Member blog: How to spot a startup that understands their customers
August 18, 2022
FiBAN investor member and entrepreneur Janne Puustinen is driven by passion to help early-stage companies build great products. He claims that failing to understand the customers is one of the most prominent reasons why most startups fail.
It’s a widely known fact that most startups fail. When conducting a post-mortem on a failed startup, you can chart reasons varying from poor product or team to a challenging market or simply running out of money but in the end, most common symptoms can actually be attributed to one root cause: failing to understand your customers.
In my experience, practically all the startups I’ve worked with over the years have failed to prioritize their customers: Often the founder is bursting with excitement as he or she is pitching the idea. And it’s very promising indeed. The market is big enough. The founding team is credible and the founder can’t wait to start building the MVP.
But when I begin discussions with the founders, it turns out that they’ve had next to no interaction with their potential first customers. Or if they have, the conversations are biased to suit their own perceptions. They also lack a systematic approach on how to further segment the market and the buyers, on determining the most valuable information to extract from them or where to pay attention to so we can start creating value ASAP.
To me, this speaks volumes. It’s a sign of a general problem among startup founders where you fail to understand the importance of customer understanding or don´t know how to obtain it systematically. This is obviously a huge problem for investors.
Here are some key questions to ask in assessing startups’ capabilities in customer understanding
- Who are your early adopters? What kind of people are the first to get excited about your product and willing to pay for it and why them?
- How to sell and market to the early adopters? Are the sales efforts and time-to-money estimates realistic and in sync with the resources available?
- How do you improve and iterate your unique value, position, and product vision based on your continuous early adopter approach?
The best and fastest way of creating and maintaining product-market fit is always found within customer-centricity. The buyer decides whether your product is worth the money and effort. Make sure your startup is selling and talking to the customers every day and in the right way.
FiBAN member, angel investor, entrepreneur
CEO at MEOM.fi
Deal Flow Manager