Every six months I rethink the optimal startup go to market approach based on new insights gained at recent startups. Lately I’ve been using a pyramid to represent the process I’m using. Startups require a solid foundation of product/market fit before progressing up the pyramid and scaling the business.
Achieving Product/Market Fit
Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it. Yet many entrepreneurs have highlighted the importance of creating a product that resonates with the target market:
- Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is “make things people want.”
- Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money.”
- Marc Andreessen: A couple years ago Marc wrote the following on his blog: “…the life of any startup can be divided into two parts – before product/market fit and after product/market fit.” He goes on to write: “When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.”
I’ve tried to make the concept less abstract by offering a specific metric for determining product/market fit. I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product. Admittedly this threshold is a bit arbitrary, but I defined it after comparing results across nearly 100 startups. Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%. Of course progressing beyond “early traction” requires that these users represent a large enough target market to build an interesting business.
You should measure your product/market fit as soon as possible because it will significantly impact how you operate your startup. If you haven’t reached product/market fit yet it is critical to keep your burn low and focus all resources on improving the percentage of users that say they would be very disappointed without your product. Avoid bringing in VPs of Marketing and Sales to try to solve the problem. They will only add to your burn and likely won’t be any better than you at solving the problem. Instead, you (the founders) should engage existing and target users to learn how to make your product a “must have.” Sometimes it is as simple as highlighting a more compelling attribute of your product – but often it requires significant product revisions or possibly even hitting the restart button on your vision. For more on getting to product/market fit, I recommend reading Marc Andreessen’s full post via archive.org (it has been removed from his blog).
Race up the Pyramid
Once you have achieved product/market fit, it’s time to accelerate through the next steps of the pyramid and then begin scaling your business. Here’s a brief description of what to do at each of the steps before scaling:
- Promise: Highlight the benefits described by your “must have” users (those that say they would be very disappointed without your product).
- Economics: Implement the business model that allows you to profitably acquire the most users.
- Optimize: Streamline a repeatable, scalable customer acquisition process by testing multiple approaches and tracking to improve the right metrics.
Effectively executing these pre-scale steps often improves the conversion rate to transactions by 5X or more. This directly boosts the effectiveness of every future marketing initiative by the same proportion. Just don’t rush into this fine-tuning phase until you have first achieved product/market fit.
I recommend reading this post on Milestones to Startup Success for additional details.