While working with start-ups, one common story that comes up again and again as to how the founders came up with the idea is, “We were trying to do <so-and-so> but faced <this challenge> which led us to build <this solution>.” One big difference between successful and not-so-successful start-ups is that the former develop a ‘hypothesis’ for the ‘solution’ they think solves the ‘challenge’ they are facing and validate this hypothesis through market research. If we analyse the unsuccessful start-ups, an oft repeated reason for not being able to make it is that they failed to achieve a ‘product-market fit’. Successful products that meet and excel in product-market fit are those that meet customers’ needs in a better way than other alternatives that are currently available.

It is not just start-ups but even established firms can fall trap to this fallacy. A classic example is Tata Nano which was designed to deliver a compact, low-cost car at almost the price of a two-wheeler in India. A major fallacy in understanding the customer base for Tata Nano was that car is an aspirational purchase for Indians and marks a kind-of economic status change from owning a two-wheeler. Having a ‘lowest’ cost tag doesn’t give you the ego boost of owning a car. Even though the Tata Group has been in the market for decades and have several success stories, not testing the initial hypotheses of why the two-wheeler customers migrate to cars led to failure of Tata Nano in spite of the great engineering and design ideas that went into making a car that sold for $2,500.

Design thinking principles and lean product development process can help mitigate the risks to quite an extent. These principles are based on an outside-in thinking philosophy wherein what the customers’ need is priority and how to address them is defined later. This also allows the firm to validate their hypothesis about the features that best address the needs with the customers themselves. Also, the features can be developed in stages and tested by rapid prototyping and getting feedback on these prototypes from the users.