How we didn’t find the Product market fit with $200.000 Pre-seed Funding. Here’s the truth. — Part 2

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Hello everyone! I am Marko, and I am from Slovenia. My mission is to create user-friendly digital products that people need.

In my full-time job, I help startup founders create user experience designs. I do so by posing questions to “early product customers”. Most of the time I mimic behaviors that people are already used to and validate ideas using lean approaches. Everything I do — I do with my remote-first team Shape. I am a big fan of behavioral economics, behavioral design, privacy, and digital ethics. Lately, I have been trying to build in public.

This is the second part of our journey with startup Pablu. If you have missed the first part I strongly advise you to read it before this one.

In this second part of the article, I’ll cover how we chose the target audience, tackled the go-to-market strategy, tried to solve the Chicken and Egg problem, measured progress, and what we would do differently next time around.

Agenda

How to choose a target audience?
Go-to-market strategy for the marketplace?
Fail, Chicken and egg solution and pivots
Progress tracking in early startups
Wrap 🌯

How do you choose a target audience?

Now we had an idea that people would be open to new online experiences, duo crazy lockdowns. The first big decision we had to make was about the target audience. Before we were funded, we hosted many tests that were a part of our product discovery phase (live-stream shopping events). We always encourage our partner startups to level down the product and make it as tiny as possible. Why? It is easier to cater smaller audience and build a brand around a niche community. The smaller the product — the easier the pivot.

At the time, we were choosing an audience based on metrics we captured in our test runs, the potential for scale, the adoption factor, and our understanding of the target audience.

We had three major focus groups:

Second-hand/vintage traders

Vintage traders were keen to do live events and talk about the articles of clothing (easier adoption). In a way were natural storytellers. Some of them were even hosting live shopping events on their IG profiles. In that case, we would need to host events smaller events since their audience was niche.

Younger e-commerce brands (sports, casual wear, healthy food, chocolate)

Had the best numbers in our initial tests and the worst numbers in terms of sales. These brands wanted more of a Saas (software as a service) product, more features, and expected more quality. Most of them didn’t have the budget to build out the system, but all of them also didn’t fit in our idea of Marketplace. Events needed to be less frequent and of higher quality.

Learning: go with numbers and don’t follow the business model you imagined. Saas can be a good middle step and can bring in some revenue.

Bigger e-commerce brands (supplements, tech)

Had good numbers at first but were very hard to repeat and engage their audience. Very much discount/deal-driven. Events or Series of events would take a lot of effort.

Making a crucial decision for your business often requires a leap of faith. Sometimes, the first group you encounter seems like the best choice. That was the case for us — we went with them — vital traders, and it led to fast product adoption and successful sales. We even enjoyed spending time with them at vintage fairs.

However, in hindsight, we would have chosen a different group if we were to make the decision again. From a business standpoint, it would have been much easier to sell a software-as-a-service (SaaS) product for 500–100€/month to the second group, compared to selling 200 pieces of clothing at a live event.

Ultimately, when it comes to business decisions, math plays a critical role. It’s essential to weigh the potential profits and the resources required to achieve them, as well as consider the long-term sustainability of the business model.

Go-to-market strategy for the marketplace?

Here comes the tricky part. I came across the GTM term when I read about startups on the YC page while applying to their 2019 batch (which we got to the interview). Gustav summarizes it pretty well in his Startup School lecture about Growth:

People also have this idea that if I launch my product, it will work. Somehow, it’s going to work if I just tell the world that I built …this is now there. Now, unfortunately, that’s not the case. The world is a really busy place, and there isn’t really lots of people waiting for you to launch your product. They’re not standing there and they’re not going to try it the moment you launch it.

I built startups with around 20 different founders, this is probably the first mistake people technical founders who work with Shape as a partner make. We were very well aware that we needed a plan.

When we started our business, our long-term vision was to create a thriving marketplace where second-hand sellers and buyers could connect. One of the benefits of our chosen niche was that we planned to encourage our initial buyers to become sellers (host their live shopping event), and vice versa.

Fail, Chicken and egg solution and pivots

Where there is a potential to build a marketplace always focus on figuring out whose pain hits harder. Sellers’ or buyers’? Once you know that you are able to make a product decide to cater to one or the other — nobody can do it both at once.

Protip for e-commerce marketplace makers: You can pretend that you already have the supply. List products in your store and start with attracting buyers. WhatNot used this (chicken or the egg) strategy and was actually selling items that they didn’t have. Once they sold the item they bought it on eBay and send it to a buyer.

To ensure we had enough supply to meet demand, we initially focused on approaching larger vintage shop owners. Our goal was to onboard around 20 sellers and list all of the inventory they had. We were successful in achieving this goal, and as a result, we built up a database of over 5,000 unique pieces of clothing.

This strategic approach allowed us to establish a strong foundation for the future marketplace and build a diverse inventory that would appeal to a broad range of buyers. We believed that by creating a vibrant community of buyers and sellers, we could make a sustainable and thriving business model that will continue to grow and evolve.

At this point, it is only fair to tell you that in the end, we fucked up. My opinion is that the European market is still not ready for the new format of live-stream shopping. It seems that format had a really good hype while COVID-19 was raging around Europe, but that declined when people were able to go out. Even more — our product potentially offered better engagement and inside rates, but our ROI had no chance compared to traditional e-commerce pages. Especially the tricky part when it comes to hosting multiple small events is advertising to shoppers. In real live-shopping people have to be there in the exact moment, what goes opposite the world is evolving (everything on demand, fast).

A few pivots along the way

Version: Small business owners (secondhand sellers) can sell through live shopping videos. Main issue: Our sales growth and the first event went well enough. Events had up to 100 people but lacked a mechanism that motivated them to host multiple times.
Version: Sellers can host a series of events. The series of events had a theme that would motivate customers to join the next show. Main issue: It was hard to advertise so many events, especially at advertising exact time if people missed the show they weren't able to shop.
Version: We created profiles where all items on live shows were presented as short videos, this way customers were able to buy items all the time. This was better but had a bit of performance issues.

Progress tracking in early startups

It is crucial to set some key metrics to track, without decent metrics it is hard to make decisions and be critical. In the beginning gut feeling works also, but if there is too much jumping from chair to chair it is hard to hit the nail.

The first steps in any startup are connected to conversion — in our case checkout conversion tracking and event interest conversion tracking. We used Mixpanel to track user behavior here, but it was also very helpful to track early-on conversions/sales metrics. Implementation of Mixpanel is easy if set up correctly can be golden.

Wrap

Our venture ultimately struggled due to several key factors. First, the European market proved not yet mature enough for live-stream shopping adoption. Second, while the format gained traction during COVID-19 lockdowns, this momentum significantly waned once restrictions were lifted. Third, traditional e-commerce platforms demonstrated superior return on investment compared to their live-shopping solution. Finally, the requirement for synchronized attendance at live events ran counter to growing consumer preferences for on-demand services, where shoppers want the flexibility to browse and purchase at their convenience.

Key Lessons:

Smaller audiences are easier to cater to and allow for easier pivots
Business decisions should be driven by numbers rather than initial vision
Progress tracking and metrics are crucial for decision-making
The “chicken and egg” marketplace problem requires focusing on either buyers or sellers, not both simultaneously

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