What if you could get so good at validating or in-validating product/market fit that it becomes a repeatable, sellable service?
What if you could create a new role that can be duplicated at every early-stage startup specifically designed around product market fit the same way that the modern Enterprise Software Account Executive was created?
“The number one problem I’ve seen for startups, is they don’t actually have product/market fit, when they think they do.” — a16z article “12 Things about Product Market Fit”
The way I define Product/Market Fit (PMF):
- AEs regularly hitting or exceeding quota
- Low and decreasing customer acquisition cost (CAC)
- Minimum need for outbound marketing
- Price inelasticity
- High close rate
- Negative customer and revenue churn
“Winning business models are anchored by companies that have the potential to generate lots of revenue with easily scalable, repeatable and profitable sales and marketing strategies. And none of that will be truly determined until you successfully test and optimize your product-market fit with potential customers.” — George Deeb, Managing Partner at Red Rocket Ventures
Over the past eighteen months, I’ve learned hands-on the challenges of finding PMF at one early stage B2B Enterprise startup and had in-depth conversations with senior leaders at five others. What all of these companies have in common was they found early PMF in at least one market and started to ramp up sales & marketing investments to sell into new markets.
When technology companies decide to expand into a new market whether it be a new vertical, a new use case, or going up or down market, different functional leaders of the business consider questions like:
Sales / BD
- How do we take a high cost of sale to a lower cost of sale as we scale?
- What partnerships should we focus on based on PMF?
- How do we know we are on the right track to finding repeatability after the first customer wins?
Marketing
- How does messaging need to adapt to a new market AKA “message market fit”?
- Which conferences should we attend based on PMF?
- Which variables should we consider to get a highly targeted ideal customer profile?
Product
- What’s the sales opportunity value of adapting product roadmap for a new market?
- To what degree do customers like the product without additional (especially one-off) product investments?
- How will we prioritize product roadmap to test unproven markets?
Traditionally, when companies wanted to sell in a new market they hired their first AE and lets he/she figure it out. This person is savvy, scrappy, and leverages both sales prowess and their Rolodex to muster the first customer wins.
But here’s the problem with that approach:
- Enterprise AEs are expensive
- Ramp time is ~6 months
- Potentially scale hiring prematurely
- Traditional AEs lack operational skillset to align cross-functional teams to turn one sale into many
If product/market fit is the lifeblood of a startup, why isn’t there not a specific job description for it??
Director of Product Marketing? Doesn’t have the sales mojo needed.
COO? Maybe — depending on his/her background managing cross-functional teams.
Director of Business Development? Usually focuses on direct sales or partnership piece of go-to-market strategy, but not aligned close enough with Product.
My approach to solving these problems is to create a role and/or a service that is an amalgamation of skills that include Operations + Product Marketing + BD + Sales + Product + McKinsey.
The Six Stages of How I’ve Found PMF:
- Initial hypothesis — “We believe our product will solve ABC problem for New Market because our solution does XYZ and if we solve this, it will provide these positive business outcomes.”
- Qualitative and quantitive market research — What’s the TAM/SAM/SOM of this market? How open is this market to adopt new technology? What are thought leaders in this market saying about the problems we think our product can solve? How much competition will we face?
- Customer validation — How many times do prospects in this new market say, “Yes, this is a good idea and I’d buy a product like this!”? Can we get a company to use our product and test the efficacy?
- First customer wins — Can this customer go on record and profess the value of our product? Is customer willing to pay a premium? How much effort did it take to close?
- Find Repeatability — Have we adapted our product roadmap to meet the needs of this new market? What’s the close rate relative to existing markets? How likely are customers to expand and renew?
- Operationalize — How do we maintain high margins as we scale? How do we staff (sales, sales engineers, customer success, etc) for the new market? How do we make internal (salesperson’s guide) and external (prospect’s guide) playbooks for this new market?
In closing, finding product market fit is no easy task. I’ve seen too many startups (and people) get burned by the negative consequences of miscalculating product/market fit. My big, hairy, audacious goal is to create a repeatable, systematic process to invalidate or validate product/market fit that every startup can utilize. I’m eager to refine this process a bit more by finding success with at least one other tech company so that I claim the process as replicable — and not just an anomaly. Please reach out on Linkedin to challenge my hypothesis or provide an opportunity to execute the strategy again.