First snow fell in NYC yesterday and the entire city was under the magic spell of Christmas. People are running around like chickens with their heads chopped off because the holiday is getting closer and they still haven’t bought gifts and a Christmas tree, haven’t visited Christmas markets, met old friends, picked holiday outfit, etc. Merchants know the craze so they are lining up on the streets to offer all sorts of useful and not so useful inventory to consumers who are in a rush to spend money. If you go to the Union Square market you would notice how quickly people pick their items, pay the price and move on to the new merchant. Sellers come early in the morning and leave late at night, every day, in any weather because they know their product is going to sell. This is what my dad and his dad, both businessmen called “entrepreneurial intuition”. Silicon Valley startup community calls it product/market fit and a clear business model. Despite Silicon Valley’s prescriptions, ever since I’ve started Parceed, I tend to find more meaning in the term “entrepreneurial intuition”.
I was born in 1990 in Russia just a year before USSR fell apart. Communism breakdown meant a new economy, free market or, “what America has”, like they used to call it. I don’t want to dive into politics here but I’ll take you back with me for a moment. Don’t be skeptical, you will understand why.
Free economy in Russia gave people an ability to take whatever they made or produced and sell it to anyone they wanted. If they weren’t good at making anything they would go abroad and bring foreign goods to sell. Many people dropped out of college and became businessmen because everyone could buy for less and sell for more. I was very little as I watched my dad going from military clothing business, to pharmaceutical, to real estate. He was selling products his customers wanted to buy, not products he was good at selling. The economy was getting more stable but it was still very far from being mature. This meant that he would only go into business if it resulted in a quick return. Years went by, more companies started coming into the market, consumers got more choices, prices went down and competition became fierce (Note: for those who are intimately familiar with Russian history, I am leaving Russian privatization aside and am describing average Joe’s businesses). My dad and entrepreneurs alike started offering discounts, promotions, memberships and fought for that point percent of market share. Every move had to result in a bigger return, this was how entrepreneurs were thinking.
When I moved to the US I felt like I stepped into a new epoch of economy. Everyone was on their smartphone ordering stuff online, posting on Facebook and getting a bunch of things for free, asking friends to try a product which they then could get for much cheaper. There were so many things to try, so many ways to connect with people and get their help – all without paying a penny. Now, looking back I realize that when I traveled from Moscow to New York I pretty much traveled in time, in economic terms. I left the country where an entrepreneur was selling a product to a customer and came to the country where an entrepreneur was giving a product to a person for free and made money off of someone else who tried to sell their product to that person who was using a free product. In business school, they explained to me that these were different “business models” and a way to find a “product/market fit” but to me this was yet another way for companies to stay in business.
Since social network revolution, new startups learned that it is ok to build a product that doesn’t make money because Facebook, Instagram, Pinterest and Linkedin were all success stories with no clear money-making paths when they started. Investors were looking for the next big thing and were pouring their money into the companies where revenue was nowhere to be seen. Months and years went by, most of these young startups went out of business, investors got burned and shifted from thinking “no money now means more money later” to saying “no money now means no money later”. But if two years ago they would still invest if you could at least explain how you plan to make money, now they want to see that you are already making money before they offer a term sheet. All of a sudden, the startup economy is back to where it was in Russia when I left – skeptical, hungry for short term return, looking for revenue right away.
A few months ago when I discussed Parceed with my dad and heard him speak about merchants and customers I thought to myself that he is too old-fashioned and the business scene is different nowadays. What he really spoke of was a basic “entrepreneurial intuition” – you have to sell your product to customers who really want to buy it, at the time when it matters to them. No fancy words like product/market fit or business model – it was very simple.
To all first-time entrepreneurs out there – think simple. If you are trying to come up with a business model out of thin air, struggle to explain your product or how your customers would benefit from it, take a pause and re-evaluate your business. Building a business is hard enough, be clear about who you are, what you sell and who you sell it to, this will only help you in the future. I welcome all entrepreneurs to share their experience.
How did you find your product, your market and figured out how to make money?