In a recent Twitter thread, Leslie Feinzaig, Founder & CEO of the Female Founders Alliance, posited on why venture capitalist investors pass up on startups. I really liked her train of thought here. She breaks it down logically, like a geometric proof or a series of if/then/else statements.
Leslie boils it down to one huge flaw in your startup: you are solving a problem that doesn’t exist.
In my Product Market Fit ebook, the first myth that I share is the incorrect thought process of “because I experience this problem, it must happen to enough other people, therefore, it should be a business.”
To move forward with the problem that you want to solve, you want to ask potential customers some important questions:
- Do you experience this problem?
- What have you done to solve this problem on your own?
- Of all of your problems, how high up on the list is this one?
Using these important questions, you can gather the vital information that you need to move forward. Without addressing these or with ignoring them altogether, you risk charging ahead, building a company that no one wants to invest in.
Let’s explore Leslie’s main point some more and expand a bit.
The problem doesn’t exist for the audience you are targeting
As humans, we see the flaws in a lot of things. Many of us recognize that something is a problem or could be done better, but when it comes down to it, we won’t pay our hard-earned cash to solve that problem. We don’t care about it enough.
That’s why you can’t just ask “Is this a problem?” because you’ll likely get people nodding ‘yes’. You also need to ask “How big of a priority is it to solve this problem for you?” If you can’t find people that say it’s the highest priority, you haven’t found your target. The right target will be unsatisfied with the existing solutions on the market and are DIY-ing something for themselves.
The problem exists, you’ve got the right audience, BUT it’s not as painful to them as you think it is
It’s so important that your initial audience is DIY-ing their own solutions AND still wanting something better. That’s where you come in and offer them that “something better”.
I always ask my own customers to, “Rank the following problems.” I’ll also ask, “From 1 to 7, how painful is this problem to you?” and “How much have you spent already trying to solve this problem?”
The problem exists, you’ve got the right audience, they feel a lot of pain, BUT your solution doesn’t really fix that particular problem all that well
If you took the time to investigate the DIY solutions that your customer put into place, you’ll have a better understanding of what you need to offer your customers. The first version of your product needs to be just slightly better.
Another important part of building out your MVP and prototype is allowing your early users to co-design with you. This way, you know that your solution fixes their problem.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, BUT it’s not a big enough market
Early-stage startups need to balance the “market size investors want to see on their deck” and a “small userbase size they need to do efficient product development.”
This is all about holding your bigger vision while executing smaller steps at the beginning.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, it’s a huge market, BUT it’s super saturated
So often, entrepreneurs don’t sit with the problem long enough at the beginning to notice the nuances. They go with the first solution that comes to them.
That’s why we have so many event, food and travel apps that all solve the same problem in exactly the same, boring ways.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, it’s a huge market, there’s room for new players, BUT your business model won’t scale
Here’s an important idea/term to introduce: Resegmented Market. You find a niche that’s not being served by the big competitors, so you can land there, then expand. You innovate on product, but use the business model that’s scaling and working for your competitors.
You put your money where your mouth is. You scale your business so that you can show recurring revenue to interested investors.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, it’s a huge market, there’s room for new players, your business model scales, BUT you can’t defend against competitors
Don’t follow your competition. Your unique perspective and experience is an inherent competitive advantage.
Instead of chasing what your competitors are doing, focus on your knowledge, expertise, and what your customers are actually saying. That focus, in turn, will give you the competitive advantage to stand out and actually address your specific customers’ problems.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, it’s a huge market, there’s room for new players, your business model scales, it’s totally defensible, BUT you’re not pitching it well
This can seem like an easy problem to solve, right? You take a course on sales, speaking or pitching specifically. You watch Shark tank, you hire someone to compile your pitch deck, there are countless possibilities to help yourself here.
But there is a reason this issue is so late in Leslie’s list. So many consultants will sell you storytelling services, but it’s putting lipstick on a pig if you don’t have the problem, audience, solution, and all other things proven.
The problem exists, you’ve got the right audience, they feel a lot of pain, your solution is the right one, it’s a huge market, there’s room for new players, your business model scales, it’s totally defensible, you’re acing the pitch, and they still said no
It’s important to remember that investors are people. People are subjective. We all have our own opinions, biases and sensitivities.
And the truth is, when it comes down to it, YOU may be the reason investors pass on the opportunity. They may not believe you have what it takes. They may not believe in your team.
Unfortunately, you won’t always know this is the case, but you can find out more about where you’d stand with investors right now by taking this free quiz, “Are You Investable?”
In the quiz, there is a bucket called “Ability to Execute”. Within this bucket, there are a lot of considerations like previous entrepreneurial or fundraising experience, subject matter expertise, right skillset and team in place, and connections to thought leaders and partners.
So what should you do?
Now that we’ve burst your bubble, what do you do?
It’s important to always remember and remind yourself that fundraising is hard. If this is your first rodeo, it’ll be even harder. If you haven’t really networked with investors or gotten to know any influential people, it gets even harder.
All you can do is persevere. Focus on what you know, what you can control, network, and find your earliest supporters.
This is your opportunity to show your grit. You’re not failing, you’re just playing the game.