Finding Product Market Fit 4/6 — Discovery
Thanks for reading about the process I work through with seed founders to find product market fit. Here is the first article in the series in case you missed it.
The Goal to Exit This Phase — 80% of users should experience the magic the first time they come to you.
Get Ready — People!
Joe is a little weary from running all of the live classes himself. Since this is going well, he starts to think about pulling in other teacher friends to teach classes. Joe hasn’t written any code and he only has one full-time employee. He also has a potential technical co-founder, who is working on this part-time, maybe paid, maybe not. One crucial thing here is that it is not time to believe that you are a real company. Don’t go out and hire a bunch of people. Don’t go buying a bunch of leads. The more people you have, the harder it will be to establish the experimentation cadence you need to accomplish the challenges below. The more you spend on acquisition, the harder it is to tell if you can grow organically.
Making Discovery Simple
This is the single most overlooked step by founders, which is a shame because it can often be almost mechanical to get right. The issue is that you have lots of people finding out about you now, but if they hit your web page and can’t figure it out in a few seconds, they bounce and are gone. Your job now is to show them the magic right away. Literally remove all of the steps to see the magic and make sure that everyone who comes to your site gets hit in the face with your magic.
Back to Joe
Joe’s students loved his first course and are raving about it to their friends. The average user is taking two classes per week. This is extremely important. If users aren’t fully engaged, go back to stage 1 and build something better or come up with a better idea (one where the need is stronger). You are working to develop insatiable demand. That’s really what product-market fit is. Your product fills a need which people badly have to satisfy. The way your product fills it makes them want to tell everyone. The virality of that causes new people to show up without you going to find them. This lets you eliminate demand as a growth constraint and stay away from paid acquisition, which is no longer scalable as a growth strategy (advertising was my first business and the easy days of using google and facebook traffic profitably are over)
One of the most crucial things now is that ‘the magic’ doesn’t get delayed.. At the very beginning, people just showed up and Joe taught them. If a new user shows up now and has to schedule a class and wait a few days to experience the magic, far fewer people are going to get there. So, how does Joe scale up but maintain that ‘live’ feel that was so important to his initial success. Joe decides to be live himself for several hours a day, running classes and talking to prospects.
You will hear investors refer to this focus as activation. It is absolutely crucial you nail magic and habit before you focus on organic growth. If you don’t, you can wind up creating amazing growth loops and your leaky bucket in top of funnel or your churn negates its impact on growth.
The Pivot
It’s extremely likely that you cannot accomplish the challenges in the first three stages. My opinion is that you give it six months or so, and if you can’t get the above metrics, don’t beat a dead horse. If you are running 5 experiments per week, you will have tried 100 things and if you can’t get there, it’s likely that there is an adjacent need that is stronger and you need to figure it out. You have to be the judge of this, and one of the hardest things is that there are always ten more experiments to run, and there is never a good time for a pivot. But in my experience, founders who pivot at this stage into an adjacency have a reasonable shot of finding PMF.
What you don’t want to do, which most founders do, is simply persist with sub-standard metrics. Maybe only 50% of people see the magic, 50% of those retain d30, 40% or your leads are organic.
So in the PMF report card, you are getting a C. You can still burn your pre-seed money and show that 20% MoM growth, fooling a lot of investors. But what happens is that inorganic growth, lack of fit and lukewarm love for your product erode all of your metrics over time and makes for a very tough ride.
True, every once in a while, something changes and makes it all work, but I’m a big fan of intentionality, and intentionally finding a stronger PMF is much easier at this stage than after you’ve convinced others that you are ready to scale. Series A investors usually don’t understand the mechanics of PMF unless they were founders themselves. Their business is to apply resources and focus to solve problems, which does not work for PMF since it is a more creative problem solving process. That can put you in a situation where you are close to PMF but not quite there and are arguing with your board to go back and get it right.
Founders are always in a big hurry to leave seed stage and get that big Series A check, because it’s a validator that they are doing something right. My advice is to bake your startup as long as you can in seed stage to make it really hum. Don’t worry about competitors getting to series A faster, because strong PMF wins over more money every time. Investors will be even happier to see you in six months if you get your metrics right.
Funding
Funding Round: Seed
Typical monthly recurring revenue: $50–100k
Typical valuation: $5m-$10m
Typical funding: $1m-2m
Click here for my fifth piece in the series on Growth Loops!
