Find a great market and build multiple companies in that market
Each investor has a unique approach to finding and vetting new opportunities. It often comes down to building a valuable company in a similar way to building a stool with three legs: people, markets, and innovative products.
Success requires all three legs to be strong and sturdy, but you have to start building one leg first. While early investors like Arthur Rock believed in finding a brilliant entrepreneur and investing in them, more recent VCs have followed Don Valentine, who believes that finding a market first leads to greater longterm opportunity and is a better bet.
What I'm interested in is investing in people. You know, a lot of people are just interested in building a company so they can make money and get out. - Arthur Rock
“The marketplace comes first, because you can’t change that, but you can change the people” - Don Valentine
How to find product/market fit
It's rare that startup teams understand how their earliest ideas will fit into a market. It often takes experimentation, iteration and testing to begin to understand where the real opportunity is and how to build a product that will truly meet the needs of the users in that market.
If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed. Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.” Andy Rachleff
Steps to fitting your product to the right market
Don't make assumptions
The biggest reason for failure is assuming you've reached a good product/market fit when you actually haven't. Even when your product begins to grab attention, market share and gains momentum, continue to test market assumptions to hone in on the true market that is driving the product gains.
Don't worry about being first to market
Facebook was not the first social network, Google was not the first search engine and Amazon was not the first online bookstore. With thousands of entrepreneurs working around the clock, it's unlikely your idea will be the first of it's kind. Learn from the complains people have about your competition to understand the features and functionalities that can create a better fit for your potential users.
Create and test a positioning statement
Too many startups die because founders become emotionally attached to their original idea and refuse to listen to feedback from users. Create a simple Positioning Statement and take it out to the customers and users that you will be building the product for. Record their feedback on the idea as it is, then review the statement once you've gained new perspective. Update the statement and use user commentary as the foundation for your MVP (minimum viable product) and prototype.
Create and test an MVP
Create a simple prototype of the product so users can feel and use it. Simliar to your idea, your MVP cannot be treated as precious. Don't get attached to features or UI details. They will likely change as users tell you what they like and what is confusing and frustrating. Of course, there is some feedback that won't be helpful, or goes against the core mission of the company, be cautious to take user feedback without compromising your larger mission.
Create and test a user acquisition plan
Once you have a product that your users need and want, you need to develop a plan to let them know you exist. A go-to-market strategy will include everything from the sales and pricing strategy to marketing tactics. The "build it and they will come" method simply doesn't work in a world that is fast-paced and constantly shifting. By A/B testing everything and carefully tracking user experiences finding the product, you will be able to adjust your go-to-market plan to reach the most users as efficiently as possible.
Read the Get Funded Series: