Getting from an idea to funding
What it takes to start from a new product idea and go all the way to finding customers, building the product, having revenue, and eventually getting funded.
Do I need a tech co-founder or CTO?
Absolutely NO! Allcancode can become your dedicated tech team that includes a CTO and a head of design. We explain this further in one of our blog posts. However, if your already have an in-house tech team, you can still find the following process very helpful.
There is a step-by-step process.
The process is inspired by the customer discovery section of Steve Blank's "The Startup Owner's Manual". It is practically a path from an idea to seed-stage in four phases. This is an iterative process, which means that at any step you may need to go back to previous steps and revise your findings, thoughts, and hypotheses.
Allcancode is here to support you through all four phases, but you can also follow it without us if your alread have a tech team.
Phase 1 - Business model hypothesis
In this phase you will deconstruct your vision to specify the problem and its market, your solution, your customers and how you can reach them. Practically, you will briefly fill in the Business model canvas.
It doesn't make any sense to spend time and money in a startup that cannot grow beyond a few million dollars. The ideal market has a large number of potential customers with significand and predictable growth rate, and reasonable opportunities to attract them to your new product.
- Total Addressable Market (TAM): This is the annual revenue your company would make if every customer in your market bought your product. Multiply the annual customer value (ACV) - based on your current pricing model - with the number of customers in the market.
- Servicable Addressable Market (SAM): This is the annual revenue your company would make if every customer you can realistically reach today bought your product. This is where aspects such as geography, customer type/size get into play. Multiply the same ACV you used for TAM with the number of customers you can reach.
- Servicable Obtainable Market (SOM) or Target Market: This is the annual revenue your company would make in the next 12-18 months based on its current capabilities (or the enhanced capacity after raising the funds you are looking for). It should be calculated from your sales forecasts as a percentage of the SAM.
For all three numbers you need also to find estimations for their yearly growth rate. The easy way to find estimations is going top-down based on reports by analysts. However credible the analysts are, those are only predictions that most of the times prove wrong. The best way is to go bottom-up and take into account the number of people (B2C) or companies (B2B) that may have the problem as in the example above. And you can always study market research reports, competitor news, but also ask questions in related communities (on Facebook, X, Reddit, etc) to understand how people in your target market think.
Vision and MVP
In this step you will fill in the Value Proposition box of the canvas with the vision, the product offered to customers, its features and benefits and the functionality of the MVP.
- Product vision: This is about the long-term vision changing or creating a market and changing the behavior of people. It should be a short list of bullet points from the perspective of a user of your product, i.e. a user story. Early adopters will tolerate an incomplete and buggy product just because they will buy in your vision, so it has to be compelling. This is also the time to specify an initial launch date for the new product.
- Product features and benefits: Features are about what the product does, and benefits are about how they solve a problem or satisfy a need, and hence why the customer will buy the product. Think about the different forms a value proposition can take compared to existing solutions/products:
- Higher performance.
- Less expensive.
- More convient.
- Minimum Viable Product (MVP): it is the smallest feature set that result to a functional product solving the core problem. The MVP is built for the early adopters in a small market segment (niche). Identifying the niche market is part of the next step, where you will refine this specification.
Who is the customer
In this step you will fill in the Customer Segments box of the canvas with the ideal customer profile (ICP).
- Niche market: Initially, you need to target a tiny segment of your market which will require a reasonable effort to reach. In particular you are looking for the early adopters in that market who have the following characteristics:
- They have the problem you are trying to solve.
- They are aware of having the problem. If they don't then it is a passive problem and you will time and effort from you to "educate" them.
- They are actively looking for a solution. So they will be listening to you describing an alternative solution.
- They have assembled a sort of a solution from parts. For example they are using a mix of existing tools manually stitching them together.
- They have a budget for a solution. Understanding what that budget is will help you with your pricing model later on.
- The ideal customer profile (ICP): you need to describe the attributes that best describe the ideal customer in your niche market. This will help you with both understanding their needs and figure out the best way to meet them but it will also indicate the different ways in which you can reach them to present your product. The profile includes demographics (age, geography, profession) but also habits, behaviors etc. For a B2C product you may focus on their personal life, while for a B2B one you may focus on their professional life. An useful approach to puting together a customer profile is to describe one day in their life.
