5 things you should know about product/market fit in the energy sector
In the energy sector, you need both a good product and a good team. As an energy sector CVC we can, first, open doors to accelerate customer validation in order to achieve the product/market fit. We can also help the team to learn to speak the same language as the energy professionals. This brings credibility and is highly valued.
If you just build it, will they come? It’s a nice movie theme, but as a startup in the real world that’s not the winning strategy. What if you impress your investors? Well, that’s nice, but that’s not your end goal, either. Your ticket to business success is to build something that delivers real value to your customers. This is your product/market fit. There are many pitfalls along the way for a startup. Some you can survive, but missing product/market fit is not one of them. The esteemed Marc Andreesen left little doubt about how important this is when he said: “Do whatever it takes to get to product/market fit.”*
Product/market fit means satisfying market demand
What does product/market fit mean? To put it in very practical terms, it means you have a product that appeals so much to a defined group of customers that they are willing to pay for your product. Seems simple and kind of obvious, but dig a little deeper, and you will see that product/market fit doesn’t come naturally, nor does it guarantee success. A quick search for “product/market fit” gives you many good articles that explain how to define and measure product/market fit, so we won’t repeat them here. The most basic outline goes like this:
- Define your target market (i.e. your customers)
- Identify the customer needs you aim to meet
- Create your value proposition
- Validate your proposition with real customers.
Each of those steps can be tackled with different tools and methods, like measuring total addressable market (TAM), defining your minimum viable product (MVP), and so forth. Of course, the story doesn’t end after validation. You need to test your product with the target customers once you have something to show and continue to validate as to progress.
With your TAM, you are typically aiming to a large market with high volume potential, or to a small market with high demand (price). Whatever the target, it is critical that you are able to explain the “why” of your product. Why is it valuable to your target market? Work out all the before and after effects of not having your product versus having your product.
Product/market fit is not an one-and-done kind of effort. Markets don’t stay still. It requires regular analysis, development and verification to maintain product/market fit. You may even need to pivot towards a different target market or new product offering during initial development. You can find many examples, such as the story of how Confinity Inc. became PayPal.
Focus on the team and product and remember to learn the industry jargon
It is common to see people putting product/market fit above everything else. That is in part because you will surely fail if your product has no market. Looking at the core components of a startup – team, product and market – two out of three you can change. The market, on the other hand, is something you can’t affect. There may be cases where new products created their own markets, but they are very rare and very risky exercises. So, that leaves you with adjusting your product offering and/or your team to engineer product/market fit.
For the best chance of success, you need to address your market, your investors, your product and your people. For the energy industry in particular a startup needs to have a good product and the right people. Old industries are hard to break into.
That is why, at least for the energy sector, we recommend you have both a good product and a really strong team who speak the same language as the energy professionals. This brings credibility to your team and it is highly valued in traditional industries. To gain that, your team needs to get out there as early as possible and talk to as many people as you can. There are not a lot of secrets worth keeping to yourself because in the end of the day execution matters!
Remember the big picture and validate often
Ensuring product/market fit is achieved through customer validation. Let’s take AI as an example. Maybe you are offering a new AI platform for the power plant environment. Part of due diligence necessarily involves customer validation. Maybe you have a great private VC with a lot of software development experience. That alone won’t get far in getting you through customer doors at power plants. Energy CVCs like Helen Ventures, on the other hand, have the experience you need and can easily do the customer validation interviews (of their own contacts in energy sector).
CVCs bring customer insights that help you establish product/market fit, and through your CVC connections and networking, you can identify patterns that help determine fit. Here, again, having a strong team matters a lot. There will always be calls and presentations where your customer validation goes off the rails. It takes commitment and patience to keep going, to filter out noise, to stay cool and really understand what’s driving those opinions.
You may discover that the problem is not that your offering wouldn’t bring value to the customer, just that a different value is more important for them that perhaps needs to be taken into account in your product development. This is often the case with customers who have a lot of experience in their industry and ”have seen everything.”
Be prepared for old and new competition
Energy startups have the full range of competition scenarios to deal with: legacy solutions, new market segments, totally new tech or new solutions for existing applications, like improved battery technology.
It might be tempting to lean towards plugging the latest technological developments you are sporting, but this would be unwise for an old industry such as the energy sector. Trying to leverage the latest hot trend, like “we are AI” or “big data,” is doomed from the start. For many in your audience, these are already getting old, and more than anything, for the old-hands in the industry, those mean next to nothing.
You must be able to introduce your offering in a way that does not invite a direct comparison to legacy solutions. The energy sector has many, and they still work. Rather, focus on the big picture, end-to-end value creation. Your story needs to be solid so that you don’t fall into the pit of “if it isn’t broken, don’t fix it.” The best data-driven startups demonstrate the value of their offering with real customer data. After that, it is very difficult for investors to say no.
When your audience is a CVC, don’t oversimplify. While it is generally good to use a simple, strong message for marketing to your target customers, you need to be ready to go deeper with CVCs, particularly energy sector CVCs. Overwhelming investors with details are not your go-to strategy, but rather be credible, and keep the details in your back pocket ready to answer questions as they arise.
Helen Venture’s checklist for a fresh start-up
- Hire the right people
- Define your target market, customer needs, and value proposition
- Do your math and estimate LTV (= lifetime value) and CAC (= customer acquisition cost)
- Validate your product with actual customers
- Have the right CVC to accelerate your start-up’s growth
Do you have a promising energy solution, let’s talk more!
The author Mikko Huumo is Director at Helen Ventures.