In our latest blog, Startup founder and AIN’s Head of Product & Growth Ching-Yun Huang looks at how early stage startups can tackle product development.
Developing and designing a product may seem like a daunting process for any startup founder. Indeed in AIN’s recent research on startup sentiment, we found concerns about building a product ranked as the second biggest concern for entrepreneurs, behind raising investment.
First of all, although you might have aspirations and aims to create the next tech giant and become a unicorn business in 5 years, your main focus should be toward the very first stage of the funding process – the early pre-seed round. The good news is that at this stage, you will not be expected to have anything close to a finished product. It is the idea and the understanding of the market that investors will be interested in.
So what are the first tentative steps in developing a product that is investable and potentially scalable?
- What problem is your product solving?
Any product has to serve the ‘needs state’ the startup has identified. The two questions that must be asked are:
a) Does what you have in mind solve your audience’s problems?
b) Would they pay for it?
In respect to the first question – how do you establish a need for a product? Most successful product innovations will be based on the knowledge of experts in that market, because they have experienced it first-hand and know that enough people have the same problem. Having lavish technology is rarely the solution, but identifying the need and whether people might pay for it is. Investors will be looking at your experience of the market as well as your team and advisors.
If you can win early stage investors over with this proposition, you can then open the door to investing in the R&D and design to bring the idea to fruition.
- Research your market
Market research is obviously a good way to understand and test the need for your product. A good example of this would be Beauhurst, the data platform that helps businesses discover, track and understand high-growth companies, accelerators and funds. Before launching their now very established platform, they spoke to many people in their target audience (i.e. startup founders) and found out the sort of information they might need about companies they might be looking to do business with.
Similarly with Angel Investment Network, the idea came about after the founders James and Mike had multiple conversations with startup founders globally and found a real barrier to funding for those who didn’t already have an established network of contacts. It is now the world’s largest online angel investment platform.
- Proving the concept
The next stage is proving the concept. Looking at Beauhurst again, their approach was to gather all the information in a simple spreadsheet that they could sell to their audience. So the essence of the company was information, not a shiny platform to hold it in. Once they had feedback on the information, they could iterate in this basic format and build out the platform. Similarly for the developers of Google Sheets, they used Excel as their template and encouraged users to work with the BETA version. They could then see what functions users were using but also crucially not using. The engineers could then streamline things.
- Can you piggyback off existing technology and save money
Thinking you need to invent a new Facebook or Uber platform is the wrong starting point for bringing your idea to life. The early stages for any business are about survival. What is the simplest way to bring an MVP to life while you are pre-revenue? If you look at the development of Slack – this was based on an iteration of existing technology, MSN.
Slack began as an internal tool for Stewart Butterfield’s company, Tiny Speck, during the development of Glitch, an online game. It was based on an identified need; using a specific messaging channel for a topic using an established technique – a hashtag. It is of course far easier to build things that people are already using and then iterate. 8,000 customers signed up for the service within 24 hours of its launch in August 2013. Just 1.5 years later, they had 135,000 paying customers spread across 60,000 teams.
Similarly, Ant Group’s platform offering financial connectivity to billions as the world’s largest mobile and online payments platform just required a mobile phone and a QR code on any product or service, anywhere. QR already existed and didn’t require a lot of infrastructure associated with electronic payments cards, networks, terminals and merchant accounts.
- Develop a road map
Finally, while early stage investors won’t necessarily need to see a developed product, they will want to see that you have done the work on the stages from idea to activation. One approach can be to develop a goal-oriented roadmap. If you set it up, you have to follow it through, so they will hold you to this. There would be several elements of product strategy implementation:
Date – A deadline or timeframe for achieving a certain product goal.
Name – The name of the digital product version you’re developing over a particular timeframe.
Goal – An achievement your product should accomplish over a specific period of time.
Features – A list of high-level features you need to implement to meet the product goals.
Metrics – Success and performance indicators used to check if a certain goal was met.
So in summary, there are several steps that startups should consider in tackling product development. Focusing on the very pre-seed stage is crucial with investors not needing a finished product but instead a strong idea filling a gap in the market. This gap can be identified through research of peers, ideally from experts with a strong and established understanding of a particular market. The idea will need to solve the identified problem and be something people will be prepared to pay for.
If the idea can piggyback off an existing technology, this can be hugely effective and has been the proven approach for a series of tech unicorns. Finally, make sure you develop an effective product road map so that early stage investors can see a pathway to scalability.
Ching-Yun Huang is AIN’s Head of Product & Growth and is also CEO and co-founder of the Moment App.