Learnings of not finding product market fit in a ’24 B2B SaaS startup
tl;dr
Cash
- You either raise too much and you can’t live up to expectations or you don’t manage to raise what you need, and you run out of cash.
- You should validate the willingness to pay before coding anything.
- LTV/CAC is the magic metric for startups. If it’s >3x you have a good business even if you lose money today.
- M&A is the most common exit in a startup and there are many formulas to make it work if it makes strategic sense.
Strategy
- Don’t innovate with corporate governance, keep it simple.
- Plans should be measured in decades; and execution in weeks.
- You will always regret postponing making difficult decisions.
- When you start a company, it takes the same effort to build something with a global vision as it does to build something small and local.
- Keep your eyes on the ball. You can only solve a problem well at any given time.
- You must be faithful to your long-term vision adapting fast to the market.
Product
- Product development always takes more time than expected.
- You shouldn’t care about what your product is missing but how well you’re solving your clients’ biggest problems.
- Good processes can’t be an excuse for bad outcomes.
- Differentiation might not be coming only from the product.
- Listen to the market, don’t fall in love with your product.
Market
- The problem you solve should be a top priority for your customer.
- The only GTM you should care about pre-PMF is founder-led sales.
- PLG is great for scalability, not to find PMF.
- Defining your ICP will determine the type of company you’ll build.
- As YC says, you will more likely die of suicide than murder.
- Positioning for investors is not the same as positioning for customers.
People
- A co-founder is someone you need to be aligned with for the next 10 years day in and day out as you go through good and difficult times.
- When raising funds, it isn’t only about money but most importantly the people behind it.
- Talent wants to work with talent.
- Growth talent will be wasted if the company is still pre-PMF.
- You want doers, people with optimism and an obsession to move things forward.
- Culture is what you and the rest of the team show day after day when going to work.
- Share the journey with someone who understands what you may be going through.
- Take care of yourself and don’t give up too soon.
A few days ago, we decided to close Gretel after an unsuccessful M&A process and 2 years and a half struggling to find product-market fit.
In this article, I’ll share my learnings and I will try to be as transparent as possible with how we did things at Gretel. Hopefully, this can help other founders as much as it has helped me to write it, especially 1st-time founders and recent graduates thinking about starting a business, as I did when I was 21 and then 23 years old, and to humbly contribute to the growth of the startup ecosystem.
Most of the time we only hear about successful stories while the reality is that 99% of startups fail despite identifying a real problem and building a product that solves that problem.
This was the case of Gretel, a startup based in Barcelona led by me and Alex, the best CPTO I’ve ever met, together with two other excellent developers, Will and Víctor, and other amazing profiles that have been part of this amazing journey of going from 0 to almost $1M in funding from terrific investors, launching 3 different products and working with over 150 companies.
Gretel was born to stop the manual information search we all do at our jobs, connecting with the different apps employees use daily and automatically detecting relevant insights such as anomalies, activity, smart findings, and reporting to make better decisions. Information is there, there’s more than ever but it’s not easily accessible by employees. Technology is capable of surfacing the relevant data, personalized to the right profile considering the surrounding environment and activity.
Like most startups (even if it’s unpopular to say), we didn’t die because we ran out of money, but because we weren’t able to find a way to product-market-fit.
As Sam Altman said, “The market wasn’t there. You can’t force a market. You can have an idea, and as a startup part of your job is to be ahead of it, and sometimes you’re right about that, and sometimes you’re not. Sometimes you make Loopt, and sometimes you make OpenAI. You just keep trying”.
In this article, I’ll focus on the learnings I’ve had in this early stage of building a company that it usually takes, at least, 2 years, in what’s popular known as “The Valley of Death”. It’s been so difficult for me to reduce all the reasons for the closing into one single conclusion, so I’ll cover the most important ones for me in the following points:
- Cash
- Strategy
- Product
- Market
- People
Before this, let’s discuss product-market fit (PMF). During my entrepreneurial journey, I discovered there is not always consensus on what it means to find product market fit, and sometimes it’s not given the importance it deserves. Uri Levine, Waze co-founder once said: “What is counterintuitive about PMF is not why it matters, it’s how little almost everything else matters”.
There are two types of companies, one before PMF and the other one when you’re ready to scale. Every new stage reduces some risk as you know more and have validated your initial hypothesis:
- Day 0: You have the willingness to do something (most people don’t even know where to start).
- Day 1: You’re lucky enough to be a doer and you get down to business.
- Day 2: You manage to convince people about your mission, and you’re aligned on the long term about the type of company you want to build.
- Day 3: You get the needed resources (money/skills) to build an MVP.
- Day 4: You build a good enough MVP and launch it in the market to start validating.
- Day 5: Valley of death — where most startups die trying to find product-market fit, including Gretel.
- Day 6: Growth stage.
