Conversation between early stage entrepreneur and investor:
Entrepreneur: Look at my beautiful business model that goes after this $100B market for these SMBs. Looking to raise $2M. Investing in my business will provide a 30–50x return in 3 years.
Investor: Wow, this is a big market! What is your entry strategy?
Entrepreneur: [Product Demo, Use Case, Metrics] So, you see my product is working beautifully for these users. Now, with this $2M, I’m going to launch in 20 cities and target SMBs across the country.
Investor: Wow, that’s going to blow through the money fast. Then, what?
Entrepreneur: I’ll raise the next round | I would close to breaking even.
Investor: Okay, let me get back to you.
And then they never do [Similar discussions happen within larger organizations too, between entrepreneurial managers and CEOs]
I’ve been that entrepreneur too, thinking that I’ve got this amazing market, this great product, potentially healthy margins, this great strategy to capture this whole market, and I’m only asking for $2M. This investor has a few hundred million $s in this fund, so why would they not give me $2M.
After 2 months of soul-searching, and repeatedly checking with the investor and his team: turns out, the investor liked the product/team, believed in the market, but didn’t have conviction in the market entry strategy.
Over my multiple entrepreneurship stints, working with large startups, and launching products from idea to scaling across millions of users, among the many things I’ve realized that there are 3 stages to a good market entry:
Whether you’re a small boot-strapped start-up, or a large well funded one, when you launch a new product, go sharp.
Once you launch the product, target to get product-market fit or PMF. Product-market fit is one of the most talked about but least objectively explained concepts.
Post product-market fit, building and executing on your go-to-market strategy.
Another mistake we made in one of our early ventures was not truly understanding which stage we were at. We were at stage 1 i.e. we had launched a good beta product, but we were pitching to investors (because we believed so), that we’ve got product-market fit, and to give us money to scale with a large go-to-market.
All 3 stages are critical, but most startups shut shop in the stage 1–2 range. This is also the stage that often requires the least amount of investment.
If you get past stage 2, i.e. you have product-market fit, then Stage 3 is where you need to invest in growth- it has its own challenges, but often less fatal.
Each of these stages take their own time. And as a startup, it’s good to recognize where you’re at, because:
‘Know thyself’ is the best thing you can be doing.
In case you’re trying to raise money: you’ll pitch your business better + you’ll target the right investors = higher likelihood of raising capital.
Coming back to market entry- When you think of an attractive large market that you want to address, think of this large bulbous mass. And your product offering is the tool to pierce through this large bulbous mass.
A blunt tool will require a lot of force to pierce this bulbous mass of the market. That’s when you’ll keep spending a lot of energy, time and money trying to enter the market.
When you think of your startup trying to enter a market, your vision may be to own this bulbous mass of a market, but if you want to enter this market, your tool needs to be sharp to enter the market with, and sticky enough to keep users locked within the market.
Sharp entry points are by focusing on a particular section of the market that would be receptive to your offering. The sharper the targeting, the stronger your entry is likely to be. The broader your target market, the less sharper is your entry tool.
The better your PMF within this sharp target segment, the stickier your product.
So, you’ve got Sharp Entry plus Product-market-fit for your target market.
Once your product achieves this stage, you now need one more aspect: GTM, i.e. Go To Market strategy.
Your GTM is the force you use to enter the market. For this, you will need a clear strategy, tools, and capital. The force is almost as important as the sharp launch and Product-Market Fit.
Trifecta of entering a market: Sharp Entry (targeted customer base) x Strong PMF (users love your product) x GTM (force)
Now that you’ve entered the market, your GTM (Go To Market) strategy will enable you to expand within this target market.
With the right GTM, once you’ve penetrated the market, your entry tool can expand the target market and take up more volume of the market.
Simply put, GTM is driven by your sales and marketing. Its the force you use to expand within your target segment.
It’s the key to building a large enterprise. Many good products are made, but without the right GTM, they are lost.
Building and executing your GTM is an industry in itself, so we can cover this in another post(s).
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