The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “How do you know it’s time to drop your startup idea?” is written by Avery Roth, founder and CEO of The Startup Consulting Group.
Startups are in the business of creating products that are brand new or have never before been offered in exactly the same way. By definition, then, a startup is an enterprise whose main task is innovation. And the startup founder’s primary job is to figure out how to get paid for that innovation.
So, you’re a startup founder who’s hunting for that sweet spot, the multiple-dollar-bill sign that signals you’re onto something. It can seem elusive. How does one arrive at a viable business model?
You’ll need to initiate a process to discover what’s known as your product-market fit. What solution can you provide to a particular customer base that is so compelling that they are willing to pay you?
Many entrepreneurs find this process challenging. Indeed, the trial and error embedded in the innovation process can take its toll in blood, sweat, and tears. But it doesn’t have to be so painful. You can take an organized, formulaic approach to achieving product-market fit, the essence of which involves analysis of three factors: your market, your product, and your desire.
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First, your market. Many founders, especially those with a design or product background, begin their entrepreneurial journey with a specific vision of a beautiful product that they want to bring into the world. The problem with this approach is that it’s impossible to achieve your goal if no one is willing to pay for said beautiful product. Instead, you should start with a thorough understanding of the customer base that you want to serve. What are their pain points, how are they currently solving them (if at all), and for which types of solutions might they be willing to pay? How big is the market, or in other words, how many individuals might actually become customers?
Only after you have understood and defined your market should you move to developing your product. The research you did during the market phase will help you to understand the features you’ll need to develop to best serve your customer. At this point, you’ll need to have two very real discussions with yourself. First, will customers pay enough for the product to make your endeavor viable, profitable, and thus worthwhile? (Nonprofit enterprises may evaluate viability differently, but the concept should hold.) Second, are you actually good at producing said product? You may have found through your customer research that the market demands a product you do not have the expertise to build, so it’s important to be honest with yourself about your ability to deliver.
Finally, how badly do you want this? It’s a specific question. The hypothesis and direction you’ve developed while studying your market and the product may have morphed away from your original business idea. Are you excited about this new direction? Will you be serving the customers you want to be serving? Will you be producing something you can build well and really get behind? Does the venture align with your mission and the impact you want to make in the world? In short, does this new direction fire you up?
If you, as a founder, dig really deep and find answers that you don’t like, that’s okay. It’s important to take a moment and acknowledge that building a business is a huge life commitment. Conducting these analyses will teach you a lot about your strengths and values. And, this awareness will empower you to move in the direction of a venture for which you are much better suited. On the other hand, if the answer to all of these questions is encouraging and exciting, then you can feel comfortable that you are well on your way.
Avery Roth is a startup strategist and the founder and CEO of The Startup Consulting Group. She works with startup founders to achieve product-market fit, scale, and prepare for fundraising.