Product-Market-Fit
In his book “Founders at Work,” Max Levchin, one of the founders of PayPal, tells how he and his co-founder Peter Thiel launched Fieldlink as their first product. But the two quickly realized that no one actually needed this product. In other words, that their product had no product-market fit. So, they quickly refocused and developed a mobile payment solution for PDA devices. But even that didn’t meet huge market demand, so the two decided to pivot once again and focus on online payments for eBay, which eventually led to PayPal’s breakthrough.
What the story shows is that it takes a lot of honesty and courage to admit to yourself that no one really needs the solution you spent a lot of energy and time developing.
If Max Levchin and Peter Thiel had insisted from the beginning on pushing their first product into the market with all their might, instead of rethinking the product, they would never have become such successful entrepreneurs as we know them today.
The point from the story is this:
For an early stage start-up, product-market fit is more important than sales.
You can try with all the force and all the best sales people to bring a product to the market, but if it is not useful at all in the market, you waste a lot of energy, money and resources, which are much better spent in changing the product or the business model.
According to Silicon Valley legend Marc Andreessen, you can easily tell whether you have product-market fit or not:
If you have product-market fit, customers will buy it as fast as you can make it, or in the case of software, as fast as the technical infrastructure can be scaled (…) and sales and customer support staff will be hired continuously and as fast as possible.
However, if you don’t have a product-market fit, customers don’t see any real benefit from the product, so the cold calling process is slow, the sales cycle takes far too long, and most deals never close.
So if you haven’t achieved product-market fit yet, even the best cold calling scripts and the most talented salespeople won’t help you.
How can you find out whether you have a product-market fit or not?
Lean Selling
What is perhaps the most important sales tip in the world?
Sell a good product that people want to buy.
If you’re reading this little book, you’re probably a founder or the first “sales guy” of an early-stage startup.
The first questions you should ask yourself as a founder are these:
- Do we have a product with market potential?
- Are there people or companies that would like to buy our product?
- Is there a single feature we should develop to make our product a resounding success?
To answer these questions, you should get to know your potential customers.
Meet potential customers
In my first startup, I worked with my co-founder to develop a digital signage solution for unused TVs in bars, cafés, and restaurants. We packed the prototype in our bag and then spent a whole day – from noon to night – going from one restaurant, to the next, to a café, then to the next bar and so on, talking to every owner and manager we could come across. Not only did we get tremendously constructive feedback, but we were also able to convince our first pilot customers.
Bars, cafés, and restaurants are, of course, predestined for such a surprise visit, as are hotels, small stores, etc.
But even if your potential customers seem unreachable sitting in their office tower, you can still approach them similarly. For example, at trade shows, events, meet-ups, or by ringing the company’s doorbell at lunch or after work and asking for the decision maker.
Trade shows are particularly well suited for a lean selling approach. Almost every industry has one or more trade shows each year. Get a day ticket to the next trade show and as soon as the trade show opens, visit each potential customer’s booth and ask the CEO or decision maker (CTO, VP of …, etc.) for their opinion of your product.
How this works, roughly? Simple:
“Hello, my name is (…), can I please speak to the CEO/decision maker? “.
It can be helpful and useful to Google the name of the CEO or potential contact in advance so that you can specifically ask for this person at the booth.
When the decision-maker is there:
“Hello! My name is (…). I am about to start a company to solve the problem [problem XYZ]. Would you have 3 minutes for me to find out if our solution is something that you would consider buying? “.
By seeking personal contact, you build a personal relationship with your prospects, and typically, you will get very helpful and often incredibly detailed feedback. Face-to-face meetings give you a much better idea of how things are going operationally on the ground, what the real issues are, etc.
Of course, this is not scalable, but it is an important step to find out if the problem you see exists.
As Paul Graham says so well, “Do Things That Don’t Scale“
A similar “feedback” conversation is also possible over the phone, but you’re unlikely to get as many insider tips as you could by talking to them in person.
Contact Your Potential Customers
You can of course contact potential clients via email, LinkedIn or via Twitter.
It’s best not to try to get written feedback, but to set up an appointment via the written channel:
“Hello, Mr. (…). I am about to start a company to solve the problem [problem XYZ]. Here I am looking for a short feedback from potential users of the solution. When might you have 10 minutes for me, so I can find out if our solution is something you might be willing to use and buy? Best regards (…)
I recommend the first contact by e-mail only if there is really no other way, i.e., if you have no way to meet the decision maker in person.
However, the goal of e-mail can also be to focus on quantity instead of quality. This allows you to analyze whether the topic is relevant for the target group by looking at open and response rates.
Generally, you’ll get more honest, open, and detailed feedback over the phone or in a face-to-face conversation.
Real Interest?
I realized far too late, at the time, that there is a difference between sympathy interest and genuine buying interest.
Especially with younger founders, people often show a false sympathy interest to avoid discouraging or disappointing you. People find you sympathetic and, by showing sympathy interest, avoid telling you what they really think.
These people find you likable, but they wouldn’t buy your product.
Your challenge is to distinguish between genuine buying interest and well-intentioned but harmful sympathy interest.
We can find out if genuine buying interest exists, even if we don’t have a finished product yet, by asking the following question:
“What are the steps I need to take to turn you into my customer? “
Here we want to get as specific an answer as possible.
Whether he really wants to buy your product or solution, then you can test using the following questions:
- “We intend to launch in 4 weeks, is that a good fit for you?”
- “The beta program is greatly discounted, would you like to sign up now? If so, you’ll get access for life at half price.”
- “How does your company run the decision process? How quickly can we reach a decision?”
Depending on the product, ask your potential customer for a payment or create a quote to test genuine buying interest.
Of course, you may want to offer them a money-back guarantee, so they can get a refund if they are unhappy with the product.
If you get real feedback from several customers with interest to buy and ideally a first (down)payment, you can better assess if your product has a product-market fit.
In summary, you can proceed in four steps:
- Talk to your potential customers in person: in their company, at events or at trade fairs
- Call your potential customers to find out if the problem you are solving is real.
- Send an email to a large number of potential customers to evaluate the data.
- Try to test a deal with the prospect by being as specific as possible and selling your solution to the prospect.
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