Working With Startups Has Taught Us That a Product Does Not Start With Development. Where Does It Start?

Vira Moshko, Project Manager, 23 August 2023

As a development team, we work a lot with startups. I personally love startups. I like the concept we came up with: we don’t sell working hours, we sell the result — the product. 

We used to intervene less in the development of the idea, rather implementing the client’s vision. Most start-ups follow the “Product-Market Fit” strategy: we develop a product, launch it on the market, and see what happens. A few months later, after the product meets the first users, clients come back for changes. 

For the most part, our customers develop products at their own expense. These are people who are good at what they do and want to do something for themselves and people like them. For the vast majority, this is their first tech startup. Therefore, they think immediately about the product and its functionality. And after the launch, they start thinking about marketing and the finances.

Most people associate marketing with advertising and creativity. In fact, marketing is also about understanding your user and market. It is marketing that can help design a product based on an understanding of the audience, its problems, goals, or dreams.

The first version of a product does not have to be very expensive and take a long time to develop. The “Product-Market Fit” strategy involves entering the market as soon as possible, getting feedback and making improvements. And then repeating these iterations until the product meets its user. After that, you can start scaling. When it comes to scaling, investing in an uncertain value implies pouring money into marketing efforts that might not deliver the desired outcomes.

What Should Be Included in the First Version of the Product

To avoid doing anything unnecessary, wasting money and time on developing unnecessary features, the first version should be built around a key value. And understanding the value is impossible without understanding what problem or task the product solves for which people. 

Users 

A startup needs to answer at least three questions:

• Who is our customer?—make hypotheses about user groups. 
• What problems, tasks or dreams do they have?—to put forward hypotheses about the problems or tasks of each group. 
• How does our product solve them?—hypothesize solutions for each problem or task.

We advise to use the Value Proposition Canvas and the Business Model Canvas to better understand and organize your ideas.

You can test your hypotheses by asking representatives of the selected groups directly (conducting problem interviews). Or by studying the needs of key groups in open sources (users can communicate them on forums, in feedback to competitors or on social media). 

The Market

Next, you should look at what’s happening in the market where the startup plans to operate. Is someone already solving the chosen problem or task? If so, how will the product be different? Why should users choose it as a solution?

The fact that competitors exist is good news. It means that potential users are already aware of the problem and are looking for a solution. If this is not the case, the startup will need to spend additional resources on user training, to move the problem from the unconscious to the conscious zone. People will not look for solutions if they cannot clearly understand the problem. 

One of our clients has developed a system for communication between accountants of outsourced accounting companies and their clients. An average company may have 40–50 clients and there is a constant document flow between them, communication via email, all possible messengers and simply by phone. As a result, documents are lost from time to time, deadlines are missed, and the company receives fines from the tax authorities. The system provides for the concentration of all applications and communications in one place. There are many accounting solutions on the market. But no one automates communications. Automation would prevent mistakes, help you store everything in one place, and find any information quickly. Imagine that you need to find a document, but you don’t remember exactly where the client sent it and when exactly. Using the system, an accountant can simply filter the requests and find the right one. But accountants currently do not have such a request, they do not formulate the problem in this way and do not look for a solution. Therefore, our client needs to focus its marketing on making accountants aware of the problem and see that a solution already exists.

Value Proposition

Having understood the key group, the problem, possible solutions and the market, it is time to think about the value proposition. This is what the startup will communicate to potential customers.

In our experience, it’s best to have a very clear proposition that can be summed up in one sentence. This way, it will be easy to formulate an advertising message and convey it to users. The brain loves simplification. People need to see the message and understand it immediately: “This is for me, it solves my problem, I want to try it.”

Jira—issue & project tracking software. 

Notion—notes, docs, tasks. 

Glovo brings you everything.

The functionality should be built around the core value. Anything that doesn’t work for it can be postponed. Everything that communicates it and increases it should be done.

It Is Worth Calculating the Economy, at Least Very Roughly

You also need to understand how the product will be monetized and whether the economics add up. You can find many examples and formulas for calculating unit economics. To put it very simply: 

the cost of attracting a user who will use the paid version of the product (CAC—customer acquisition cost) should be less than the profit that the user will bring for the entire period of paid use (LTV lifetime value).

Simplify as Much as Possible, but No More

Many startups get confused about what exactly they should include in the product, overcomplicate it, and spend time and money on developing unnecessary features. It’s best to keep the first minimum viable version of the product very simple: solve one specific, existing problem. 

Uber takes you from one point to another. Airbnb helps you rent accommodation anywhere in the world. Tinder helps you go on a date. Netflix lets you watch films and TV shows in high quality without adverts.  

So, before moving on to the technical part, you should ask yourself some questions:

• Who is the user?
• What problem or task does the user have?
• How will the product solve it?
• How is the key value formulated?
• What exactly will users pay for?
• Do the economics add up?

It will take time to define these aspects, but it is definitely worth spending it. If you start asking yourself these questions when you have a ready-made product, the money and time invested in it may be wasted.