends, and you feel comfortable expressing your thoughts/ ideas in front of them without hurting their feelings.
In the past, I worked on a startup with a qualified team but with people that were complete strangers to me. To avoid conflict, all of us were guilty of conceding to each other’s ideas even when it could potentially affect the company in a negative way.
The second criterion is picking a diverse team with different strengths. Far too often, early-stage entrepreneurs fulfill the first factor by choosing to work with like-minded individuals, rather than people who will bring various strengths to the team.
In theory, a team should have members with the following three strength categories: a builder, a brander, and a business developer. The builder should have experience in software/hardware development and should be able to build the company’s MVP. The brander focuses on the aesthetics of the product to make it visually appealing, as well as the marketing of the company. Lastly, the business developer focuses on sales, operations, and finances.
Although following both of these criteria may be difficult, it can help you find a team you are more likely to succeed working with.
One last tip before you go: Many entrepreneurs are afraid to reach out to various professionals of their company industry due to the fear of their idea being stolen. Don’t make this mistake! A lot of people have product ideas. The reason these people don’t actually start companies with those ideas is because of a lack of motivation, time, and skills required to do so.
People you reach out to will most likely not have the time and sometimes the skill, and they won’t steal your idea because you already have a head start with your company — they know it would be a loss for them. So that being said, don’t be afraid to reach out for help because seeking the advice of other professionals will only help you develop your company.
Although creating a company from scratch can be a challenge, these strategies will help keep your company in check with customer needs and increase the probability of your personal success as an entrepreneur!
About the Author
Jiya Gupta writes about politics, economics, and science.