How to choose your target audience

Research the market. Many startuppers make their products based on their own taste, which can result in a failure. Don’t do what you personally like, but what the market needs, and to do so you will need to do research.

Formulate the value proposition. One of our portfolio startups, Ele, produces nutritious DNA snacks for men who do sport. Another project that we were actively involved in at its launch was Marc&Fisa, which produces crisps for children made of natural components so that kids can avoid junk food in their diet. So, who is your audience? What is their problem? How are you planning to solve it? The better the problem and the solution are formulated, the more chances the product has to be a success.

Check your hypothesis on the social media. Promotion on Facebook only costs around 200 rubles so make sure that you try it and see whether your product attracts attention (and if it doesn’t – don’t waste your time).

Find the audience’s preferences. For example, you want to produce a drink for bikers. What exactly is it going to be for? How is it going to look like? Which packaging is it going to have or, in other words, are bikers going to put it in their backpack or attach it to their bikes? By social network polling you can find a better focus.

Identify the main qualities and price of the product before making any investments. Make a questionnaire of 60 points and offer it to your acquaintances who fall into the socio-demographic characteristics of your target audience or use specially designed services such as Croudfactory. You should ask about the problems of your competitors as well as the audience’s preferences of taste and packaging. That will help you to understand what people want without spending on equipment or production.

Check out pre-sales on a platform like Kickstarter. It will allow you to find out how many people are willing to pre-pay for your product rather than a full-scale search for investments. You say that that a jar of your product is 130 rubles and then you just have to wait whether anyone buys it or not – this helps to avoid any misconceptions.

How to attract investors

According to our statistics, finalizing the product’s recipe requires an investment of a million rubles, testing party will be around $150-200 thousand and the first release into commercial network – around $0,5-1 million. Where to find money? How find an investor?

Make a prototype yourself if you can afford it. If you can’t, you can do pitches on the startup
conferences or turn to business incubators as the professional market’s actors can guide your product to become ready for investments.

Internal rate of return of startups should not be less than 20%. Financial model with lower IRR is not going to have any interest for the investors.

Look for “clever money” – investors who will not only financially aid you but who will also provide you with expertise and networking. In the developed startup communities, you will need approximately 100 pitches to find an investor. You should also improve your presentation based on the feedback on the up- and downsides of your project.

Incubators can give you a so-called “golden networking” – opportunity to keep in touch with like-minded people that is essential for growth. Investors too have access to networking channels, so if you have a bad opinion about someone, you should be extremely delicate about expressing it. Don’t fall into scandals in press or social media if you weren’t found interesting enough, as it will give you a negative image for any new investors.

Don’t be scared that your idea will get stolen by an investors or an incubator. There are plenty of ideas and Google has got them all, but there are few teams that are actually capable of bringing those ideas into life. If you don’t want to see your technologies in public access, do your project with your own money.

Protect your copyrights for the original technology carefully. Collect the proof base on the creating process, including pictures and videos of the different stages of development, technical description of the product, results of testing, contract with laboratories, etc. If an invention is not patented and the access is given to several people, the company should have an agreement on the commercial secrecy by negotiating the rights of access and the privacy policy.

Experienced businessmen have a different strategy – they create a product and then sell it to a big market player. The product strategies of the market giants are fairly obvious as you can just look at what they buy. For instance, if a leader of FMCG-market buys all snacks with the sales larger than $30 million annually, it means that you can just create your brand and develop it to this volume. This is a feasible task for 3-5 years. This option is easier to sell to an investor as it is clear what the objective is.

How to finalize your product

Use outsourcing while you don’t have a big volume of sales to load your production for 70%. Build your business model on outsourcing so that later your own equipment gives you extra marginality.

Hire a technologist. Then the product will have a good quality and the shelf life long enough for the distribution networks. Nowadays it is possible to create a recipy of any product but truffle. But don’t you forget to think about costs, as quite often the required taste can be very expensive.

Before launching in the distribution networks, test you product in public. A large network will not take less than several tons of product and the first consignment will be expensive while the risk of unsuccessful outcome is high. Participate in the food markets or test in the small networks such as “Gorod-Sad”.

To build a business based on home recipes, adapt them. There is a famous case in the US, the protein bars Quest Nutrition. They were produced in the house kitchen and sold online, and after five years their market value went above $1 billion. However, when the bars went into real retail, they had to change their appearance and packaging design, because what works on the social media doesn’t have to work in the shops.

People buy impressions. In order to sell in e-commerce, you need to have a story with something peculiar about it. For example, cookies Elsa’s Story used an image of a family bakery with an old Israeli lady giving a recipe and a face of the product while all the business processes were done by the professionals. Now this brand is a part of Wissotzky Tea Group, the biggest producer of tea in Israel, as well as it exports its products to 15 countries.

Pay attention to the growing markets. In Russia, the purchasing power is decreasing, but the growing markets of India, China, South East Asia and the US are open for new products.

Coming to new markets, adapt your product to the local taste and culture, as they can be dramatically different; for example, in China, Lays crisps have such flavors as cucumber, milk and honey as well as green tea. In Chinese shops there are no liter bottles of milk, as the Chinese drink milk rarely so it is sold in boxes with 10-12 small bottles of 0,2 liter volume while the vegetable oil is sold in 5 liter canisters. Besides, branding should be changed as well – in China, Coca Cola’s name is written in characters while Danone’s universally familiar logo only has a smiley face remaining.

Source (in Russian): Inc.Russia