3 questions to help you find product-market fit while a crisis is looming over your business
Over the past few months, I have found myself in many conversations with entrepreneurs, product leaders and corporate executives with…
Over the past few months, I have found myself in many conversations with entrepreneurs, product leaders and corporate executives with regard to the so called “new normal”, and specifically what it means for innovation.
In many ways, innovation defies the laws of the universe: innovation is about creating something out of nothing. So when a crisis arises, as an unexpected, transformational, and sustainable change; it creates a new paradigm in which new businesses can emerge and existing ones struggle or even disappear.
Here is a modest attempt to summarize in 3 simple questions, how to think through product market-fit when crisis is looming over your business.
What is the problem your business is trying to solve?
Interestingly a crisis makes things much simpler, contrast much crisper. When it comes down to survival there is no space for indecision or distractions. It comes down to speed and focus.
So it may sound simple but it all starts here: why are we here and what for?
Like TK Kader, a successful entrepreneur and mentor at 500 Startups, puts it:
“as a startup you should be doing 2 things only: close deals and ship code (to close deals!)”
In order to survive, existing businesses need to go back to why they exist in the first place; and refocus on the core.
For new and emerging businesses it’s about rethinking their problem statement to test whether it has been amplified or affected by the new environment; and preparing for the absolute worse: when the world stops, it means that deals will collapse, sales cycles will extend, access to resources and capital will be become scarce; and this could last for a very long time.
In such precarious conditions, it’s imperative to eliminate the time wasters and trim the fat quickly and in totality to extend your runway as much as possible.
In my case it meant pivoting into a new offering that did not require so much time face to face to sell but also: cancelling the office rental, most of our software subscriptions, negotiating payments with vendors, and making key employees co-owner of the company so they could find a job while still being part of the team. We kept telling ourselves: if we survive this, there will be less competitors when the economy bounces back!
Who are we solving this problem for?
Too often we tend to get distracted by useless investor pitches, illusionary partnerships, undecided prospective clients. They all seem to be important somehow but…
Investors. I always found it interesting that in many startup competitions, incubators, and accelerators, startups are pictured as the sexy material on display (you know they use make-up and extensive rehearsals to make pitches look good!) and investors are always portraited as the only important people in the room; the ones who make entrepreneurs feel like they are some meat stack at the market. Paradoxically the all powerful VCs feel they have to give you advice on how you should run your startup (and their favorite question “yeah… but how does it scale?”), while their own Venture Capital business is falling apart (95% of them fail to provide the returns they promised to their own investors! but it’s ok, the fund managers, like the Casino, always win! 2% management fees)!
Cynicism aside, raising funds can be a serious distraction for entrepreneurs: I remember when Alexandre Lebrun, co-founder of Wit.ai, acquired by Facebook in 2015 after 21 months of existence gave us this advice to "avoid VCs as much as you can". Although he was indeed funded by famous VC Andreessen Horowitz, that he rightfully labelled as a good one; many are not and pitches are very time consuming.
Similarly, Soul Htite, founder of the successul LendingClub, the first peer to peer lender, told me to
"stay low as long as possible then scale"
Why? because it helps you to keep as much runway as possible: starting a new business is a learning journey through a series of experiments; the more experiments you can conduct the more chances you have to succeed. And it takes time.
So bootstrapping can be good: Holly Eve at Forbes reminds us that the majority of startups fund their ideas with savings, cash flow, crowdfunding and forms of debt, including credit cards.
Partners. So many partnerships look amazing on paper, synergies are so obvious! It will certainly provide the market access, killer feature, brand recognition you were looking for in your search for greatness. But it just falls flat. Most likely because your interests and your partners’ are in fact not aligned; because you are actually too small for them to really care; because you are and will always be a second priority to their business. Hence, qualify early and be selective!
Customers. The only ones who really matter: who will be using our product? what do they care about? what are their frustrations with the existing solutions today and why?
