The number one cause of start-up failure is running out of cash before a sustainable (and sustaining) income stream can be secured. The root cause for this is often very simple: lack of focus.
An entrepreneur’s starting point as they assess an opportunity is asking several key questions: how big is the market, who is the customer, how many are there and how great is their pain?
The trouble is that, in many instances, the market is so big, the customers so numerous, and the pain so great, that there are many opportunities. Entrepreneurs, optimists by nature, often have difficulty honing in on a single opportunity – a specific market, a specific customer, a specific product and a specific solution or value proposition.
After all, the very notion that, with a few modifications here, and an added feature or function there, the base product or service could address multiple market opportunities, thereby creating multiple revenue streams, is a very alluring proposition. Unfortunately, this thinking is a siren’s song that has led many an unwary entrepreneur into shallow waters.
Lack of focus manifests itself in many insidious ways:
- Development – Developing a product or service that addresses multiple markets with varying needs will necessarily add complexity and extend the development timeframe.
- Product – Developing a single product that addresses multiple market opportunities may yield either a feature mismatch (resulting in a product that does not satisfy all the needs of any one market) or, equally devastating, feature creep (resulting in a product with one or more features that add cost but are not valued by some customer segments, and thus cannot be charged for).
- Marketing – Without a specific target customer group, your marketing efforts must either incorporate myriad value propositions (as different customer segments will have different pains) or, alternatively, you must run multiple campaigns (an expensive proposition).
- Sales – If you haven’t chosen a specific target customer group as your main priority, you run the risk of jumping at any (or all) opportunities that present themselves, resulting in a fragmentation of effort and, consequently, either a high strike-out ratio or an elongated sales cycle.
The corollary, then, to the potential riches of attacking multiple market opportunities simultaneously is that you significantly increase the risk of exhausting your cash before signing your first customer.
Your new mantra is simple: Fixate on one Opportunity Consistently Until Successful.
ACHIEVING PIN-POINT ACCURACY
So how do you decide which specific opportunity, market or customer group to focus on?
- Find the biggest market – Identify the biggest existing market, or the most probable future market, poised for the highest growth.
- And the richest customers – Identify which customers (or customer group) has the highest propensity to move quickly and pay a premium price (usually these are the customers with the biggest pain).
- With the fewest competitors – You will always have competitors (even if it is simply market inertia), but fewer competitors improve your odds significantly.
- With a clear and specific pain – Even if there are multiple pain points, isolate the primary pain.
- For which you have a compelling solution – The right product or service, with the right value proposition, at the right pricing point and for which you have the right credentials.
Making the wrong decision along the way or encountering a market shift need not spell disaster. Changing direction and focus in response to new data is much easier (and often less costly) if you have a narrow focus to begin with.
However, it is crucially important that you decide on which customers you will focus your energy and resources, and that you stick to that plan. Even seasoned entrepreneurs can get spooked as their cash balance dwindles, or when it is taking longer than expected to sign the breakthrough deal. As a fear-response, they abandon their well-researched plan and start shopping their product to anyone who shows an interest, wasting precious time, money and resources, and invariably hastening their company’s demise.
Mark Neely is a lawyer, technology commercialisation consultant and author of 10 books, including The Business Internet Companion. www.infolution.com.au