0. Product-market-fit (PMF)
I like this definition of PMF: “When you have delivered a product your market wants with overwhelmingly clear proof”.
And how to measure it? Well, the KPI for each model might be different, for some should be daily usage, for others retention, monthly recurrent revenue, cost of acquisition, conversion rates, etc. You should pick 2/3 and consider those your north star for your first 2–3–4 years of the startup. You should measure it explicitly and intentionally because the only way to make sure you have achieved it is by setting the standards so high that reaching them presents incontrovertible proof.
For B2B SaaS, a good standard is to repeatedly add more than $5k net new monthly recurring revenue (MRR) from a single customer type acquired through one channel.
Once you have it, you should feel it, as the market will be pushing you at a speed you probably won’t be able to hold. At Gretel, we never had this feeling. Instead of having the feeling we were going downhill at 200 km/h without brakes, I had the feeling we were trying to move a 100kg square rock on a flat road. Yes, things will move forward, and we even had the feeling we were close to it with some happy customers, but like most startups, we were unable to find product market fit.
Finding PMF isn’t a straight line, and it takes time, so we were resilient in launching new products, changing the ideal customer profile (ICP), and iterating things as fast as we had some validation for more than 2 years until I had the feeling, we exhausted all the options in that space.
If you want to expand on this topic, I loved this article from Sequoia.
According to their 3 types of product-market-fit companies, Gretel resonates a lot with the second one, being in a space they call “Hard Fact” where the problem is an accepted pain point, but it’s considered a hard fact of life. Customers aren’t looking to solve it and they’re reluctant to change their current behaviors. Most VC-backed companies fall into this category, looking to disrupt a market like in our case the boring dashboards. It’s funny most B2B SaaS end up trying to disrupt Excel spreadsheets and how resilient these free solutions are, still being good enough to withstand most changes.
The main challenge here is to educate the market and then capture the opportunity. You’ll need to build a new category and position yourself in a way that customers care and prioritize this problem to be willing to make a change believing the current way of doing things is broken. To do so, the problem should matter enough to motivate this change and the solution should be compelling enough to be persuasive.
We always struggled building this positioning, especially the messaging, but even when we managed to convince companies to pay attention to our value proposition, the current solution wasn’t ready to deliver on their expectations. I’d even argue the wave our competitors, investors and ourselves were expecting was never big enough to surf on it.
There are great examples of successful companies such as Uber or HubSpot with billions in revenues currently that some years ago were just facing this same dilemma.
In the following section, I’ll explain with real examples what we’ve done at Gretel and the main learnings from it.
1. Cash
1.1. Fundraising
You either raise too much and you can’t live up to expectations or you don’t manage to raise what you need, and you run out of cash.
At Gretel, we raised too soon and too little. We raised our FFF round ($150k) in our first month of life when we still had to define lots of things regarding Gretel’s vision, product, team, market, etc. Because of this, we had to raise more money in the following 6–12 months, without time to demonstrate significant changes in the business while going through our first pivot.
Despite being able to raise $550k more after 1 year, it wasn’t easy. We received more than 200 rejections, and I’d personally say I lost too much time focused on fundraising when it was critical to get closer to PMF.
We had a lot of momentum with tier-1 European investors and even with some US funds. This market momentum was not matched by the stage of the project, only 6 months old and without significant traction. We missed our opportunity because we weren’t ready to fundraise from those investors even if there was interest in what we were building (false positive). It would have been better to establish those conversations 6 months after and spend that time getting closer to PMF, but we didn’t have enough runway.
Probably because my focus wasn’t on the business, we ended up shaping somehow our vision based on what investors were telling us instead of listening to the real market, pivoting without real data (more below).
It takes time to find PMF (more than 2 years on average), and it always tends to take more time than expected. Ideally, you should raise the needed cash to have a runway of 18–24 months and have a financial buffer of > 6 months with a reasonable valuation to be able to raise, at least, at a 2x valuation in the next round.
Pre-PMF, I’d only raise money if there’s a market trend and competitors that are pushing you to go faster. If not, I’d rather go bootstrap until you’re ready to scale, and then have the optionality to raise or not.
Scarcity of cash isn’t sustainable long-term, but it helps build a bootstrap mentality and it prevents you from scaling too soon. One of the main mistakes is scaling when it is not needed to achieve the main goal, get PMF.
When raising money, you must have a plan in place of how much money is needed to get to the next big milestone and use those funds efficiently with an extra buffer. As YC says, valuation is not equal to success or even the probability of success. Raising more money, even if it makes the headlines, shouldn’t be the main goal.
Once you raise from VC firms, you only have one option, go big or go home. Becoming a “good business” or a “profitable zombie not growing 20–30% each month” isn’t good anymore.
1.2. Willingness to pay
You should validate the willingness to pay before coding anything.
