The top reason startups fail is that they are simply not needed. Almost half of failed startups identify a “lack of market need” as the key to their demise – in our opinion the number is likely much higher. No matter how great your technology is, if your product or service is not something the market wants or needs, your business is doomed. It’s a solution looking for a problem — that is never found.
Then how come so many entrepreneurs ignore the real market need? Is it because they don’t care or understand why this is important? No, I think they do care but are sometimes blinded by what I call The Cheerleader Effect.
I first heard of The Cheerleader Effect on the show How I Met Your Mother. It’s a theory proposed by the character Barney Stinson who is by all accounts a womanizer. He describes The Cheerleader Effect as a perceptual phenomenon where women appear more attractive when they are in a group than when they are considered individually. The show’s depiction of The Cheerleader Effect is funny, albeit a bit sexist, but the theory actually holds up in the real world. In fact, a scientific study published in Psychological Science says that people are actually perceived as more attractive in a group than in isolation. And it applies to groups of men too. But let’s face it, The Rugby Player Effect is far less catchy!
So how does this apply to start ups? Well, I believe that entrepreneurs can become blind to the viability of their product when it has a multitude of potential applications. They often focus on the group of opportunities and forget to focus on any one option thoroughly.
The Cheerleader Effect.
For example, the Segway, a two-wheeled, self-balancing battery electric vehicle, was released in 2001 to much fan fare but never gained the traction some expected. The Segway was released as a general mode of transportation. On the surface people could imagine it being used in many scenarios: by commuters, by tourists visiting cities, by mall cops on patrol, by emergency responders in airports, and, among other things, for fun. Great, right? Well, not necessarily. While there are several reasons the Segway never lived up to the hype, one reason is that, despite the number of possibilities, the Segway lacked a strong target customer and use case. Many years later it appears the Segway is being used in niche markets (including emergency responders in airports and at events). Perhaps someday it will have broader appeal, but the Segway is still not a “must have product.”
When viewing the opportunity as a whole, the Cheerleader goggles come on and we get tricked into believing that the multitude of applications surely indicates a great opportunity. This may not be the case. These Cheerleader goggles handicap the ability of entrepreneurs to identify and pursue the optimal initial market segment. Without examining each opportunity individually, it is impossible to know if there is at least one worth the effort. In other words, despite the sheer number of potential applications – none may be attractive enough to create a viable endeavour.
It is tempting to wear the Cheerleader goggles. They make a multitude of low or mediocre opportunities seem very attractive as a whole. Worst case scenario – Cheerleader goggles cause entrepreneurs to drastically overestimate the opportunity, impairing objective decision making and spelling failure.
But what if you are brave enough to take the goggles off?
Take the startup Burbn for example. Burbn was an app with a plethora of features including the ability to log your location, earn points for activities, make plans, and post pictures. Burbn was blinded by the Cheerleader effect. Rather than focusing on one application, they kept adding features to appeal to everyone — resulting in a confusing and cluttered offering. After a year’s worth of work, the founders took the goggles off and made the tough decision to strip back all the features except for photo sharing capabilities. And Instagram was born. Market traction was achieved with 1 million users within 2 months of launching.
Getting product-market fit right is essential to a startups’ success as there are limitations on time and resources. Every decision to pursue a lead in one segment is an opportunity-cost decision that results in less time to invest in another.
Having a mediocre product-market fit in a bunch of segments doesn’t add up to success. Are you ready to get focused and take the goggles off?
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Want more? Check out Customer Discovery 101 for tips on exploring product-market fit