Finding product market fit is more difficult than dunking a basketball, hitting a hole in one or bowling a perfect game. I don’t know how to “find” it. Notwithstanding, here are some things that I’ve learned searching for it.
Phase 1 —Idea
When the inspiration for Tred came to me (a platform for people to custom order vehicles), I felt like I was hit by a ton of bricks. I knew that custom ordering would be a better way for consumers to buy a car, a better way for dealers to sell cars, and a better way for OEMs to build cars (I was wrong, but that’s not the point!). I had experienced the pains of purchasing a new vehicle, the challenges that dealers face flooring inventory, and the desire that OEMs have to access customer data as soon as possible. I was consumed with plans for uprooting the industry and making it easier for people to buy and sell cars. I couldn’t sleep or focus on my day job — I was obsessed from day one.
The genesis of a company should be an overwhelming feeling that a specific product/service must exist, or that a pre-existing product/service or process must change in a specific way. This feeling should be rooted in your broader experience in an industry or as a consumer, or on other people’s pre-existing research, but it should come bottom up and be specific to the customer — “customers need X product to alleviate Y painpoint”. Conversely, it’s best if the genesis of a company is not the conclusion of your top down brainstorming session or industry analysis, because these yield broad results that are either tough to validate and/or lack focus on the person who will ultimately be paying you — “we should apply X technology/theory/technique to Y industry”. Particularly in the formational stages of a company, you need to be focused on validating one hypothesis, and that hypothesis needs to be centered around your customer. Eureka should hit you like a freight train, and you should be obsessed. The captain of the ship must be obsessed, because the journey can be hard.
Phase 2 — Feedback
With conviction about the Tred vision, I was able to raise a modest amount of angel financing, quit my Wall Street job and dive into Tred full time. Unfortunately, I made every wrong move. Without first gathering a scrap of external proof that there was actual demand for my vision, I paid an engineer to build it. As a result, I built the wrong product, and I very nearly ran out of money. Before raising a penny or writing a line of code, I should have backed up my conviction with feedback from consumers, dealers and OEMs.
In the feedback phase, you should test your conviction by engaging with your customers before writing any code — even if you’re an engineer. Steve Blank calls this “Getting Out of the Building” to talk to customers (“GOOTB”). Write a survey and send it to a thousand people via SurveyMonkey. If you’re in the consumer space, buy a clipboard, hangout outside of Starbucks and interview people in exchange for $5 gift cards. If you’re in the B2B space, get in front of decision makers at relevant companies. Ask questions such as “would a service that does X, Y or Z be of interest to you?” and “would you pay for it?” and “how much would you pay for it?” and “why would you pay that much for it?” If you ask, customers will give you valuable clues as to whether your conviction holds water. If you can detach yourself from your desire to hold on to your original ideas (which is difficult), you will arrive at a compelling hypothesis / value proposition. Once you’ve done that, it’s time to write some code.
Phase 3 — Beta
TechStars taught me to perform customer development and helped me unlearn some of what I had learned in business school. At TechStars we ran numerous surveys, interviews and focus groups, and we realized that consumers loved the notion of test driving from their home or office much more than the notion of custom ordering a car. So, we pivoted from a vehicle custom ordering platform to a test drive delivery platform. As we launched the test drive delivery model, we were vigilant about tracking our progress, and our diligence helped us uncover a more compelling customer need down the road.
In the beta phase, it’s time to write code, build a beta, and collect customer feedback on your actual product. It’s like actually riding a bike, instead of just talking about riding a bike, although the training wheels are still on. Your business card might read “CEO”, but at this stage it should read “Scientist”. The immediate goal isn’t to print money, it’s to validate your hypothesis. Be open to making new insights, being pushed in unanticipated directions and giving up what you thought you knew. Be OK going to bed at night with multiple tests running, and not knowing all of the answers. Be OK taking the time you need to get the data you need, even if it means going slowly. Get this step right, and you’ll save yourself a lot of time and money down the road. So be scientific. Track your results and assemble real data. In the words of Brad Feld, “The plural of anecdote isn’t data”. Take that to heart.
Phase 4 — Pivot
Although customers loved the experience of test driving vehicles from their homes and offices, we noticed that the majority of Tred buyers also had vehicles that they needed help selling. In a short period of time, we hypothesized that vehicle selling was a more glaring need than vehicle buying. The instant we were “sure” of this, we busted our tails to build a vehicle selling business.
If early user data indicates that you should pivot, you need to do so quickly. It was OK to take time to collect the data you needed to justify the pivot. Now that you have conviction, it’s time to go fast. Ricky Bobby fast. Because the obvious danger is running out of money before you get a chance to complete your pivot. In pivot mode, you are what Ben Horowitz might call a “war time CEO”. You are Winston Churchhill. You need to constantly remind your team why you are pivoting and to ensure that they know that the fate of the universe is hanging in the balance. Opportunity is knocking. Customers need you. This outcome matters. Failure is not an option. Blue light sabers must prevail. The strategy is victory at all costs. Victory. Victory. Victory. To extend runway and maximize your ability to communicate across your company, cut all non essential employees (and anyone who doesn’t “believe” in your change in course, because belief is oxygen, and negative energy will suffocate your team) and vendors. Cut your marketing budget to the bone. Until your MVP is live, get a landing page up and manage everything else in Excel. Push your engineers to get to MVP ASAP and prioritize product stories ruthlessly — if it isn’t essential to the new product, punt on it, no matter how important it seems. Role play frequently with your customer facing sales and support teams to ensure they grasp all process and script changes.
Phase 5 — Company
Since creating a vehicle selling program, we have made two iterative improvements to our model: (1) we moved away from purchasing vehicles ourselves, and (2) we moved away from using “agents” in the field. Both changes were driven more by unit economics than by customer feedback.
If your pivot is a success (if not, go back to step three), ensuing product changes will be more iterative, and your time will be mostly spent figuring out how to wrap a business around your value proposition. You can loosen your grip on your team and tone down the fatalism. As CEO, your new goal is nailing unit economics and scaling the business. Hopefully, you can identify at least one acquisition channel that you can ride to scale.
Footnote #1: it’s easy to be distracted by competitors at any of the above phases. Don’t be. Think of competitors as a sign that you’re on to something compelling. To the extent that your competitors have raised more money than you, consider that fundraising momentum is not tantamount to success because VC and founder greed can cloud reality. No amount of funding will compel your competitors’ customers to pay them more for their product than it costs them to deliver that product. For the most part, customers can’t be bought.
Footnote #2: this post doesn’t cover fundraising. I’m more or less assuming that you’re able to raise enough money to keep your company afloat, which can be particularly difficult through pivots.