Gretel strategy was to prioritize user retention over paying customers. This was an error, as I overlooked willingness to pay justifying it with other vanity metrics. There are indeed some B2C models like Waze or even some B2B like Notion that have followed this strategy successfully going bottom-up, but it’s not the way to go in B2B SaaS.
“If I add enough value, they’ll pay for it” — I wouldn’t do it again. The only way to understand how big and important the problem is for your customers is to have a clear return on investment (ROI) and make them pay for it. From there, you can extract from 10% to 25% of the value with a good business model around.
It’s not enough to ask the market if they’d pay for your solution, you need to know how much, what are their alternatives, and their budget, and to finally charge them.
Detecting a pain and solving it is not enough to build a business, you need to offer a clear ROI that usually falls under one of these categories: reducing costs, time, or increasing revenue. Even if you offer value, the pain should be the top 3 priority for the decision maker, and to care about it.
1.3. Sustainable unit economics (LTV/CAC)
LTV/CAC is the magic metric for startups. If it’s >3x you have a good business even if you lose money today.
At Gretel, we had a monthly subscription business model. Even if we tried to segment our users with different plans, we struggled to find a way to get an average order value (AOV) above $500. This limited our acquisition costs (having a sales team) and channels. We were not able to find the acquisition key with a customer acquisition cost (CAC) low enough that justified this business model, even with the recurrence and scalability of a B2B SaaS.
The graph below is a great example of how different businesses can be depending on the segment you target.
1.4. Mergers and acquisitions (M&A)
M&A is the most common exit in a startup and there are many formulas to make it work if it makes strategic sense.
We engaged in an intense M&A process contacting more than 200 prospects, getting a quite high conversion rate to calls (>25%). For us, it was a long shot, but we wanted to try anyway exhausting all the possible options to materialize any value with someone who could use what we built strategically in their project. We did more than 20 demo calls and even moved to some committees, but it turned out most of the real interest was more about the team rather than about the product itself, so after 2 months we decided to abandon the process.
You’ll get priceless insights from the market, competitors, and other relevant players in the space. In our case it was interesting to confirm most of them were struggling with the same challenges we did. There’s still interest in what we were pursuing and hopefully, someone can find a way to fulfill the mission.
2. Strategy
2.1. Corporate governance
Don’t innovate with corporate governance, keep it simple.
We decided to register in the US even if the founding team was based in Barcelona. This decision was led by the fear of going through complicated legal processes when we needed to move to the US. I wanted to avoid paying €100k and a process of at least 6 months to do the Delaware flip after raising and scaling things home. I knew from 1st hand some founders that experienced this, and it is not pleasant.
It’s also true one of our early investors was American and couldn’t invest in Spain from the US. It was a small ticket, but we decided to do it from day one to avoid future problems with higher US tickets that never invested.
Looking back, I wouldn’t do it again. It helped with storytelling when talking to American investors, but it doesn’t change the reality of being physically based in another country.
You might anticipate some future problems if you end up scaling, but those problems will only arise if you achieve PMF and when you already have a structure and resources to take care of it. In our case, it took less time and it’s been much cheaper, but it took me much focus that was needed in this stage.
10 years ago, it was not an option to scale globally from a city like Barcelona because the ecosystem in Europe and Spain wasn’t much developed but today, I’d be more confident about your real foundations and not to diminish yourself before others do.
If an investor wants to invest in you, the corporate governance won’t be a problem. It was the case for us the other way around, we ended up raising money from VC firms based in Spain and they had to invest in the US when it was not obvious for them.
2.2. Pivoting
Plans should be measured in decades; and execution in weeks.
Pivoting will be most likely something you’ll need to do during the Valley of Death, and sometimes more than once. We launched 3 different products at Gretel, and we pivoted the messaging and the ideal customer profile more than once.
Everyone will tell you to learn and pivot as fast as you can. I agree, it’s the only way to find the right path to PMF. One of the main learnings I had is to only pivot when you have enough data to be almost sure you’ve validated or not your initial hypothesis.
At Gretel, we radically pivoted an early idea too fast without much input from the market, based on investors' feedback (never do this!). We also pivoted into a space we weren’t experts in, marketing, because all the market feedback was leading us there. We were too naïve to the marketing space and faced lots of challenges with the positioning in a crowded space and with the low willingness to pay by decision-makers in that department. When we became experts in the space, it was already too late to not focus there, so we went all in despite the challenges while pivoting inside the main idea.
2.3. Tough decisions
You will always regret postponing making difficult decisions.
As a CEO, you are faced with tough decisions every week, related to the team, the product, fundraising, the market, etc. that will define the course of your startup.
The toughest decision at Gretel has been when I decided to stop operations because I had the conviction that after 2 and a half years, there was no market for what we were building, even if we still had a few extra months to keep pushing.
You’ll never have enough signals to be 100% sure, but it’s better to be radical in these tough decisions when something isn’t working rather than waiting for convenience. When making the decision, do it without hesitation and without looking back.
