Rapid PMF: Find PMF in Months — Not Years: Part 1
THE CREATION OF PMF
Using the following Rapid PMF Framework startup teams can cut the time to PMF in half — and sometimes by two thirds. The core of this success lies in using the original definition of PMF with a rapid cycle time.
“The product and market must fit the business model.” Andy Rachleff, legendary investor and founder of Benchmark Capital.
Fifteen years ago, Rachleff created the term Product Market Fit (PMF) when he presented the idea that a company’s business model provides the limitation that a product and market must work within.
This concept dictates that each business model places unique constraints on what can be built and sold successfully. PMF can be defined as an internal harmony that can only be struck when the product and market work in concert with the business model, creating a symbiotic relationship instead of a forced march to market.
PMF EXAMPLE
This business model requires a product that can be sold via an internal sales team. So, the target market must be accessible through both remote marketing and inside sales channels, e.g. email, phone calls, virtual meetings, etc. Why? Because ACV $2K will not support field AEs or highly experienced internal salespeople. Therefore, building a complex product that will take an experienced salesperson 4 months to sell won’t result in PMF or revenue.
Unfortunately, I’ve noticed a serious lack of insight when it comes to the current definition of PMF within the business community. For many, PMF inspires a limited, tactical focus on how the product or service will best fit into the current market opportunity. Far too few founders and CEOs take the time to consider the strategic relationship between the product/market and the actual business model from a leadership perspective. In short, a tactical view is not comprehensive enough to reach true PMF. And this is where the mistake occurs.
USE ESTABLISHED MODEL
Your success in product and market is judged by the business model you use, if you don’t define the model the other person will pick one to use.
Most founders focus tactically on tech dev and getting a customer that will pay. Even if they are “successful,” this is not the point of PMF. Product Market Fit creates a V1 of product and market that can be successfully sold, your CAC is reasonable, you can hire the required team, the product can scale without being rebuilt, your first customers lead you to mainstream customers. This level of success requires using a business model in addition to product/market.
I cringe when founders tell me their business model is unique. Salesforce took a decade to make SaaS a valid business model, startups want to use a known business model. Within that overall model you want to figure out what details work for your team, product and market. Your Unit Economics is one element you must master. New businesses are difficult enough without creating a new business model, try to limit your creativity to the problem and solution.
WORKING IN SEARCH OF A BUSINESS MODEL
Clay Christensen [recently deceased] pointed out that startups work in search of a workable business model. Meaning, using a standard model, you need to figure out how to get the particulars to work for you. Your employee team is a business model factor, not being about to hire the team often kills off a great idea.
Many who have worked with startups have watched these teams with great ideas, work as if they can build a product and find some revenue while ignoring the business model. Often the founder will say they are going to figure out business model later, as if they can be ‘successful’ absent a business model.
Startup success is measured by comparing the team’s results to the standards of the business model! Your success in product and market is judged by the business model you use, if you don’t define the model, an experienced person will pick one to use.
BUSINESS MODEL DEFINED
When we talk about business models, we’re discussing models like:
Subcomponents of a business model include distribution channels, sales channels: B2B, B2C, B2B2B, and revenue methods: freemium, outbound demand gen., sales team.
STANDARD STARTUP PROCESS: SEQUENTIAL DEV
We begin by looking at sequential development, which has been the default standard among startups historically.
To build their product, market, and business model most startups use a sequential dev process. Years 1–3 are focused on product, then years 2–4 on market. Only after this time period do they deliberately put effort into developing the working business model.
When we consider PMF as a strategic framework, we realize that this delays the achievement of actual PMF until the end of the business development process. This is a key reason why PMF typically takes 3–5 years to define and prove.
RAPID PMF PROCESS: CONCURRENT DEV
It’s safe to say that sequential dev leaves much to be desired and can delay the impending information that a startup may simply be unable to sustain their forward progress. This sets the company up for failure long after additional time and money have been invested in its longevity.
However, concurrent dev allows for all components of the business to develop and grow together — creating a PMF framework designed around both the requirements of the business model and the needs of the consumers.
These 3 elements can be designed, tested, and proofed concurrently. A simple version of the business model and market can be defined in concert with the core product idea being prototyped.
