Finding Product Market Fit 1/6 — Getting Started
I work with seed stage founders trying to get to product market fit (PMF) and raise their Series A. My focus is on the future of learning and work (edtech and future of work), but a lot of this approach is applicable to consumer companies and many freemium SaaS businesses. I started three companies, one enterprise and two consumer, so I have been through the early stage drill a few times. My focus is on setting very high expectations, such that if founders can hit the milestones we lay out, they won’t just find PMF, but they will have the foundation for the kind of company which can avoid a lot of later stage pitfalls. What I’d like to talk about here is the stages I see seed companies go through, and the key metrics in those areas. I have seen many companies pursue these metrics in a different order, and that can be mostly ok. My caution is that jumping to growth before establishing the previous milestones is almost always a huge waste of time and money.
To begin with, let’s start with the end. Here is a report card that you can use to assess your current PMF. While this will shine a light on a few areas where things aren’t working, consider that they are all connected, so often a bad retention rate can be because someone just wasn’t that excited about the magic, or didn’t have that strong a need to fill.
The PMF Report Card
My Practice With Founders
The thing that I think is really difficult during seed stage is keeping the big hairy audacious goals above in mind, and developing a cadence that lets you knock them down, despite the insane emotional roller coaster you are going through as a founder. It’s totally normal to get down or depressed followed 20 minutes later by feeling like you are invincible because you got a good win. Throughout all of this, your success is actually determined by the cadence with which you learn new things every day and every week. I think this is the top reason that founders settle for good (local maxima) PMF when there is great PMF (absolute maxima) for their idea in an adjacency nearby. They just aren’t organized enough or get worn down by the roller coaster and settle for good ideas. There is also a big aspect of delayed gratification in finding the absolute maxima which I talk about here in PMF is the Founder’s Marshmallow Test. My job is to try to help you to find great PMF.
I take 30 minutes each week with my founders and re-calibrate around where you are in your journey on the goals above, where you are focusing your time and energy, and what you are learning through experimentation. The format I use evolves, but is basically:
5 Minutes — What Happened in the Last Week (acknowledging the trauma but getting back to the learning)?
5 Minutes — What Experiments Did You Run Last Week and What Did You Learn?
5 Minutes — What Experiments Are You Running This Week and What Hypothesis Do You Have?
5 Minutes — What Are Your Current Metrics from the Report Card Above?
5 Minutes — Next Funding Round (if needed)
You should record these weekly even if you aren’t talking to anyone about them. That accountability is useful and keeps you focused on the goal. It’s also very useful to go back over a few months and realize that one issue has been the key for a long time, so you need to solve it or die.
Below I look at the stage before you really become a company, when you are trying to see if there is any heat in the area you are interested.
Stage 0: Early Validation
Joe has a great idea for a school for math geeks. He has started a couple of other companies, but hasn’t yet gotten strong PMF in any. Previously he was a high school calculus teacher.
Put in Place: Experimentation
From day one, you need to look at your startup as a series of experiments. As a founder, you are someone with a vision and strong convictions about your hypothesis. There’s a fine line between that, and being absolutely convinced of something that’s not working until your company runs out of money. Sadly, the latter case is what happens 90% of the time. In the press, we hear about the founders that got it right and it validates the sense that founders just ‘have to know.’ There is nothing that could be further from the truth. You have to have an insight and then you need to figure out what the market really wants better than anyone else. The way you do that is to learn faster than anyone else, and the way to learn faster is to use the scientific method. The best experimenters in the world, people like this guy, will tell you that they get their hypothesis right about 20% of the time. So one in five times when you are absolutely convinced of something, it actually happens. For coders, it’s like using lint and code reviews. Yes, you can believe you write perfect code, but point me to one person that does.
Let me re-emphasize the importance of experimentation, because if you remember only one thing, remember this. Being great at experimentation and developing an experimental cadence is what turns PMF from luck to intention. Yes, there have been plenty of startups who wandered into PMF, but why leave it to chance if you don’t have to.
The experimental cadence I recommend until you find PMF is 5 experiments per week. That gives you a reasonable chance of learning something significant every week. The limit to cadence is the amount of time you have to evaluate the results every week, learn and make new bets for the following week. Here is a deck a founder put together on his process. Great founders start with first principles and validate everything they believe every step of the way.
The Milestone Which Gets You to Stage 2
- Joe needs to get a few dozen students to experience ‘the magic’ of his math teaching and rave about it. The magic is that moment when your user mentally puts together a big problem they have with the way your product solves it, usually resulting in cartoon smoke coming out of their brain. The excitement needs to be very palpable, like people screaming about how much they love this.
Typically, founders will get caught up in trying to make the first experience rock solid. That’s not important. At the magic stage, you want to only test the need and whether you have a solution that resonates with users. It doesn’t have to be perfect to determine this, in fact it’s best if it isn’t because if you can get somebody excited about a bad product, you can later get them more excited about a good product. My strong advice is to do this with ‘no code’. You can easily use Zoom or Slack or Squarespace, cobble something together with the right language and images, and put that on Product Hunt, targeted Facebook groups, twitter chat or hundreds of other places where people go to find new ideas.
Funding Round: Idea
Valuation: $1m
Investment: $50k
Likely Investors: Friends and Family (sometimes Dunce)
Milestone: initial traction (Stage 0)
Notes: As a founder, your job is to get to PMF before you run out of money, so I will intersperse typical funding milestones on the journey. The idea stage check, which I write, is one of the most misunderstood. I am often approached by founders with a snazzy deck and no validation. Don’t waste your time with professional investors if you haven’t validated your idea, as outlined in stage 0 above. You can raise money from Uncle Bob if you want, but instead I would focus on getting the right co-founders on board so that you can learn without spending much money. Once you have users engaged, then put together a 3 slide deck saying who you are, need you are addressing, your initial solution. Seriously.
In the rest of this series, we are going to go through the four aspects of the report card that you need to knock down — Magic, Habit, Discovery, and Organic Growth. I also include a bonus section on Getting Ready for Series A since thinking about the issues that you will be asked from day one is helpful (though don’t worry about them until the four key components above are working)
Click here for the second piece in the series on Magic!