Try to avoid the “What would have happened if…”.
2.4. Internationality
When you start a company, it takes the same effort to build something with a global vision as it does to build something small and local.
This situation changes a lot regarding the market you’re in. If you’re in the US or China, it’s probably enough to be local first to be a category leader. If you’re in a small market such as Israel or Sweden, your only option is to go global from day one. The problem is when you start in a big enough market such as Spain, Germany, or Mexico, where you have the option to do it from day one or later.
At Gretel, we wanted to go global from day one with an international team and distribute in English. The main problem here was a lack of focus and some friction with the local early adopters (language barriers).
I’d argue choosing the market you operate in first is not as crucial as other things pre-PMF, but rather your international culture and ability to adapt. I always had the assumption that Anglo-Saxon markets have more willingness to pay and it might be true, but it doesn’t change the reality of the need to offer a clear ROI, and that these markets churn much faster too. Our UK competitors ended up facing similar challenges to ours.
If I had to do it again, I’d keep things simple and start validating where you’re based to be close to the market and to better understand your clients’ problems. It’s not easy to penetrate markets without being physically there, public relations (PR) plays an important role in your clients’ trust and it’s always easier to build a brand where you have your network to leverage word of mouth as much as you can. Also, entering a market like the US requires lots of resources ($10M round at least) to be able to compete there. The UK is also much more expensive than other markets like Spain.
There are lots of cultural challenges to globally scale a company when you’ve been hiring locally. If you are international in your NDA, you can always start locally and wait to scale globally until you set certain milestones but be careful of waiting too much.
The industry leader will always be global. If you don’t believe me, compare the valuation of Uber ($150Bn) with Lyft ($5Bn) today, companies that were not that different 5 years ago.
2.5. Focus
Keep your eyes on the ball. You can only solve a problem well at any given time.
At Gretel, I spent too much time doing things that did not matter as much as finding product market fit: fundraising, culture, legal, hiring, go-to-market, networking, competitors research, etc. Don’t get me wrong, those are important and needed things, but nothing is as important as focusing on what will get you closer to product-market fit.
As a founder, you need to take care of a million things. However, resources should be concentrated on a small number of high-conviction bets with the final goal of finding product-market fit.
Sometimes it’s more important what you decide not to do rather than what you do. These are decisions we had to take every week regarding features our users asked for product, but they apply to the rest of the company too.
Don’t waste time anticipating scalability in your product, as well as a company before you need to.
2.6. Tunnel vision
You must be faithful to your long-term vision adapting fast to the market.
At Gretel, we valued feedback especially coming from clients but also investors, competitors, and employees. We sometimes gave too much importance to this feedback, affecting our vision and essence of the project.
At the same time, everyone involved in the project was obsessed and convinced the future was going to be the way we envisioned it. At this moment, we were not right, and this leaves you no room for maneuver.
One of the main reasons why Alex and I decided to start Gretel together was because we saw the future in the knowledge management space in a very similar way. I still believe there’s a huge market to be disrupted here, the timing was wrong for us, and the market has ruled.
3. Product
3.1. Time to market
Product development always takes more time than expected.
Your product will never be ready, even after finding PMF. Once you have the first version, rarely the market will love it at first and you’ll need to keep iterating without knowing exactly how much time will be needed to add enough value to your customers.
At Gretel, we always had the feeling we were not fast enough, but the reality is we did magic with the resources we had. At the same time, I ended up learning you need to follow the pace the project allows you to, you can’t hack the system here.
We had the first version ready in the market in the first 3 months. We saw no retention and we decided to pivot. It took us almost 1 year to have another MVP ready with a completely different product, and 6 more months to open it to the market.
One of the main learnings here was how badly we managed expectations with early adopters regarding the launching that made us lose momentum and credibility.
3.2. Minimum Viable Product (MVP)
You shouldn’t care about what your product is missing but how well you’re solving your clients’ biggest problems.
At Gretel, like most early-stage companies, we had to throw 90% of what we built, and this is what you need to do. If you try to keep all features that no one values just because you have spent time there and they work, it will confuse your users, keep it simple, and don’t get emotional. The user needs to understand what you offer and what to expect from it.
The definition of MVP and how products are built has changed over time. After building several MVPs at Gretel, I reflect a lot on Linear’s definition: “Today’s MVP is often about building a better version of an idea, not validating a novel one. It’s not good enough to be first with an idea. You have to out-execute from day 1”.
At Gretel, we used the idea of a private beta to continuously refine the product before launching it to the market.
To build a successful MVP, you need to spend inordinate personal time and energy with early users to make them successful.
3.3. Technical issues
Good processes can’t be an excuse for bad outcomes.
A technical product will always have bugs, it’s part of the process. If your quality standards are high as we had in Gretel, this will be one of the most important KPIs for the product team.
