The Biggest Reason Startups Fail / by Sam Colt

By Peter Reinhardt, Co-founder & CEO, Segment

This article originally appeared in Fortune.

For early-stage founders, finding product-market fit should be an obsessive focus. You’re trying to answer the question: “Will people pay for what we’ve made?” And it’s not easy. At Segment, we had to do quite a bit of trial and error before we found ours.

Describing product-market fit is a bit like describing the color green. You can’t do it by pointing out all of the colors that aren’t green; you have to point to something that is green instead. While every company will have a different experience finding product-market fit, there are some common indicators you can look out for:

When you’re solving a real problem

Before you start building anything, you have to be sure that your idea solves a real problem. One reasonable discovery mechanism is to start with problems you personally face, and then talk to as many other potential customers as possible to see if they also want this problem fixed.

One of the biggest reasons startups fail is that they aren’t solving a real problem (not that they can’t actually build the solution). Legendary Silicon Valley entrepreneur Steve Blank calls this invention risk (can it be built?) vs. market risk (does anyone care?). In most software markets, you’re dealing with market risk. This means that the odds of a team failing to find product-market fit look something like this:

● Non-technical team: approximately 15% odds of being able to build it; 60% odds of solving a real problem

● Technical team: approximately 90% odds of being able to build it; 10% odds of solving a real problem

We were a technical team. That meant we were fully capable of building the first couple of products we started the company with: a tool for students to read and annotate lecture notes, and a tool for students to alert their professors of their confusion at the exact moment it occurs during a lecture. In each of these cases, I convinced myself and my co-founders that professors really cared about students reading their lecture notes or that professors really wanted to improve their lectures (or that students even wanted to focus during lectures). But boy, was I wrong. In fact, had we hosted hour-long interviews with professors, students, and teaching assistants, diving into what they found most frustrating, we would never have built what we did. Sure, we could have kept digging until we found a problem we could solve, or, as is often the case, realized there was no real problem to fix. As engineers who had never done this before, digging into people’s problems didn’t seem like real work. But in reality, 20 hours of great interviews would’ve saved us an accrued six years of work building useless stuff.

When you suddenly see a deluge of interest

The first time we found product-market fit was during the launch of our JavaScript library, analytics.js. Our education ideas hadn’t panned out, and our other ideas weren’t panning out either. We weren’t sure analytics.js was ready for public consumption — and I was sure no one wanted it — but we decided to launch it anyway, essentially as an agree-to-disagree compromise between me and my co-founder, who thought it could be the basis of a big business. We built a landing page for the product, explained the problem it solved, and posted it on HackerNews. The response was fast and intense (Ian was right!): Thousands of people gave us their email addresses and visited our GitHub page. It was unlike anything we’d ever experienced, and humbling for me. It was a visceral feeling; we knew we had green in our sights. You never know what you might have until you test it out, so test it as soon as you can.

When your product instantly becomes mission-critical

The second time I knew we’d found product-market fit was during our release of Warehouses. Segment had some promising initial traction, and our new service collected data from mobile devices and websites. One of our customers — who was testing the very first alpha version — was using it to load data into their data warehouse. We had told them the reliability of the product would vary a lot, since it was an alpha release and the product was in its infancy. But two days after we released it, we got a call from our customer, who told us that our software was already mission-critical—they needed it for their upcoming board meeting to work on all of their recent data. If your alpha release becomes mission-critical in 48 hours, you’re on a great track toward product-market fit.

When your answer comes from the outside

Until you have proven product-market fit, the most important thing you can be doing is customer development. Most companies don’t have the volume for statistical analysis at this stage, so focusing more on the qualitative component — what customers want and or need — is far more effective. As Steve Blank famously wrote in The Four Steps to the Epiphany, the answer is not “inside the building.” You can ideate as much as you’d like, but you have to talk to customers to know if you have an idea that’s worth pursuing. By openly asking questions of your customers, or would-be customers, you can guide your product strategy in the right direction. When you interact with customers, you’re on the way to finding your green — and you’ll know it when you step on it and it blows up.

The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “How do you know you’ve found the right product-market fit?” is written by Peter Reinhardt, co-founder and CEO of Segment.