Sense checking for product-market fit in 2023

On the heels of the 2021 bull run, nearly the entirety of 2022 came as a rude shock for startups in Southeast Asia. Many had raised funds the year before with confident claims about having already achieved product-market fit.

When the stock market tanked and interest rates soared, private funding suddenly became much harder to find. If you’re seeking a new hit of venture capital for your startup in 2023, it’s time to take a fresh look at product-market fit.

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In 2022, global venture spending shrank by 35% to US$445 billion from the US$681 billion invested during the previous year. Of course, interest rates and other macroeconomic factors that contributed to such a slump are beyond founders’ control.

But the financial survival of their own companies should be something achievable, regardless of external conditions.

Metrics like traffic as well as user growth and retention are useful to find out whether there’s a market need for your product and people are willing to pay for it – also known as product-market fit.

Too often, this concept can take a backseat in a bull market, as both investors and tech entrepreneurs can be overconfident about their ability to monetize in the future. But, as this cycle has shown us, the hammer always drops. It’s important to remember that in the real world, a business needs to turn a profit.

Clocking actual competitors

There’s a multitude of reasons for a startup’s failure. One of the most common mistakes happens at the first step of determining product-market fit.

When founders rely solely on others’ research and reports without testing their own assumptions, they may mistakenly believe that the total addressable market will be large and serviceable. Founders need to look deeper into the numbers and validate if there’s an opportunity to serve customers better, or even cater to an untapped population.

In areas where competition is already strong, one way to gauge whether there’s a real opportunity is to examine bigger, publicly traded companies in the same space. After all, they publish their financials for all to see.

Alfamart, an Indonesian retail chain with more than 17,000 convenience stores nationwide, can be taken as an example.

In 2021, the firm generated 84.9 trillion rupiah (US$5.67 billion) in revenue with a roughly 20% gross profit margin. In the same period, it incurred 14.3 trillion rupiah (US$954 million) in sales and distribution expenses – about 17% of its revenue.

To compete with the minimarket major, a tech company that sells fast-moving consumer goods could gain a more efficient margin by digitalizing key parts of sales and distribution. Another way might be to look into Alfamart’s reporting and seek untapped revenue pockets across its 17,000 storefronts.

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