Getting people to buy or use your product is an important step in any startup journey.
But developers and entrepreneurs should also ask themselves this:
Is the product going to be profitable?
The startup can have product-market fit but still fail due to expensive infrastructure, poor processes, expensive customer acquisition, or low margins.
Product-Market Fit Has Priority—But Don't Forget About Business Aspects!
Product-market fit is about making sure that the users see enough value in the product and keep coming back or paying for it.
Developers usually pay a lot of attention to:
- Features
- Performance
- UX
- Reliability
- Scalability
All of this is important but economics is important too.
You might want to track:
- Customer acquisition cost (CAC)
- Customer lifetime value (LTV)
- Gross margin
- Retention
- Conversion rate
- Infrastructure cost per customer
It will help you understand how tech affects your business.
Build a Minimum Viable Product, Not an Infrastructure Tower
One typical pitfall is doing too much upfront.
It might take a company weeks to design sophisticated infrastructure for a product that has not even been validated yet.
It is better to develop the minimum system that will help validate the hypothesis.
A logical cycle is:
Problem → MVP → Users → Feedback → Metrics → Improvement
Once there is a proven demand, the infrastructure will grow together with the product.
Don’t Forget About the Cost per User
There are many tools in the cloud, APIs, databases, AI models, and other third-party products that can help launch your product but they also come with costs.
For instance, there is an AI application generating lots of traffic with very expensive inference costs.
While revenue increases, profits become lower and lower.
This is the reason why engineers need to pay attention not only to the performance but to the costs as well.
It is important to understand how much it costs to serve one user and how much he brings.
Hardware Has an Even Greater Obstacle
But for hardware companies, the formula becomes even more complex.
Expenses could include:
- Components
- Manufacturing
- Testing
- Packaging
- Inventory
- Shipping
- Returns
- Maintenance
And a successful prototype is not synonymous with a successful business.
Pilot programs in small batches enable founders to gauge customer interest and economics of manufacturing.
Technical Choices Impact Business Strategy
While architecture is not just a technical choice.
Going with a costly infrastructure stack impacts pricing.
Going with a difficult infrastructure stack impacts maintenance.
And going with a technology that doesn't work will impact product development cycle.
The best technical choices will take into account:
Performance + Reliability + Speed of Development + Costs
Not all architectures are equal.
But there are right architectures for different stages of the business.
Measuring Before Scaling Up
Scaling up a product before gauging its economic viability can be detrimental.
Before investing in heavy infrastructure or spending marketing budget, track:
- Revenues per customer
- Costs per customer
- Retention
- Usage
- Infrastructure costs
These figures are crucial in determining if growth is adding value or simply adding costs.
The Best Startup Engineering Mentality
Our aim is not to create the most advanced technology.
Our aim is to create a technology that addresses a relevant problem in a sustainable manner.
Therefore, collaboration between engineers and founders becomes essential.
Engineers are familiar with the technology.
The founders are familiar with the customers and business targets.
Combining the two points of view will be very beneficial for the startups.
Conclusion
Product-market fit helps solve one key question:
Do customers really need what we offer?
Profitability solves another key question:
Are we able to provide the solution sustainably?
The answer to both is yes in order for the startup to succeed.
Develop the simplest yet most relevant product. Analyze the customer behavior. Analyze the economics. Scale the technology accordingly.
Don't just solve the problem of offering something people want.
Make sure you can keep delivering.
For further reading about startup strategies, artificial intelligence innovation and venture building, visit Aperture Venture Studio.
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