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2. Is there a Product-market Match (PMM)?
Without a product-market match, an idea or product/service is NOT the basis for a business. Instead, it is the basis for either a research project or a charity.
This observation does not call into question the value of research projects or charities. In fact, society is much better off for the presence of these institutions. The point that is questionable, however, occurs when these non-business activities are erroneously represented as a "business."
The critical test of a PMM is often quite simple. It begins with the question: Where is the purchase order?
A purchase order shows something important. It shows that someone in the "real" marketplace values your product/service more than they value money (more on this in the next topic review note). If you cannot show a purchase order, you do not have a business.
Now the number of reasons, justifications, and excuses that novice venturers can concoct to avoid answering this question is arguably almost infinite. But the point remains--that unless someone is willing to place an order for a product/service at an asking price, the product or service is not the basis for a business.
Therefore, be honest with yourself. A highly realistic assessment of the product-market match at this point in the venture minimizes most of the cost of unproductive new venture failure. If you answer this sub-question wisely and objectively, then you can save yourself most of the emotional and financial anguish that surrounds a new venture that fails. Resources can be conserved. Money and enthusiasm can be saved for the day when they can create wealth, instead of waste. And, if an entrepreneurial discovery is still in the research project stage --then it can be funded as such, without the broken promises and disappointments that come from prematurely treating a research project a business.
How does one go about determining whether there is a product-market match? The means to accomplish this are as varied as the number of product and service ideas that are generated. There are, however, two or three standards to use to conduct a "smell test." They are as follows:
- If you wouldn't buy it yourself--there probably isn't a product-market match.
- If a focus group of potential customers from the target market wouldn't buy it--there probably isn't a product-market match.
- If customers in a test-market won't buy it, or if the purchasing agent of a distributor won't issue a purchase order--there probably isn't a product market match.
This is not to say that counter-examples (times when the above three tests were proven wrong) don't exist. They do. But are you willing to bet at 100:1 odds (or worse) that you will get lucky despite the evidence-- or do you want to have your efforts and capital count for something?
If the answer to the product-market match sub-question is not yes, then don't go on. STOP. Fix the problem. And if the problem can't be fixed, then walk away (because you don't have a business anyway), or operate the effort as the research project or charity that it truly is. If you want a business, then find a product or service where there is a match with the market.
Yes, it is possible that someone else will take "your idea" and strike it rich. But the reality, if this happens, is that their situation and yours were not the same.
Ventures work because opportunities and entrepreneurs somehow fit each other. Realistically, in a lifetime each of us has several such "opportunity fits" presented to us.
So our job is not to pry ourselves into a deal in a "forced-fit" mode. The force-fit approach is a lot like trying to force the "ugly sister's foot" into Cinderella's glass slipper. It still doesn't fit despite all the effort and embarrassment. Instead, our job as venturers is to prepare for the time where the fit is right . . . and the key leading indicator that this is right, is that the answer to the product-market match question is YES! At this point you can then go on and assess the other elements of the venture in logical order, confident that your further efforts will not be wasted.
The second sub-question under innovation is therefore: Is there a product-market match? If the answer is not YES! (and your venture is a start-up) DON'T GO ON! Fix the problem or cut your losses.
However, if you have an ongoing business and the PMM rating is low, then ask yourself how much of a business you really have. Could you better spend your time on something else? Is this really a research project? Is it a charity, or is it a hobby? If so, then consider reorienting your efforts.
If time is better spent elsewhere, then cut your losses on this venture, and begin a new venture "search."
If you have a research project, then apply for the grants and acquire the assets needed to answer the research question(s).
If your project is a charity (i.e. it generates some revenue, but needs public support to keep going) then redirect your efforts to obtain tax-exempt status, and seek public support.
If your project is a hobby, then enjoy it as such--reap the "psychic income," and enjoy your achievements with other interested hobbyists.
But, if you don't want to reorient, and you want to build a better business venture than the one that is presently operating, then START WORK to find a better PMM. Examine each of the other questions in the New Venture Template I, to see where ideas that enhance PMM can be found. Can you add more value? more scarcity? etc.
But also, remember the risks. Lack of purchase orders (lack of PMM) means that the business is in trouble. There are too many stories of venturers who "augured in" (had to quit) because they spent too much time and energy on a no-win PMM problem. So if in doubt--Cut your losses now, and build a better venture on a sound PMM foundation.
