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It is estimated that about 305 million startups are created every year. 1.35 million of these startups are in the tech space. The good news is that some of the most popular tech companies you see today had humble beginnings as startups. Some of the entrepreneurs who created such startups that have made a big name in the tech world include Elon Musk, Mark Zuckerberg, and Steve Jobs.
Blockchain is one revolutionary technology that has changed finance, banking, insurance, and supply chain industries. The blockchain market value is expected to be worth US$15.1 Billion by 2024. We can also see increased interest with $4.4 billion of funding for blockchain startups recorded in Q2 of 2021. The big question is; how can the current and future founders in the blockchain space find their product-market fit?
What is a startup product-market fit?
In layman’s terms, a startup is a young company that comes up with a unique business idea and intends to make an impact and take over the market.
Three things must be fulfilled to find the product-market fit;
- Identify a problem that a sizeable market needs solved
- Identify a product that can solve that problem
- Create a business model that you can execute to make the product profitable at some point in time.
Sounds complicated, right? No need to worry because you can follow the following steps to find the product-market fit for your blockchain startup:
1. Market segmentation
This is the initial research that will help you identify multiple market opportunities for your blockchain startup. You can then do direct market research-based analysis on a finite number of market segments to determine what suits your blockchain technology best.
2. Settle on a beachhead market
Market segmentation will give you loads of market opportunities. When you narrow down, you get a beachhead market. You may find it hard ignoring market opportunities as a first-time entrepreneur as you think that many opportunities increase your odds of success. However, you need to narrow down and focus on a select market. These three conditions must be met at this step:
- Customers within this market all buy similar products
- Customers in this market have similar sales cycles
- These customers serve as high-value and compelling references through ‘word of mouth’.
3. Create an end-user profile
The next step is learning about the target customer. As an entrepreneur, you need to create a product based on the customers’ needs and not what you want to sell. You need to understand the potential customers in your search for specificity so that you start making your customers real and concrete.
4. Calculate the Total Addressable Market (TAM)
Total Addressable Market for your beachhead market is the total amount of annual revenue that your business could achieve if you acquired 100% market share in that market. This is how you calculate TAM:
- Determine the number of end-users that fit your End User Profile and apply a bottom-up approach based on your primary market research.
- Confirm your findings using a top-down analysis.
- Determine how much revenue each End User is worth per year.
- Multiply the two numbers to determine TAM.
5. Profile the Persona for the Beachhead Market
The idea here is to select one end user from potential customers to be your Persona. The next step is creating a detailed description of that real person. At this step, you are selling to a specific individual and not a random ‘end-user profile.’ Your team should be on the same page and understand the Persona so that you can have a customer-based focus. It calls for understanding your customers not only rationally but also at social and emotional levels.
6. Full Life Cycle Use Case
Find details such as how the Persona finds your product, acquires the product, how the Persona uses the product, the value derived from the product, how the Persona pays, and how he or she passes the message to others. The visual representation of the full life cycle of the product helps you understand how the product fits into the customer’s value chain and the barriers that might arise in the process of adoption.
7. High-Level Product Specification
This step helps you create a visual representation of your product based on its features. The idea is to stay at a high level without a physical prototype or even too much detail. You can thus have rapid revisions without investing too many resources or time in this early process. A brochure with features, functions, and benefits is what you need at this stage.
8. Quantify the Value Proposition
You determine how the benefits of the product turn into value. The top priority of the Persona is what frames the Quantified Value Proposition. A one-page diagram is enough to show the value proposition.
9. Identify Your Next 10 Customers
On top of your Persona, you identify 10 potential customers, contact them, validate their similarity to your Persona and their willingness to buy your product. You can also make modifications to other steps based on what you learn from this step.
10. Define your Core
Explain why your business can provide a solution that other businesses cannot. There are millions of blockchain startups out there. However, the Core is what your business will have and others will lack. You will work hard to protect the Core, and you should continually work hard to make it stronger. However, you can make changes as you determine what you do best and discover what your customers value most.
11. Chart Your Competitive Position
This step illustrates how your Core maps to what the customers really want. The Core is taken in a Competitive Position and translated into something that people will really care about and something that is valuable. You have to check the customer’s status quo and the Persona’s top two priorities.
12. Determine the Customer’s Decision-Making Unit (DMU)
You must determine who makes the ultimate decision to purchase the products. Meeting the influencers with sway over the purchasing decision is also important. B2B situations might be easy to figure out. However, large consumer companies might have a DMU.
13. Map the Process to Acquire a Paying Customer
Mapping out the process through which a customer decides to purchase your product is crucial. Determining the life cycle of your product is also important at this stage. Identify if there are any compliance, regulatory or budgetary hurdles that might slow down the process of selling your products. Selling a product may at times be more complex than meeting the Persona’s needs. The essence of this step is to ensure that you identify all the pitfalls that may hinder the sales process.