You need processes in place, so important bugs don’t make it to production and users have a bad experience. Once you’ve identified those, you need to prioritize those with tracking tools such as Linear in our case. Then you’ll want to reproduce those to make sure it won’t happen again.
When you have limited resources, you need to find the balance between resolving bugs and building new features, so you don’t spend too much time stuck with technical issues.
At Gretel, we ended up having processes in place to detect and solve bugs efficiently before users did without losing speed. We had environments to test before going to production and developers were incentivized with a “fuck up jar” to encourage accountability and responsibility when they made a mistake.
At the same time, it was always a team effort to solve those. We had a culture to document everything, just in case someone in the team was “hit by a bus”, and this helped a lot for anyone to jump in.
Bugs will never be 0, but once you’re in control of the situation, you can be comfortable to have a stable enough product to launch.
For non-technical profiles, you can compare it with launching a new website. It might never be perfect but at least make it good enough without typos and well enough design.
3.4. x10 better experience
Differentiation might not be coming only from the product.
Product was the essence of Gretel from day one. We put a lot of effort into building an outstanding product from a design standpoint.
As I mentioned before, product standards have risen significantly over the last 5 years and today it’s more and more difficult to differentiate only with product. All products are expected to be beautiful, reliable, and easy to use. The x10 experience needs to be consistent in all the company, from marketing to sales to customer support.
It’s the power of a valued brand, and at Gretel, we struggled to bring this quality we had in the product throughout all positioning of the company such as on the website or social media.
The only way for us to have an option to penetrate the market we were in was to offer an innovative way of solving the problems marketers have been experiencing for several years. Building another dashboard tool was not an option, so we decided to innovate with the front end and how we presented information while we automated the detection of relevant insights aggregating several channels and building a solid backend infrastructure to make it smart.
Again, it’s a matter of concentrating resources on a small number of high-conviction bets. When you don’t find product market fit, it means you haven’t built what the market wanted and were able to pay for it, even if it’s what they were asking for when you were getting feedback from them.
There’s a great book called “The Mom test” that explains this situation.
3.5. User Feedback
Listen to the market, don’t fall in love with your product.
You’ve built a first MVP and you’re proud of it. You want to sell it, to talk about all the current and future functionalities. I’ve learned the hard way how these calls should be to be productive and it’s by simply listening. Usage data is important, but I’d say you read more between the lines in one of these meetings, and if it’s in person much better.
At Gretel, I made the mistake of entering these calls even before having an MVP ready to show our prototype and talk about our roadmap and what we were doing, instead of building an environment where the client felt comfortable talking about their problems first.
When the approach switched to becoming an insider to their problems, I learned what they wanted and how to be positioned for them to talk their language.
4. Market
4.1. Vitamin vs painkiller
The problem you solve should be a top priority for your customer.
Be careful with the false positives, we had many at Gretel. It’s not the same to attract someone for free to try your beta than to convince them to pay for it.
We had a lot of interest from the market in what we were building, so we thought the problem should be big enough for them. There was a lot of curiosity and people wanted to use our solution. However, they weren’t suffering enough without Gretel, so they were not in a rush to pay for it. Their life would continue to be the same.
We were not naïve with this; we knew it would be one of the main challenges we would face and probably it is what ended up killing us. We were never able to form the habit of using Gretel so that the vitamin would become a painkiller.
When I had the feeling we found the painkiller, one of the apps we were integrating with, HubSpot, entered the space with a very similar solution, confirming the opportunity was there but leaving no room for us to compete with high-enough tickets.
If you’re already paying for HubSpot, why would you pay for an extra tool if the incumbent solves your problem with a good enough solution, even if the disruptor solves it much better? It doesn’t justify the change.
To win an incumbent, you need a unique approach to the problem connecting the dots in a way they don’t do. Differentiation will never be the solution itself, but what you make your user become with it. In this case, HubSpot is great at building user-centric solutions, not only building good technology.
4.2. Go-to-market (GTM)
The only GTM you should care about pre-PMF is founder-led sales.
Of course, you want to validate sustainable acquisition metrics, user growth, and scalability, and founders-led sales aren’t the most efficient way to do so. However, most importantly you want to find product-market fit.
To do so, you need to be close to the market to understand their pains. At Gretel, we onboarded over 150 companies, half of which were self-served. Without having a huge volume, it’s difficult to make any conclusions just based on product usage. In the end, the best feedback always comes from face-to-face meetings.
Some of these calls were able to happen because they registered first, it doesn’t have to be cold calling, but it’s always better for you, as a founder, to segment the type of persona/company you want to learn from.
While I was doing founder-led sales, we were testing different inbound acquisition channels to double down on the one that could perform best when we needed to scale. Even if it’s doing things for future scalability in a stage, where you’re not ready, I believe the insights you get from these tests are basic to find your way to PMF.