This requires relentless efforts to know your customer needs intimately…but but…
People lie. I learned that there is a massive gap between what people do versus what they say they do. So, observing and measuring what they do is much more insightful. How? For example get your product usage data to understand real traction and stickiness instead of asking them questions. People lie to themselves, lie to you (to make you feel good!) or just don’t even know or remember! Another good reason to use data: Steve Blank, a Stanford scholar and author of many articles and books on startups, famously said: "get out of the building"! founders should do all the customer interviews themselves. To a point it is very true but I also realized after a while that you have such much a bias as a founder that you will hear what you want to hear: so keep using data, document your customer interviews thoroughly and get your team members to keep you honest! I remember rereading customer interview notes one year later realising they were great evidences to support our last and recent pivot!
Speed can be your worst enemy: in the enterprise world in particular you will progress faster in your product and learning journey than your sales cycle, so by the time your customer buys into your idea and is ready to pay you may already have evolved, morphed or pivoted into something different. Your focus has shifted into a new product, new customer segment. I guess it might be common but it can be really tricky to manage as your short term revenue source conflicts with where you are trying to take your product to. You will have to manage the tension between serving your paying clients and investing into the product or features that will help you get the new ones.
Big names don’t (really) matter: everyone wants big Clients names: they look good on the traction slide of your pitch deck and you may need some, but slow moving, conservative, demanding corporates can become death traps. They can be very demanding, slow to decide and align, you may have C-level support but they assign middle management to work with you, going through their procurement process will turn your crazy, they pay late. I found it much valuable to work with the smaller, hungrier ones (the challengers!) who need to aggressively innovate and transform to gain market share against the incumbents.
Why is it worth solving it?
During my MBA at Kellogg School of Management, Robert Wolcott said
"Innovation is about creating a portfolio of opportunities for the future."
As such, you are making bets. There are so many ways to solve the problem you are after, the truth is you don’t know what’s going to work. So how to increase your chances of success in this long perilous journey?
When John Fitzgerald Kennedy started the race to go to the Moon he said:
“We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard”
With such high stakes, you need to create optionality to reduce uncertainty and manage the risk of failure. Every entrepreneur I know has a plan B, C and D. Because things just rarely turn up the way you had planned initially. Your ability to adapt quicky will be biggest strength. In times of crisis it becomes even more important.
I think of it as 3 key ingredients:
Road to success = Sizeable Problem + Right team + Secret Ingredient
Sizeable problem. In fact the question is not really about product market-fit: you can achieve this with one customer (but a market of one is not a business, it’s an expensive hobby!). It comes down to the size of the problem: small problem means small business (or none!), big problem means big business!
So, how many people have the problem you are solving for them? how are they "solving" for it today? how much better your solution is versus the existing solutions?
According to famous investor and entrepreneur Peter Thiel, to build a successful startup:
“You have to be 10 times better than second best.”
The bar is high!
Right team. It's about finding the right mix of experience, expertise and attitude. A lot of experience means you have built beliefs you may find hard to challenge… not enough expertise and you just won’t deliver. Attitude is what will make the difference when times are rough, and they will be!
In the first startup I joined as CTO a few years ago, when things went dire I realized our people were very unprepared. A lot of them were from big corporates with long contact lists that were supposed to help the startup shine and scale. But most people had not signed up for missed pay checks, reduced pay checks, no paychecks. In my humble opinion, you just can't have it all: startup life (sounds like something you can brag about) without accepting any risks or downside.
So now when recruiting for startups, I spend 10 minutes selling the role and the vision and 50 minutes to explain all the things that will certainly go wrong. Setting expectations right upfront is key: sh*t will hit the fan, can you take it? Does your personal situation allow for it?
Secret Ingredient. You could call it luck, right time right place, … I like to call it grit… It is known that in the early days of Facebook, Mark Zuckerberg talked about world domination. Aside from the creepiness of the term, it has definitely fuelled his profound desire of success (and systematically crushed any form of competition). Napoleon Hill, in his book Think and Grow Rich, famously said:
“The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.”
Similarly the fear of failure is a much more powerful driver than the hopes of success. I keep in mind this quote from Winston Churchil that has guided me when times were rough:
“Success is not final, failure is not fatal: it is the courage to continue that counts.”
In summary, when times are rough (and even when they are not) constantly go back to these three questions: what problem are you solving? for whom? and why?
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Damien P. Kopp
Breaking Walls, Building Bridges.