As many as 20% of new businesses in the US survive past their first year of operation. However, by the time the five-year point is passed, more than 50% will have gone out of business. The main reasons for businesses going under are financial; a lack of revenue and a lack of investment.
The problem with many people who create a start-up is that they have complete faith in their product or service, so they just jump right in and do not plan the creation of the business in the correct manner. This is not a good recipe for success. Any entrepreneur should make use of available resources, to help them deal with the legal and financial challenges of creating a business. One of the most important challenges is to address product-market fit.
Why is product-market fit so important?
You can be an excellent at marketing, but if there is no need for the product or service you are selling, your business is unlikely to be successful. The same applies if you target the wrong audience; speak to the wrong people and your sales will suffer. You need to ascertain whether what you are offering is really as good as you think it is, and who are the best people to invest in it. The best time to do this is before you spend large amounts of money on marketing and production.
Establishing the need
You should be entirely honest with yourself, when it comes to analysing whether there is actually a need for your product. Is the product completely new? If there are similar products out there, do you have a strong enough USP?
It’s a good idea to get as many unbiased views about your product as possible. You can start by interviewing people within your network who belong to the appropriate demographic. Many start-ups use crowdfunding to kick start their business. Doing so should provide you with some idea as to the level of interest in your product.
Ensuring your target market is appropriate
It’s not only important to ensure that there is a place for your product in the market; you also need to make sure that you are trying to sell to the right people. Think about the cost aspect of what you are selling; which age and financial demographic is most able to afford it. You also need to consider geographical and occupational considerations.
You can test to see if you are optimising your target audience after you launch your business. Use funnels to section off customer groups and use analytics to help you measure which groups are responding to your marketing and which are not.
Hopefully, you can see why product-market fit is so important. If you do not ensure that there is a place for your product before you invest heavily, you could be setting yourself up to fail. Conducting research before you launch your business can help reduce wastage and enables you to move on to another idea, if necessary.