Unfortunately, the conclusion after testing all channels was disappointing for us. No channel had enough demand to justify a $30–50 monthly subscription play. We bet on a content acquisition strategy, but when we put the resources and the quality we needed there, it was too late. This strategy requires 6–12 months to start getting any results.
We also tried to go up the market to try to increase the ticket, but I confirmed what I already knew. To be able to sell to corporates, you need to be another company with different skills, products, and of course, go-to-market.
4.3. Product-led-growth (PLG)
PLG is great for scalability, not to find PMF.
This is a GTM strategy that sounds magic, relying on product as the primary driver of customer acquisition, expansion, and retention. It’s been a popular term, especially for investors now that they are more focused on cost efficiencies. There are great examples of companies that have successfully adopted this strategy such as Slack, Figma, Typeform, Calendly, or Dropbox.
It doesn’t mean you don’t require a sales team; it can be complementary too. This book from Wes Bush explains it perfectly.
At Gretel, we were deep into this concept from day one, and I can even say we ended up being a referent in how we were building products alongside leading companies such as Airtable, Paddle, or TestGorilla.
Creating these growth loops sounds great, your user will be the one promoting your product, the onboarding will be plug and play, there’s a lot of opportunity to upsell, etc. However, we forgot the most important thing, all this doesn’t matter if you don’t find PMF.
In this strategy, you can’t be intentional with the companies you want to work with first.
4.4. Ideal Customer Profile (ICP)
Defining your ICP will determine the type of company you’ll build.
We were in the small and medium enterprises (SMBs) space, and this already gives you lots of the rules of the game compared to selling to big corporations.
The ICP doesn’t stop here, you’ll need to define the type of company, the industry they’re in, the country, the size, etc. Not only that, then you’ll need to define the persona, who is the user, the buyer, the champion, the decision maker, etc. In SMBs, it can be the same person but don’t take it for granted.
At Gretel, we started working with other tech companies in their early stage because it was the easiest way for us to get access to feedback. However, I wouldn’t rely on this market to build a sustainable business because churn is high, it’s competitive, in downturns like the one we were in there’s not much willingness to pay and it’s a smaller market than you think.
We made the mistake of not clearly defining in detail the ICP from the beginning. You’ll discover opportunities in other segments, and you need to be able to say no because it’s not a problem to be solved for your ICP. This was the case with marketing agencies, it was not our focus, and we weren’t building a solution for them.
We tried to validate with more traditional companies but when talking to them we realized the pain was not as big as with more digitalized companies. Finally, inside marketing teams, it’s not the same to have a value proposition for management or operational profiles. In our case, the type of insights we would provide were so different. Opting for personalization there might be a solution to cover the whole spectrum.
Feedback from the ICP is priceless and it’s the one that will determine the product to be built. When talking to other companies they’ll give you different feedback, you need to focus on one and find patterns across them.
4.5. Competition
As YC says, you will more likely die of suicide than murder.
Pre-PMF you shouldn’t focus much on competition, especially doing product development if you want to be truly disruptive. Your innovative product, brand, and happy customers will be your main competitive advantage.
The main challenge at Gretel has been to be assigned to a particular category. Crowded markets like marketing tech are challenging. Even if you have a clear competitive advantage and your value proposition is different from other players, you’ll need to be able to show that in your positioning. We struggled to put together a messaging that was compelling enough, inbound acquisition strategies were expensive, and willingness to pay was biased on existent free solutions.
Starting in a very specific niche helps you to avoid this. In our case, we started horizontally and then we found our beachhead strategy.
Also, if you start in a space where there are not a lot of people trying to sell, it should be easier to get close to PMF, you’ll always have time to expand if the market is there ready to pay for your solution.
4.6. Category
Positioning for investors is not the same as positioning for customers.
Gretel was a hot category for investors, with tier-1 funds like Sequoia or Accel leading $5M rounds in some of our competitors in the UK, 1 year after we started. This is good signaling of investors believe in the future of the category, but it has nothing to do in terms of market fit validation.
It turned out, the wave we were all waiting for was not as big as we expected, and we couldn’t surf it. Instead of entering an existing market, we anticipated a new one that turned out not to be there.
When you build something to disrupt existing markets, you will most likely arrive too early or too late to the party. Only the ones that are right with the why now will succeed. Investors have 20–30 opportunities to be right, you as a founder only have one.
You might have a hot market for fundraising but the real market not to be there yet. Also, make sure your messaging is right for your customers, not for investors. Most customers don’t care if you use AI or not, they just care about you solving their problem.
5. People
5.1. Co-founder
A co-founder is someone you need to be aligned with for the next 10 years day in and day out as you go through good and difficult times.
50% of marriages end in divorce, co-founder relationships are equally or more intense, and most relationships don’t hold up either.
