What’s the main challenge for an early-stage startup?
‘Lack of funding!’, many founders reading this article may be screaming into their screens right now. The fundraising chase has become many founders' singular focus — and the constant barrage of sexy headlines of yet another 'successful multi-zillion round' is only adding fuel to the fire.
But I think those screaming founders are wrong. Finding funding isn’t the hardest thing. Finding customers is.
Let’s talk about traction
Now, don't get me wrong. Fundraising is pretty damn important but huge funds raised do not guarantee success, traction does.
At Blue Lake Accelerator, we talk to hundreds of early-stage founders from different parts of Europe and the US. Nine out of 10 are on top of their game when it comes to being familiar with possible sources of funding and are ready to corner a potential investor in that proverbial elevator. Nine out of 10 are pretty bad when it comes to their go-to-market strategy with far too many hiding behind a 'we will just pivot anyway so why bother' attitude.
To see the bigger picture, let's look at what the research data tells us. PwC's European Startup Survey identifies customer acquisition and sales as the most significant obstacle that a startup faces (it's not 'lack of funds').
Customer acquisition and sales is the most significant obstacle that a startup faces.
According to CB Insights, ‘no market need' is the top reason why startups fail. Plenty of startups manage to raise millions in funding — and still fail.
Why are we still so obsessed with celebrating completed funding rounds? It's time to shift the focus towards what really matters — getting a startup's solution to the market (read: clients).
Getting to market
It's only fair to take a closer look at what stops startups from getting to the market.
I work mostly with early-stage teams, and a big part of my job is assisting founders in focusing on a more thoughtful and structured approach to building and implementing their go-to-market strategies.
3x a week
We tell you what's happening across startup Europe — and why it matters.
I recall a recent conversation with one of the founders of an European startup with a focus on AI applied in the mental health context. The core team had MBAs and PhDs, they had an exceptional advisory board of domain experts and a solid product. Right before our first meeting, the team closed their seed round with strong interest from follow-on Series A investors. The missing part was the lack of clients, which turned out to be just the tip of the iceberg.
Lack of a clear go-to-market strategy and a structured approach to identifying the best-fit direction were slowly killing the company. Once we started analysing their approach, the reasons behind this state of affairs became apparent. The target markets were “all English speaking countries, all large corporations”. This combination yielded a huge number of potential leads and types of clients. Chasing this very vague and constantly morphing client type, the founders found themselves quickly burning through their resources with minimal useful output. Good news for this team is that they realised their mistake and have completely revised their go-to-market approach.
Take a few steps back and once again remind yourself what the problem you are actually trying to resolve is.
It is always a good idea to take a few steps back, take a look at the big picture, evaluate your markets, clients and once again remind yourself what the problem you are actually trying to resolve is. In this case, the founders' approach led to a change in the product itself, moving it from business-to-business to business-to-consumer with a far better initial traction.
Not long ago, I started to work closely with an Eastern European startup targeting the UK market. The team is developing a brand new AI-based solution, bringing a better customer experience through innovative analytical tools. The company is backed by its founders’ own investment and angel money. What's interesting in their case is that the team does not suffer from a lack of a pipeline of potential customers. They’re struggling to identify what a scalable business model is.
Almost every client they win requires a sort of bespoke solution for their particular needs. It is obviously diverting the founders' attention from becoming a scalable global company (and the chances are truly high) to a boutique consultancy type of business. With one of their first clients, the team was negotiating for almost six months before committing to deliver what was essentially a custom-made solution — and several other clients were heading the same way. To make the most of this situation, the founders tried to incorporate the new custom-developed features back into the main product, resulting in an ever messier offering.
Not surprisingly these types of stories rarely have a happy end. We went a few steps back with the team to answer the fundamental questions — 'what do we offer?' and 'for whom do we offer it?' — to start over working with clients far more effectively.
These are just a few examples of what can go wrong when a startup loses focus and ignores go-to-market from the very beginning of the company's path to being the next big thing.
Some starting points
I put together a few ideas which I encourage startups to think about when working on the go-to-market strategy.
- Look at the bigger picture first. How does the global market in your particular field work and what are the global trends?
- Start small. There is no need to target two or five or 10 markets at the same time, and it's ok to start from one and scale after. Focus is everything.
- Once you choose the market, start testing your hypotheses quickly, applying as structured an approach as possible. Kill assumptions that don't work out and move on.
- Listen to the market. Deaf startups die faster.
- Just get things done. There is nothing worse than starting doing things right on Monday, and ending up firefighting the 'more important things' by Friday, forgetting about your strategy. Do not let ongoing urgent stuff divert your attention from really crucial things.
Taking into account the complexity of building a successful go-to-market strategy, I believe it all comes down to one thing — discipline. Make a structured approach an integral part of whatever you do with your startup. These efforts will be well rewarded.
Lyubov Guk is a partner at London-based Blue Lake Startup Accelerator, investing in early-stage emerging markets startups.