Sep 6, 2018
The Growth Epidemic — Misleading Founders To Failure.
Find Product Market Fit and Polish Gold - Don’t Polish A Turd
Lessons from a grueling 12 months
Interviewing with, advising on or being contracted on as a first growth hire with over 12 pre-seed stage startups in the last year is a great accelerated way to experience elation!! *cough* …more accurately put— relentless tragedies and deep deep sorrow from so many mistakes and companies going under.
Alas I lived, and am here to share the valuable takeaways from bouncing around to so many different hopeful pre-seed concepts and seeing the truth despite the rose colored glasses that so many founders wear.
The Main Battle Founders Have
Unless You Understand What Your Growth Drivers Are, Your Growth Tactics Will Do Nothing For Sustainable Growth.
All the founders of these 12 or so companies I worked with were extremely smart and accomplished people — some having previous successful exits. Yet, despite their backgrounds they all shared the same major problem that over 74% of all founders have. They all thought that focusing on growth was the solution to all their growth problems.
Sounds right though doesn’t it…?
WRONG!
This misconception couldn’t be further from the truth and is the very reason that 74% — 95% of high growth startups fail. Source
Founders Are Led Astray
We’ve all read the articles — I’ve got a bookmark folder full of growth case-studies that I am itching to implement. And Im sure all you founders do too. The problem is, this excitement is misleading. No matter how good your growth tactics are, if you haven’t found product market fit, you will drain your startup dry in the end.
Yet founders are still so optimistic and think this is all you need to do. So they focus on hiring growth hackers (or whatever…) with the thought that if they implement these same tactics they will have break out growth success. And like sooo many founders before them, they skip over attaining their foundation that is vital to lasting growth and success. No startup is the same and replicating another’s work will fall flat because of a lack of deeper understanding and the needed leg work that comes first.
Drink The Kool-Aid And Follow 74% Of All Other High Growth Startups Right Off A Cliff
A Look At The Numbers — (Your Reality Check)
The odds are widely publicized that 75- 95% of all technology startups fail. And the mistake of premature scaling (growth) is the most common documented way these companies fail.
Question: Are you skipping over the most important things for your company’s success as well… in favor of a fancy growth plan perhaps??
Don’t do that… and keep reading… 🙏
-Numbers from a study of 3,200 startups conducted by the Startup Genome:
“74% of high growth startups fail due to premature scaling.
93% of startups that scale prematurely never break the $100k revenue per month threshold.”
Here is the difference between companies that scale prematurely and those that don’t. Although they start off looking promising, the Prematurely Scaling Startups rarely get over 100k users (red). Startups that take their time to get their foundation before they scale are much more likely to succeed. They have over a 60% chance of reaching 1 million or more users (blue).
The lesson here is you can’t polish a turd.
If you haven’t found out if you have a turd or not, and you try to grow, you more than likely will fail.
So what is premature scaling and how do I avoid polishing a turd…?
Premature Scaling is attempting to grow for any reason other than to find Product Market Fit and attempting to grow if you aren’t damn well sure you have found PMF. To find Product Market Fit you have to grow to a certain extent, yes, but its only for the purpose of testing and getting feedback. You want to stay away from efforts to scale anything, keep hiring to a minimum, and don’t get fancy with product or automation. You want to be as closely connected to your customers as possible, as quickly as possible and as cheaply as possible. Don’t spend a month building your ideal software. Hack together something that you can manually control on the back end. MVPs and iterative feedback are the name of the game here.
“The only thing that matters is getting to product/market fit.” — Andy Rachleff via Pmarca
What it looks like without PMF. (This is most likely where you are.)
You have to push your product on people and it is very hard to get them to say yes. Your daily, weekly, monthly usage rates are low. Your retention rates don’t last more than a cycle or two. Your referrals are mostly being given by your Mom and a highschool crush you are trying to revive. No one is demanding your product from you with even a whiff of desperation.
At this stage, you are probably thinking this;
“All I need right now is some funding so I can put fuel in this engine and blast off!”
But sadly these indicators all let you know that you do not have product market fit and that your product will not survive even with a fire hose of traffic and money behind it. If you try to grow at this stage you will burn all your money and time attempting to fill your leaky funnel only to have customers churn so fast you can’t recoup acquisition costs. Things will finally crumble. And it is almost impossible to rebuild on a pivot because at this time you have already burned through all of your early adopters and any media steam… and good luck getting more money.
While in this stage, if you want to succeed, everything in your business AND deep down in your bones has to be geared towards finding product market fit — not growth or profit, that comes later.
Finding Product Market Fit
To find it you go through an iterative, continually repeating cycle of Building, Measuring and Learning. This cycle starts in the very beginning of your business and tests every assumption you have about your business. You will use it to find your best product, your best customer, your best distribution, your best messaging, and any other thing that is essential to the success of your company.
The Components Of The Cycle:
(Short summaries below…Follow links for in depth action steps)
Overview of Pre-Product Market Fit
- Overview and Case Study To Come Soon (Follow for the update)
Customer development. Follow Steps Here (coming soon)
- Find your solution to a big problem in a big market.
- Surveys, interviews, user behavior observations (in-person or analytics data), digging for other data/metrics.
Creating your value hypothesis. Follow Steps Here (coming soon)
- The core components/assumptions of your business that you think will make or break it.
- What: The product are you creating. Who: The customer that is desperate for it. How: The business model that is able to deliver it.
- This can be macro or micro. Everything is an assumption/hypothesis that needs to be tested and validated or refined.
Creating your minimum viable product. Follow Steps Here (coming soon)
- The minimum set of features that allows you to test your value hypothesis.
- What do you want to measure and what is your criteria for success.
Product market fit validation tests. Follow Steps Here
- Net promoter score
- Sean Ellis’ survey test
- Brian Balfour retention metrics
- Clement Vouillon’s quiz for SaaS companies
Follow This Growth Path For Success (Pre-PMF)
In the Pre-P/MF stage you don’t run ads to grow customers. You run ads for customer feedback and begin to understand their behaviors, demographics, interests, where they are best reached, and their reactions to your products. You spend as little money as you can to gain the feedback you need to align your product best with your market.
Putting this all in perspective
In the diagram below you see the different stages of development a successful startup goes through and what that startup focuses on. The beginning stages are entirely devoted to going through this cycle and finding how the product fits with the market and channels of distribution. — Notice growth comes after all the beginning stages.
Doing the boring leg work before you try to grow will allow you success to happen.
What Product Market Fit Is
The most thorough definition I found is one from Clement Vouillon from Point 9 Capital.
“It happens when the product (set of features that have a clear value proposition) resonates with customers (which are of a certain type and have defined needs) that you know how to reach and convert (through marketing and sales).”
And according to Marc Andreessen it looks like this:
“Customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it…” Pmarca
Life After Product Market Fit
Now it might all seem like sunshine and rainbows from here on out but let me assure you, its not. Although you may have explosive growth when you find it, you can lose product market fit just as quickly as you found it. And if you find it, you better keep it.
There is only one way to assure you stay on top of the stallion — get yourself a growth guy or gal that understands more than the hottest hacktactics.
Find someone that understands what drives true growth and not only will your company soar to millions of delighted users, you will also be able to eat for free for a year at Buck’s with Marc. 😉
If you are now a changed woman or man and you want more in depth knowledge in the ways of finding product market fit as told by all the S.V. Greats, follow this link for an aggregate of all the best articles and teachings on product market fit.
If you are curious to connect don’t hesitate to reach out. Also, I love challenges —so throw me some questions about problems you are having with your company. Your users may just thank you for it. 😎
christianjsf at gmail. Im a friendly dude, swear…