Alex and I didn’t know each other before, but we had a special connection when we met and what seemed crazy in the beginning turned out to be the best decision I ever made at Gretel.
We were very complementary in skillsets, we had mutual respect and admiration for our work, showed trust from the beginning, and we were aligned in the type of business we wanted to build long-term. Go big or go home.
5.2. Investors
When raising funds, it isn’t only about money but most importantly the people behind it.
We have been fortunate to have chosen investors who were aligned with our mission and trusted us to execute it. These relationships are especially important in difficult times, and this has been demonstrated by each one of Gretel’s investors, being there in good times and especially in bad times.
We said no to certain investors who were not aligned with how we wanted to do things and I don’t regret it for a second, even in situations where we were desperate to raise the money.
Building a startup is a rollercoaster of emotions and having people who understand this and support you no matter what is priceless. Of course, as a founder, you need to give back with execution, transparency, integrity, and good management, no matter how things go until the end.
I valued a lot having successful founders onboard. It helped me relativize the ups and downs and to better navigate complex situations.
If you keep these relationships, they will not be just for that adventure but for a lifetime with new projects to come.
5.3. Product talent
Talent wants to work with talent.
When the founding team has the needed skills to start a business, you can do it without scaling.
Alex had a 360-product profile that allowed us to get things moving without any external resources. With his design skills, he gave me the superpowers to go out there with a first MVP and start getting feedback to keep improving our solution.
We thought we could go faster by incorporating 2 more developers and that’s what we did. It’s always easier to convince someone to join if they can learn from the rest of the team.
Talent like the one we had in product is always hard to retain because they’ll always have better options in terms of salary. You need to pay them what they deserve, but you need to know they won’t stay because of salary, but because of the mission and the people they work with. Both Will and Víctor stayed until the last day.
5.4. Growth Talent
Growth talent will be wasted if the company is still pre-PMF.
I was obsessed with attracting talent by simply creating the foundation for the company to be ready to scale. I was too optimistic, we managed to get the resources to hire them and this talent that joined when the company was not even 6 months old was wasted and burned up.
I’m sure we wouldn’t have made it this far without these profiles, but at the same time, this brought inefficiencies and a lack of focus. Culture and processes are important, but it is not what will get you to find PMF. I’d only hire a growth profile after having at least 10 happy-paying customers now.
Do things that don’t scale, YC says. Do not try to anticipate hiring, only hire when you cannot do it with internal resources or collaborating with freelancers, and only if it is crucial to reach PMF.
One of my former bosses once said to me: Hire slowly and fire fast. I wish I’d have followed this more radically now.
5.5. Team skills
You want doers, people with optimism and an obsession to move things forward.
In an early stage is better to stay lean, a team of 5/6 people should be enough. To do so, you need talented generalists who execute and get sh*t done. Do not look for people coming from big corporates because they are used to having support from specialists and it’s something they won’t have at a startup.
I’d look for people who are entrepreneurs at heart, who learn fast, and who can adapt to the company’s needs. Sometimes, people assume the standard quality of these profiles can’t be high, but for me is the opposite. They should want to improve the quality of their work so badly every time the outcome isn’t as good as an expert would do.
Also, don’t cheat yourself, don’t oversell the role to convince someone to join your startup. Instead, be honest and attract the right profile that is motivated and proactive enough to make it work no matter what. The right person will figure out the way to deliver even if they don’t have all the skills yet.
At Gretel, we waited until the end to start collaborating with freelancers and it turned out to be a good option once the strategy was well-defined to test things fast and have flexibility.
5.6. Culture
Culture is what you and the rest of the team show day after day when going to work.
A strong culture is crucial from day one, and this is only achieved by leading by example and bringing people on board that promote it.
At Gretel, we had a culture of no BS, transparency, and constant feedback. We had a diverse team coming from different backgrounds and nationalities, and this fed the culture a lot.
I learned not to be everything to everyone. I prefer to have a strong opinion until someone proves me wrong rather than being grey. The magic happens when teams have trust, are cohesive, and respect each other.
We’ve been fortunate to have a team that enjoyed working together, inspired each other, had fun while leading under pressure and most importantly, they were good people.
5.7. Networking
Share the journey with someone who understands what you may be going through.
Starting a business is emotionally hard, better not to do it alone. Your entrepreneurial community is something you’ll always be able to leverage when needed. It’s not something you build from one day to another, but long-term relationships pay off.
Because of my professional background, we did not start from 0, especially with investors. I’d say the best relationships were with other entrepreneurs or former ones because they are the ones who have gone through the challenges you may be facing.
How to expand the network? Well, I used a lot of the technique of sending cold personalized messages referring to someone we had in common with the other person. It’s not always necessary to have an introduction to reach someone. You can also mention an event he’s been part of as I did with the founder of Supermetrics at Slush to get a call with them.
