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The main cause of start-up failure

Some months on, I still find Jawbone's demise earlier this year unsettling. Not because the business ultimately failed, but because it received investments totalling a staggering $951,000,000, over the course of sixteen profitless years, on the way to that failure. That kind of money buys a lot of copies of The Lean Startup, the Silicon-Valley's designated Fail-Fast bible which, evidently, few people involved in Jawbone had found time to read.

During those long years, it must have become increasingly clear to its executives and investors that, beneath the hype and the vision, the company didn't really know how to build products that the market wanted. But the funding kept coming. As recently as 2016, when Jawbone had still barely made any impact on the wearables market, it nevertheless received a further, $165million investment.

What went wrong, at a fundamental level? And what keeps going wrong? After all, Jawbone is only the latest example of on-going investments that, for too long, are ploughed into start-ups whose products reliably don't gain traction. Was it really just bad luck and bad timing? Or a failure of execution, as some commentators have concluded? And, if so, why weren't those issues corrected much sooner, given the stakes involved?

I suspect that the underlying cause of such failures is actually something else. It's the tech-industry's longing to believe in the power of The Product Visionary. We too-casually attach the term to founders of successful start-ups, whatever the actual reasons for success were. This, in turn, influences those involved in still-aspiring start-ups, who consequently often long to fall under the spell of a similarly compelling Product Vision, conjured by the resident Product Visionary.

The problem is that many otherwise perfectly competent founders and product leaders in start-ups, who believe that they are Product Visionaries, aren't. They misunderstand the concept and they don't think like a real Product Visionary, misled as they are by the popular myths surrounding the creation of legendary products. In so being, they reduce their own effectiveness to the point where, despite the best of intentions, they jeopardise their businesses, often leading them ultimately into failure.

How does this failure happen? What are the differences between a true Product Visionary and those of us who aspire to approach their levels of insight and impact? And is it possible to more successfully emulate their behaviours?

Product-Market fit starts with The Market, not The Product

It's easier to consider these questions if we study the behaviour of genuine Product Visionaries, such as Elon Musk and Steve Jobs. What each has done is to combine a deep understanding of the needs, aspirations and nuances of their markets with elegant solutions to them. They started in each case with the market and worked back to the product. They've each demonstrated that, to be a true Product Visionary, you first need to be a Market Visionary.

Musk's SpaceX, for example, is spectacularly addressing the space industry's requirement for much cheaper and more flexible orbital-launch capability while, with Tesla, he has stunned the automotive industry by the quality of his response to the market's desire for cars that run on cleaner fuel. In each case, the need existed in the respective markets but was not well-articulated, because those markets didn't believe that solutions were yet practically possible. But the needs were still there, for the visionary who could discern them and their subtleties.

Musk identified and articulated those needs, then demonstrated that practical and desirable solutions were indeed possible. For example, he identified that car buyers weren't prepared to compromise much on range, and not at all on performance or style, just to drive a cleaner alternative to fossil-fueled cars. Tesla far exceeded market expectations - but not market needs - in all of these areas. Now, Musk is going even further, in addressing Homo Sapiens' longing to survive as a sub-species over the long term. An extraordinary visionary.

Contrast this with the mythical Product Visionary, the one we are presented with in popular lore and that we often, mistakenly, try to emulate. This kind thinks first and concretely only in terms of the product itself, while giving secondary consideration to its eventual market, and even then only in roughly-sketched terms. Such a visionary believes that a great concept will be adapted to and embraced by the market, and that the market will come to the product rather than the other way round.

Unfortunately, it's the widespread adoption of this myth of the Product Visionary that has led many aspiring product professionals astray, where products are conceived and evolved independently of a proper and deep awareness of market considerations. In such cases, however compelling the vision, market failure is assured. We can become so caught up in the theatrics of our Product Vision that we forget whose theatre this is. It belongs to the Market.

As Brian Balfour argues, a product should never be conceived in isolation from a deep understanding of its intended market's needs, the market-business model operating and the available channels into that market. All of these factors must be accounted for, together, at the point of the product's conception. Where a start-up's product succeeds exponentially, it is always because it met three market conditions. Firstly, it capably addressed an existing need (even if it was not well articulated by the market, it still had to exist). Secondly, its business model (i.e. the product's hoped-for addressable market and required monetisation levels) matched what the market was prepared to sustain. And, thirdly, the product was a great fit for an existing or emerging channel into that market, so that the product could sustainably get to its intended audience.

