Actionable advice and learnings: How do you reach Product/market-fit?
At the second startup talk of our very own PreSeed Academy the core question was how do you successfully reach product/market-fit? and what tactics can you use to do so?
Our usual partner in crime Nicolaj Højer reviewed the many ambiguous interpretations of product/market-fit. This gave basis for understanding the five phases of going from idea to an actual product/market-fit.
Cathrine Andersen helped to further illuminate the topic through her own journey of first co-founding Canvasdropr/Assemblage, which Cisco acquired in 2014 and now building Roger.Ai — her latest startup.
Overall two key learnings stood out. Firstly, it takes two-three times longer to reach product/market-fit than startups expect. Secondly, retention is key. So, how do you act on this in your own startup? To help you along the way we have collected 7 actionable pieces of advice.
1. Push your products out fast and early
Preferably you should put out things so unfinished that you’re super embarrassed about showing them to the world. This is how you find out whether your hypotheses hold water (you can learn much more about these early phases in the takeaways from our first StartupTalk with Thor Angelo). Usually they’re very wrong and the sooner you find out the better. Otherwise you will waste a lot of time and money perfecting a product to then discover everything has to be changed because there’s no market for it. Rather you should just continuously push out things and harvest as much experience and data from it as possible. If you use it to change the product you will, each time, get a step closer to what the market wants.
2. Forget about scale and growth in the first phases
Experiment and do unconventional stuff in the beginning. You can easily get lost in concerns about scaling and growing, but in the early phases the truth is that it will: 1. Limit your ability to find alternative solutions, which you really need as you’re constantly on the verge of running out of money. 2. Make you focus on problems and solutions only relevant if you reach massive scale. This will make you build a product for problems that are much more complex than you need. Money, time and creative ideas will be lost in the process. The same goes for growth. Before you reach phase 4, maybe 3 don’t worry about it. Throwing money at PR and sales to spark growth will just drain your account as long as you don’t have an acceptable retention rate = you don’t know if you have a product that users want and will keep using over time.
3. Get early commitment from users — it’s more valuable than market research
In phase 1 all you really have is a good idea — at least you think so. If you have the idea rest assured many others got the same idea and are also working on it. That isn’t a problem.
What sets you apart from competition this early, having nothing but the idea itself, is the intensity of the dreams, heart and energy you put into it — with that you can beat almost any competitor. But you quickly need to validate if anybody else thinks the idea is good (phase 2) — is it solving a real problem for enough people? The classic solution to this would be market research (asking potential users through e.g. surveys or focus groups). This doesn’t necessarily work. Would potential users have told you they needed an app to send messages that got deleted after 10 sec.? Probably not. Nevertheless, Snapchat got excessive success. Conclusion, we — the customers — rarely have any clue of what we want or need, especially if it’s something new and inventive. Therefore, market research has very limited validity. Instead, you should work on getting early commitment from users (phase 3), because then you know customers buy into the solution. The hard part is of course, how you get this commitment? Unfortunately, there is no easy or set recipe for it. This is a good time to test unconventional approaches (as we discussed about above).
4. Time or money
The next question is how do you know whether the commitment and feedback you get from users is valid? The most ideal situation is to get an economic commitment. This is often hard in the first phases towards product/market-fit because you barely have a product (at least if you make sure to push it out while you’re still embarrassed about it). For B2C products crowdfunding is especially good for getting money and commitment upfront. On the B2B side it’s in some cases possible to sign sales-contracts with companies before the product is done but it’s rare.
Getting users to commit their time is a more viable strategy early on and a very valuable one. Investors etc. will most likely ask you how many users do you have? How much do they use your solution? And so on. In the B2C field time commitment can be with sign up, where they use the product for free but continuously. For B2B startups getting other companies to engage in co-development is a way to get them to commit their time.
5. Collect and use your retention data
One thing is to get commitment, but retention is indispensable. We can’t say it enough: RETENTION; RETENTION; RETENTION. For a very long time this is all you need to look at and if you are not the king of metrics you should find someone more experienced, who can help you focus on the right ones. Collecting and looking at your retention data is vital. If you have a product that retains users, it means they want your product and then you can scale. Whereas if you get plenty of new users but they all disappear again quickly then you clearly need to make changes.
6. Have a good co-founder to stay committed
For a long time, you just keep trying and falling. It feels like you’re getting nowhere. During that time, it really helps to have a co-founder you feel committed to. When you don’t want to let that other person down you just keep going.
PreSeed Academy has dedicated a whole session for the significance of founders, teams and people-strategies on June 14th. Join in to learn much more on that topic.
7. The final stretch to Product/Market-fit: Unit economics
When you have reached a critical mass of users and proven you can retain, you almost made it, but there’s one final step towards product/market-fit. You need to look at unit economics. You got all the users, but what does it cost you to get them (Customer acquisition cost)? And how much is each user worth (Customer lifetime value)?
Looking at this as well as retention is all about working meticulously with metrics and KPIs. Luckily, we have planned the next StartupTalk for PreSeed Academy around this topic. It’s May 23rd at Talent Garden Rainmaking. The two wizards on metrics and KPIs Jakob Ekkelund from Templafy and Jonas Bøgh from Pento are giving us all their tips and tricks, so make sure to be there.