Social media like X also works. I have met many other founders through this channel and have established a more personal and lasting connection. LinkedIn is also good, but you need to get through the noise.
I still have mixed feelings about events as they’re expensive and require a lot of time. I spent some time going to some of the main conferences around Europe mainly for fundraising but sometimes also to get customers. It’s quite easy to get a first meeting if you’re intentional about who you want to talk with. Most of the work is done before having a specific agenda and after the event with follow-ups. Also, I always tried to find a way to hack those. The best strategy has been to always go with the orange sweater so investors would recognize me.
Finally, accelerators are great depending on the stage and priorities. For me, most of the value is in the community and being close to other founders who might help you either using your product or with some challenges you might be facing that are blocking you.
5.8. Burnout
Take care of yourself and don’t give up too soon.
As an entrepreneur, you’ll need a lot of resilience when things don’t turn out the way you expected. You’ll get lots of “NO”. At Gretel, we received more than 200 from investors before getting a first yes from a VC firm.
Mark Cuban says: “If you’re not failing, frustrated, or disappointed almost every day about something, you’re too comfortable”. Most days you just need to keep going until things work.
One of the main learnings here is not to take it personally. When talking to other founders you realize this frustration is normal.
To be able to stay positive and have clarity of ideas, even if it’s difficult, I’ve tried to find a good life balance. It took me more than a year and a half to realize this was needed to perform at my best. Before this, I stopped doing sports, slept less than I needed, didn’t go on vacation, didn’t spend much time with loved ones, etc. and even if it feels necessary at the beginning to make things work, it’s not sustainable long term.
6. Notes to start my next company
I don’t know yet what I’ll build next but what I’m sure is that all these learnings will help me make better decisions and hopefully be successful in the first steps of defining an idea and finding product market fit.
These are the main things to consider when starting my next project:
- Follow the 3 main YC advice: Launch now, build something people want, and do things that don’t scale.
- Explore an underserved market and solve a clear pain popular among a big group of similar companies that they encounter over and over again in frequent time intervals having a direct impact on the business flow.
- Become an expert in the field, find a personal connection with the problem, and connect the dots in a unique way that is not obvious to your competitors.
- Define the ideal customer profile and be flexible with the solution. Be intentional with who you want to sell and project a clear path to €10k-100k MRR.
- Plan distribution in advance with specific growth drivers but don’t over-invest until you’re in the growth stage.
- Understand the alternatives today, how the client solves the problem today, and validate if they care enough to pay for it. Do they have an urgency to solve it?
- Define the return on investment (ROI) so you make sure there’s a lot of value to be captured. Aim for a major impact on the industry.
- Keep things simple. Make it easy for your market to remind you to do one single thing well.
- Speak the language of the segment you’re going after and position your solution according to their needs.
- Make it your lifestyle and think long-term (minimum 10 years). Don’t fool yourself, building a startup it’s time and life-consuming, so make sure you enjoy the journey in the way you work on things that matter to you.
If you’ve made it this far, congratulations. As you can imagine, it hasn’t been easy to do this retrospective and decide to share it publicly. I hope sharing these learnings can have an impact on the ecosystem building better and long-lasting companies.
Looking back, one can conclude things that would have been done differently. However, you don’t get the chance to learn and to be wrong if you don’t try it. Most successful entrepreneurs also received a lot of negative feedback at the beginning contrary to their vision, so keep pushing.
Finally, I want to thank all the people that have trusted us with Gretel. I hope you’ve enjoyed being part of this adventure even if it hasn’t ended up as we all wanted. I’ll keep trying to repay this trust to you in future occasions.
They say that the third time’s the charm, I hope they’re right and I’m better prepared to take off with my next company, and thus be able to share the learnings of scaling a company firsthand soon as well.
7. Extra resources
Sites:
TechCrunch, VentureBeat, YC, Product Hunt, Crunchbase, Sifted, Slush.
Podcasts:
Itnig, SaaStr, Lex Fridman, ProductTea, Acquired, 20VC.
Newsletters:
Dealflow.es, Morning Brew, Lenny’s, Guide to AI.
Books:
Zero to one, The hard things about hard things, The Almanack, The Mom test, Outliers, Surrounded by idiots, The importance of being interested, Product-led Growth, Fall in Love with the Problem Not the Solution, The cold start problem, Grow like a lobster, All I really need to know I learned in kindergarten, Open, Obv!ously awesome, Hooked, Monetizing innovation, Radical Condor, 7 habits of highly effective people, Atomic habits, Secrets of Sand Hill Road, The great CEO within, Open innovation, Mastering the VC game, No ordinary disruption, Disciplined entrepreneurship, Disrupted, Super founders, When Coffee & kale compete, Thinking fast and slow, Blue Ocean Shift, Barcelona startup.
If you want to discuss any topic, feel free to contact me at X @martigouca or LinkedIn.