RAPID PMF SECRET SAUCE
When a team is working towards PMF, be it a new market or product launch, we define what I call a BPM: business model, product, market. We take each possible combination of model, product, and market and examine it as a standalone concept. This gives some form and clarity to the endless possibilities of what path to take.
BEST COMBINATION
Candidly, I can’t stand the endless brainstorming of potential possibilities with no actual focus on one idea long enough to make progress. Most founders drown in this ocean of possibilities, every conversation bringing new lists of ideas, uses, customers, etc. This stops them from focusing long enough to pass/fail any one idea. And as all of us can agree, endlessly changing direction or focus isn’t exactly conducive to success.
Defining a business model at the same time as the first product and market segments allow most of the possible combinations to be discarded, while only the best few are acted on. As the possible combinations are acted on, the best BPM will be obvious. This enables leadership to purposely invest in the most promising combination.
The key insight I want to share is tactical focused PMF work doesn’t result in sustainable/scalable success. Strategic PMF work using a model, product and market is the framework that results in the best startup outcome.
TESTING CYCLE TIME
To find PMF, we test each element independently. As each one gains evidence/data — i.e. market feedback — we use that to make “informed judgments” to change one of the elements accordingly. The key here is to rapidly update the BPM based on valid feedback. In a SaaS startup, we update the BPM every 6–8 weeks after evaluating the evidence. [Most SaaS founders update every 6–8 months.] Even in life sciences, when a rapid feedback loop is focused on, the time to update is often less than the accepted norm.
After 4–6 cycles of testing and updating the BPM, we’ll have a version of model, product, and market that has a reasonable chance of PMF success. Using a SaaS example, typically this takes around 6 -12 months
EATING MY OWN DOG FOOD
I was able to implement this idea on a startup I helped launch recently. After 30 hours defining a BPM, I called three experts on the space for their input. All three said that the idea was 25% better than the current options. Instead of taking a year to fail the idea using the sequential method, I did it in 40 days using BPM. When your idea is wrong, the faster you know this the better.
After all, the point of early product dev and sales efforts is to lead the company forward towards success. Startup success means you can hire the people, snag some revenue, your GTM works, repeat your success, gain market share. BPM helps you to think about this success from month one.
If you invest 5% of your time into the business model, you will succeed or fail faster — both good outcomes!
THE VASTNESS OF THE OPPORTUNITY
A key cause of failure in startups is the vastness of the opportunity. Every day, someone has a new thought on a possible use case, buyer, feature, or distribution channel. This vastness (possibility thinking) dilutes the energy and focus. Losing momentum is often enough to kill off a startup. Personally, I think this is the top cause of startup failure — vastness of possibilities leading to loss of forward momentum.
I built the BPM to reduce the complexity and endless list of new ideas that occur when working with founders and new beta products/markets. It gives us the power to understand how the necessary components of PMF can be developed simultaneously — bypassing the faulty 3–5- year timeframe full of unnecessary and unpleasant “lessons.”
A startup needs to be a juggernaut, a representation of productive perpetual motion, in order to succeed in a competitive market (even new ‘markets’ are competitive: Google, LI, FB all had 10 startups funded before them). In this sense, a startup needs to master its opportunity, and this takes a dedicated pinpoint of focus.
EARLY OR WRONG?
In a startup, it’s hard to tell the difference between early and wrong. Thos Niles, Co-founder Brio Systems
Most startups take years to know if they are early or wrong. In my experience, using BPMs results in finding the answer in record time. Recently, a 3-year-old startup applied the BPM method to better understand and define their next step. Prior to this, the startup had participated in four accelerator programs and invested countless hours and resources — only to find out that their BPM was flawed, and the startup wasn’t sustainable.
If your idea is wrong or you have serious flaws in your BPM, don’t you want to know that today?
While investors respect hard work, devotion, dedication, and perseverance, we don’t exalt founders who refuse to quit an idea that’s “a step past wrong.”
2 KEY POINTS OF LEVERAGE
BPM has 2 key advantages as a startup framework:
While I admit neither of these is genius in of themselves, I will argue it is clarity on the other side of complexity. When both advantages are used with one another, the combination has the power to take the guesswork out of PMF — saving startups from expending resources they don’t have to achieve something that will never work.
This concludes Part 1 of Rapid PMF. Please read Part 2 for the good stuff.