The decisions startups need to get right to build a global success story
April 19, 2022
Most promising success stories weren’t bogged down by one error, but there are a few decisions that companies with limited resources need to get right the first time, writes Salla Hänninen, CEO of Palava Global.
Your goal is to help your portfolio companies to build a globally successful growth story. You want to maximize growth and minimize risks. But how do you help startups recognize opportunities on one hand and threats on the other?
Having helped multiple startups succeed internationally, my team and I have identified some key decisions startups need to pay extra attention to in order to succeed. I wanted to share it with you so you can share it with your startups:
1. What kind of a product do we develop?
This is rather self-evident but so crucial that we need to start here: the most common reason startups fail is that they were unable to build a product that had enough demand. In other words, they could not find a strong enough product/market fit. That is why I find it so surprising that so many startups try to guess what kind of product their customers might want. One of our customers spent hundreds of thousands on developing legal tech software and only asked their current customers for feedback afterwards. Result: the customers would have wanted something a lot more simple and were not excited about the product. I’m sure you’ve also come across companies that have spent a fortune on product development only to find out later that there was no demand for it.
This does not need to consume lots of resources, but startups need to do the legwork before spending their or your resources on product development.
Instead of guessing, startups need to make this decision only after enough customer research. There needs to be a continuous conversation with customers even before product development. This does not need to consume lots of resources, but startups need to do the legwork before spending their or your resources on product development. A need for a solution to a problem can be identified before an MVP! Only customers know what they want, you cannot decide that from the outside.
2. Which market should we start from?
In the product/market-fit equation the other half is of course the market. Therefore it is just as important to understand which market needs the solution to a problem the most. Maybe the startup has developed a product the French are dying for but doesn’t interest anyone in Germany. If a startup wastes its customer acquisition efforts in Germany, that could be the end of a promising story. On the other side of the border, they could have had endless opportunities. It’s not always this black and white of course, but wouldn’t you rather spend scarce resources on a market that has as much potential and as few risks as possible? That is why this decision should be based on data, not gut instinct (and why we built a tool called the Market Scanner to help companies with this crucial decision). Unfortunately, many of our customers only come to us after they have tried entering a market and failed.
3. Can we enter the next market the same way we entered the previous one?
Often when startups enter their first market, they can spend ages getting their strategy right. There’s plenty of trial and error (as there should be) until a winning recipe is found. Yet many startups make the mistake of assuming that the same recipe can now be copied and pasted to other markets. They may spend a lot of money to, for example, hire people for the same roles they did in the last market. Only after having their salespeople fail in the market do startups figure out that they should have used an outsourced team instead. Or instead of having local SEO specialists, they need XING specialists in the market as customers in the new market to prefer looking for similar products on XING instead. (XING is LinkedIn’s competitor in German-speaking countries and is still more popular.) To avoid expensive mistakes when opening up a new market, startups need to stop for a moment to make this decision. This can be done through strategic market research that helps companies get answers to very specific questions about their market entry (yes, we do this too!).
4. Who can help us grow the most?
Regardless of whether a startup needs to hire people for some roles or find the right outsourced partners to help them grow, finding the right people is of course extremely important.
Yet I have come across dozens of companies that have settled for the first partner that shows any interest or an enthusiastic sales person who comes knocking on their door. AVOID THIS AT ALL COST.
Startups need the patience to look for the right people and be very strict about who they work with. To help themselves decide, startups should compile a list of criteria for their dream partner or employee, and make sure they have enough time and resources to find these people. The effort will pay itself back in the long term.
All of the decisions I’ve listed above can be made systematically with data instead of guessing and gut feeling. I understand well that startups cannot spend too much time and resources on every decision they have to make. If you aren’t sure how valuable a decision is to a company, I suggest thinking about a couple of things: 1) How much can the startup lose if they make the wrong decision? 2) What can they gain if they make the right decision and achieve their goal in a market? If the answer to either of the questions is “maybe a thousand euros”, don’t waste resources on decision-making. If, on the other hand, the answer is “millions”, I would make sure they get it right the first time.
Based on my experience, the companies that get these four decisions right, are much more likely to succeed than the ones that don’t (Wolt has done especially well on 2 & 3). I hope that this helps you make sure that your startups get these right the first time too!
CEO, Palava Global