14. Calculate the Total Addressable Market Size for Follow-on Markets
Having a beachhead market is important. However, you need to determine the follow-on markets that you will consider after dominating the beachhead market. At this point, you think through the adjacent markets and the up-selling opportunities that are available. Five or six follow-on markets are a good start. You can then calculate the broader TAM by following the steps we highlighted in Step 4. Broader TAM shows your team and investors that the business has great potential both short and long term.
15. Design a Business model
There is no specific business model a blockchain entrepreneur should adopt. However, the business model you adopt will depend on your situation. Consider the following factors when designing your business model:
- Customer. Understand what they are willing to do based on the knowledge you acquired from Decision-Making Unit and Process to Acquire a Paying Customer.
- Value Creation and Capture. Determine the value that the product offers to the customers and when.
- Competition. Which models are your competitors applying?
- Distribution. Your distribution channel should have the right incentives to sell the products.
You have a business model, what’s next? SALES!
Set your pricing framework
Now that you have a Business Model in place, it is time to determine the pricing strategy. One of the biggest mistakes that people make is basing their prices on the costs. However, the pricing of your products should be based on the value that the customer gets from the products. If you have blockchain software, you may find that the cost of producing one more copy of that software is virtually zero. The Quantified Value Proposition is what determines what value a customer gets from your product, and you should charge a fraction of that (something like 20%).
1. Calculate the Lifetime Value (LTV) of an Acquired Customer
The Lifetime Value (LTV) of an Acquired Customer is the calculated profit that a new customer will provide on average. LTV is discounted to reflect the high cost of acquiring capital that a tech startup faces. Compare LTV to Cost of Customer Acquisition (COCA) and always ensure that you have the LTV: COCA ratio is higher than 3:1. The aim here is to be realistic and not optimistic.
2. Map the Sales Process to Acquire a Customer
This step allows you to develop short-term, medium-term, and long-term sales strategies that you will apply to your products. Some of the factors that most entrepreneurs overlook include:
- The cost behind sales and marketing efforts employed to reach prospects.
- Unusually long sales cycles that cost a lot of money.
- The customers that do not buy the products and the costs associated with reaching them.
- Corporate shake-ups that are likely to affect Decision Making Units.
The sales process drives the COCA and the Lifetime Value of an Acquired Customer.
3. Calculate the Cost of Customer Acquisition (COCA)
To calculate COCA, you must quantify all costs associated with sales and marketing when you acquire a single average customer. COCA takes a top-down model where you tabulate your aggregate sales and marketing expenses over a given period and then divide that by the number of customers you get within that span. COCA provides simpler scoreboards and allows you to make adjustments rather than focusing on complicated financial statements. Ensure that you make the numbers real rather than what you want them to be.
4. Identify Key Assumptions
There might be several assumptions about your business that haven’t been thoroughly tested, and you can rank them in order of importance. This is the step that allows you to validate your primary research. However, you must break down the assumptions to their specific components before you test them so that each step represents a narrow idea.
5. Test Key Assumptions
It is time that you test the assumptions you broke down in the previous step. For instance, you can send requests for information (RFQ) to vendors to test cost targets. This will allow you to determine if your cost projections resonate with the volumes you intend to produce. The tests complement the basic research that you have already taken. A first-pass product comes along when you converge your market research with empirical results you get from the experiments.
6. Define the Minimum Viable Business Product (MVBP)
There are three conditions that must be met or MVBP to be met:
- The customer gets value after using the product.
- This customer pays for the product.
- The product is enough to start a customer feedback loop.
The MVBP should balance sufficiency with simplicity. It is this MVBP that will help evolve your products to match the customers’ expectations.
7. Show that the Customers will Buy the Products
You must illustrate quantitatively that your target customers will pay for the Minimum Viable Business Product. This calls for you to take the MVPB to the customers and to evaluate whether they will pay and actually use it. Collect data to see if they are using the product and how engaged they are. You will also determine if someone associated with them will also be willing to use or pay for the product. Collect this data over time, analyze it while looking for trends that help you understand the underlying drivers.
8. Develop a Product Plan
You need to go beyond the MVBP and determine which features you want to build out of the beachhead market. At this step, you also determine which adjacent markets you will sell to once you have dominated the beachhead market. The Product Plan will also illustrate how your product will change each new market. The whole idea is to think beyond the beachhead market and not get a bogged-down vision. It ensures that you do not give yourself in the hands of fate but a methodological process.
Finding the right product-market fit is easy when you follow the above steps. Ensure that you have the blockchain infrastructure and liaise with various stakeholders as you build your tech startup.