- Decision making: you need to understand who is involved in the decision to purchase a new product. For a B2C product it may be friends and family while for a B2B product it may be a complicated organizational hierarchy. In all cases you will have to deal with the following "roles":
- End users: the people that will actually use your product but may have no power in the purchasing decision.
- Influencers: they may never use your product (at least not consistently) but they can talk about your product to their followers and build awareness.
- Recommenders: they can range from a youtuber that offers live reviews of products to committees that approve the procurement of a new product.
- Economic buyers: they approve the allocation of money and can range from CFOs to spouses managing vacation budget.
- Decision makers: they may be the economic buyers or people upper in the hierarchy. For example the CEO may overrule the decision of the CFO (the economic buyer).
- Saboteurs: they can be anyware, they can be anyone that has the power to veto a decision and slow down the purchasing process.
In this step you will fill in the Channels box of the canvas with the different ways you can distribute and sell your product.
- Choosing distribution channels: Initially, you should start with only one channel that has the greates potential to work because you do not have the resources (time and money) to go cross-channel. It is unlikely that you get the channel right the first time, so keep trying and testing. You can use the following criteria to best possible channel to your knowledge:
- Is there an established buying behavior in the your product's category?
- Does the channel accelerates the sales proccess and at what cost to your company?
- Is there any complexity or pricing constraints imposed by the channel?
- Distribution options:
- Dedicated e-commerce. You sell only from your website which means that you have full control but you also bear all the responsibility of driving traffic and converting visitors to byers.
- Two-step e-distribution. You can list your product on 3rd party online stores such as Amazon, mobile app stores, Microsoft partner marketplace. That gives you immediate exposure to the market but comes at the cost of giving out a percentage of your revenue. In some case you may also need to pay for promoting your product (e.g. Apple app store).
- Aggregators. There are websites or newsletters that create communities around a particular product category and list products related to it. They may also offer reviews by the community and relative content. They are great as an auxiliary channel but may charge vendors to get listed or promoted in the community.
- Platforms. You can create an extension to an existing product. Examples are a case or a power pack for an iPhone, a game in Roblox, a plugin for Wordpress or Shopify, etc. The benefit is that you get instant access to the market of that product but you need to consider the effort to implement the integration and the risk of becoming bound to the strategy of that product that may not always match with yours.
- Social commerce. You can always promote your product through social media and utilize their selling features to let people purchase your product from within their social media experience. It may be great for launching but keep in mind that you will need to pay to promote your product and get enough visibility to have conversions.
- Flash sales. There are websites and publishers that promote deep discounts for a limited time. You get "free" advertising but you need to be careful not to cannibalize your primary channel and definetely do your math to not discount below your cost.
Market type and competition
This step will help you complete the Value proposition box of the canvas with more information about your market and your competitive advantage.
- Your market type: There are practically four market types and you need to choose in which of the you will fit in:
- An existing market.This is a well-defined market ideally with a large number of customers and probably direct or indirect competition. In a market if this type, you need to surpass competition with a product which is 10x better than theirs. That means that you need to find a basis for competition where you can win (e.g. a specific feature that customers will value enough to switch)
- A new market.This is not a well-defined market that does not have yet customers and competitors. Here you could aim for convenience and simplicity but still it is going to be challenging to achieve market adoption. It is going to be the most expensive demand generation process. And keep in mind that practically there exists indirect competition in terms of existing "solutions" to the problem.
- A re-segmented existing market which you will enter as low-cost or as a niche entrant meeting the needs of small subsegment. A niche can be defined in terms of demographics or specific needs. In this case your product just need to be good enough for your target audience that may be neglected by competition.
- A cloned model in another country.In this case you copy a product and its associated business model and adapt it to another geography that the original company may not or is difficult to expand to. The challenge in this market is to achieve cultural adoption, which may require substantial changes on the original model.
Go to market
This step is about strategies to generate demand and acquire new customers and will help you complete the Customer relationships box of the canvas.
- Getting customers. First you need to acquire customers, which means that you bring as many people as possible to your website to become aware of your product, earn their interest and convince them to consider trying your product. Then you need to activate them i.e. get their contact info, convert them to users and eventually buyers of your product.
- Keeping customers.