These factors can align with your product either by accident or by design. Design is much better, but Accident is more common, which is why most founders fail to repeat the success of their first idea or why they fail to expand a successful product into adjacent markets. Consider how many great follow-on product initiatives in your company get nowhere after months or even years of internal effort and hype.

It's also why some start-ups can, for a surprisingly long time, be run chaotically internally, but still experience strong growth, provided they've gotten those market fundamentals right.

At this point, Steve Jobs' famous assertion that “...people don't know what they want until you show it to them.” may come to mind as a justification of the narrower interpretation of the Product Visionary role. You may have had this quoted to you several times during your career. I'll bet that it was usually by people who otherwise hadn't really taken the time to understand their market deeply, nor its multi-dimensional relationship to their products.

Jobs generally applied this point of view to the topic of opinion-seeking market research, which is certainly not the same thing as deeply understanding what your market really needs. He, of course, understood the needs of his markets extremely well and had an extraordinary intuition for them. In the case of the iPhone, the market had already signalled quite clearly that it wanted more usable and powerful smart-devices. There were plenty of smartphones prior to the iPhone, but they were limited, clumsy and poorly-integrated into either our personal lives, our working lives, or both. They had so many broken features (for example, web-browsing) that people who used them existed in a near-permanent state of irritation. Apple massively elevated the smartphone by discovering market needs, not by creating them.

Sadly, an overly-narrow interpretation of Jobs' statement has contributed to the proliferation of a kind of product tunnel-vision, where the development of a deep understanding of the market, and how to reach it, are secondary considerations, coming well after the product's conception. Indeed, many product leaders define themselves by Jobs' assertion, and their mis-interpretation of it.

Arguably, being latterly lauded as the Greatest-Product-Visionary-Of-Them-All eventually skewed even Jobs' ability to build great products, as he started to obsess about form more than about what his market required.

Consider the iPhone 4. Nobody needed an overly-weighty, highly-fragile, double-glass-sided block that was guaranteed to shatter if dropped, regardless of which face it landed on. (I sure hope they've fixed that issue with the super-strong-glass-that's-actually-super-fragile, this time round.) Neither did they need a device surrounded in a thick band of metal, setting up a Faraday Cage that sapped the phone of its signal strength. Customers who complained about signal loss were told that they were holding their phones wrongly, which tells you that at least something about the product wasn't Insanely Great. It was a lamentation of form over practicality.

Luckily, Apple had, by then, sufficient hype surrounding it and so much brand equity that it was was able to bridge to the more sensible iPhone 5 without too much trouble. But most organisations cannot afford the consequences of such tunnel-vision.

Once set into the company's culture, the condition is very difficult to correct. When we start out by isolating the product from market considerations, we rarely adjust our mindset to re-introduce them later. Many start-ups then fall for the conceit that, if a product is not subsequently gaining market traction, then what's needed are more features, resulting in what Andrew Chen refers to as the Product Death Cycle.

Going beyond Product-Market fit : how start-ups really succeed

As much as possible, your organisation should remove internal boundaries between product people and market-facing people, and should discourage discussions of product in isolation of its full market context. And, if we need to believe in visionaries, then much better terms are the Market Visionary or the Market-Product Visionary. They would remind us all of what it really means to build a successful product:

  • Every product depends on a platform that is bigger than itself to reach its market (think Google or Facebook, as two examples of bigger platforms that your business potentially depends on). Once you've identified that platform, your product should be inherently designed to exploit it from the outset. For example, if half of your users access your website through its landing-pages rather than its homepage. why is it that your landing pages are much older than your homepage?

  • Your product's business-model depends on what the market is prepared to support while the channels through which you access the market depend, in turn, on that business-model. If your market can't sustain the combination of annual-number-of-users and annual-revenue-per-user that your business model requires, then you do not have a product, And if that business model, in turn, can't sustainablyfund your channels to market, then you also do not have a product. So, design your product and select its channels such that the market can support the business model and the business model can sustainably fund the channels to market.

  • The response to market traction issues is not More Features. It is an holistic consideration of both the market's need for your solution and of the user's lifecycle-interaction with your product. Design with Activation, Referral and Retention characteristics considered and built-in from the outset.

In the meantime, in offices across the Internet Economy, too many product teams are operating to a misguided notion of what it means to be a Product Visionary. They're building compelling Powerpoint roadmaps that don't deeply reflect or account for market needs, don't account at all for the channels to reach that market, and that respond to a lack of market traction with longer feature lists. All of this in anticipation of the day when that market finally takes a long look at itself in the mirror, and realises that it's past time that it aligned itself to their product vision. This, then, is the main cause of start-up failure.

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