I have been a 2-time CEO and 2-time COO hired to help technical founders realize commercial success. I am lucky to have been a part of some great teams in my career. During that time, those same teams have realized over $5B in successful software company exits. Those successes were the result of two things: great people and solutions with what is known as ‘product-market fit’. When one, or especially both are missing, success is less likely, if even possible at all.
Not achieving true product-market fit is not only something that plagues early-stage companies, but I have also witnessed an absence of product-market fit (PMF) at companies both early and late-stage companies.
Many executive teams and founders have great vision. They understand how to design and create products, develop and sell them, in many cases to visionary early adopters. During the process of developing these products, raising capital and building teams, they assume that they have achieved product-market fit. In short, they believe that the product or service they have created has a strong alignment with the needs of their buyers and users. Unfortunately, this is often not the case. A lack of product/market fit can lead to a company’s inability to grow, raise additional funding and could be the start of a painful and embarrassing demise. One of the goals of this article is to leverage my decades of experience to help steer you and your team in the right direction.
First, how do you know you have achieved product-market fit?
In order to have secured a good PMF, the following elements must ring true:
- Paying customers: Having paying customers is great, but not enough. You should also track metrics related to usage, retention, and expansion of those customers. Paying customers are a great measure, but you will need to be able to demonstrate that you can also retain and grow them if you have achieved PMF.
- Evidence you have impacted your customer’s business and personal lives: What is the impact you are making? Are you a “nice to have” or are you essential to the customer’s everyday life? If your product is used occasionally or isn’t making a material impact on the customer’s success, you have not achieved PMF.
- Virality and recommendations: If your customers truly love your product, you will feel their passion. They will meet you for drinks when you are in town, they will send you text messages, and they will talk about you with industry peers. In short, they will become raving fans. Incidentally, when you are close to PMF, but not quite there, the sign of a fan will be a customer who takes the time to reach out to you and complain. See this as constructive input that you should listen to carefully and be responsive to. I have had an open line of communication via SMS with certain customers at the last several companies. Those relationships were invaluable to me and to the companies. Without their input, I was flying blind as a CEO.
Here is a guide to identify gaps and help you get there.
Going to market without a product-market fit is like jumping out of a plane without a parachute — it’s destined to end very poorly. However, unlike the parachute scenario, there is a solution to correct a bad product-market fit. But first, how do so many smart, and talented teams continue hiring and spending millions of hard-earned capital when they lack a PMF?
- Time-to-market (TTM) should never trump PMF: In the rush to be “first to market,” teams make assumptions and overlook the fact that they lack answers to basic questions needed to achieve product-market fit. For instance, they lack a clear definition of the buyer, their business problems, awareness of other available solutions — and where those solutions fall short — and how well their own product addresses buyer needs. Yes, speed is critical, but it is not even close to the criticality of taking the time to “get it right” with respect to the PMF.
- The wrong team is making the decision: This is especially prevalent with early-stage, founder-led companies. A brilliant technical founding team — sometimes the CEO or CTO — conceptualizes a product and determines that there is a PMF. Sometimes they make a great business decision based on ample data from the field — but often they get the timing wrong. This is a critical decision, as it influences when you begin to ramp up on sales and marketing spend. Get it wrong and your capital is wasted, potentially putting key milestones for the next round of funding out of reach. Who should make the decision? The product and sales team should make the decision after they have met with at least 20–30 potential customers when developing a product to ascertain strong PMF. In addition, the market and customer needs change, so this activity needs to continue on an ongoing basis every year. The need doesn’t go away as the company matures; it increases. Not keeping on top of your customers’ needs puts you and the business at the risk of becoming disconnected from the market and evolving needs. Avoid the temptation to give in to pressure from well-meaning investors. Make sure to balance the recommendations of investors — who may be brilliant, experienced shareholders — with the feedback from actual customers.
- Strong will and vision can be dangerous: Having conviction can be great, but it can also lead you down the wrong path. Teams can make the effort to meet with many customers, but when the internal vision is so strong you may end up just hearing what they want to hear. This is also known as confirmation bias — you selectively absorb pieces of feedback that validate a direction you’ve already mapped out instead of gathering the entire picture. Keep in mind the saying, “The customer knows best” when gathering customer feedback to validate PMF. As I learned from my time in the Air Force, sometimes even the best fighter pilots become spatially disoriented and fly their planes right into the ground at night. Why? They’re convinced that the data from their cockpit instruments is wrong and they rely on their senses and experience, which leads to a very bad ending. Having conviction is great, but learn to trust external input and data.
4. Your aperture is too wide: With wide eyes and in pursuit of massive success, you create a product that can “do it all.” I fell victim to this trap when I was the CEO at Redbooth. We built a SaaS application to enable teams to get out of email and collaborate. We differentiated our product very well by becoming the first company to OEM and imbed free HD video conferencing from Zoom. Great added functionality, but we left the focus of the product and business generic, and not focused on a specific vertical market, such as healthcare, education or a specific function, such as marketing teams. I was greedy and wanted to be able to sell our product into a huge TAM with many different buyers. In short, I was attracted by the perceived allure of “endless budget”. However, when you target multiple verticals and buyers, your message is forced to become generic and undifferentiated. As a result, you cease to target a specific pain point, which makes your go-to-market far more challenging and expensive. You will likely experience lower conversion rates, and achieving repeatability — the key element needed for mass scaling of your business — and will become virtually impossible.
How to achieve and maintain PMF?
Achieving PMF is critical for the success of any company, whether it be an angel-funded startup heading to market, or a ten-year-old company with more than $50M in revenue.Achieving PMF is foundational to your business success. The most successful companies work hard to gather exhaustive amounts of data and feedback before creating a product.
I recommend that your product and go-to-market team meet with 15–20 customers before you start building anything. Make sure you get the most out of those meetings. Ask open-ended questions like, “What kind of UI would you like?” instead of closed-ended or yes-or-no questions like, “Would you like it if the UI was gray?” After asking an open-ended question, stop talking, listen, and learn, which can be hard to do when you are passionate and excited. I like to follow an open-ended question with a layering comment, such as asking “And what else?” or “Say more.” The amount of data you can gather from an open ended-question followed by your silence, and then a layering comment will yield a treasure trove of data.
You will learn a lot and will develop one heck of a product if you uncover a pain point you can solve. However, this is and will continue to be an iterative process. Therefore, you should understand that your initial product is likely going to be off-target. You may achieve success, but continue to listen, learn and iterate — you could be adjacent to a much larger opportunity. When I became the COO at Tripwire, the company had grown to $40M in revenue by solving a small problem (detecting changes to configuration settings) for server administrators, who were customers with little authority or budget. But we realized that the same technology could solve the much bigger and more pressing problem of achieving compliance. We ended up targeting the CISO instead, a buyer with burning urgency and budget. Before we knew it, we were a $100M company filing to go public.
Conclusion — when should you hit the gas?
PMF is critical for success: Be patient and willing to do a lot of upfront work to listen hard and validate your ideas. This input will help guide you on the road to a thriving business. This doesn’t only apply to early-stage companies; you can achieve great success in the market and still lose your PMF over time if you don’t keep up with your customers’ needs. And of course, throughout the lifecycle of your product and company, always look for adjacencies which could lead to a bigger, more lucrative opportunity. Once you have PMF, you should first congratulate yourself, it’s not easy. Then, check out my follow-up article about your Go-To-market. Is Your Go-to market Broken?
If you got value from this article, please share it with your network. If you would like to discuss your own-go-to market, please reach out to me. I like to engage with Founders, entrepreneurs and software companies to help them dramatically improve their go-to-market.