Insight: SaaS (5) Find PMF before the scale
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The previous article ‘Insight SaaS (4): The ‘Growth’ metric of SaaS — — CACPP’ explained the importance of CACPP in SaaS company operations and how to reduce your CACPP in the series ‘Insight: SaaS’. We’ll talk about scale in this article. The only scale that will enable the company to grow instantaneously. To form your organization, you’ll need to hire more people. It’s not as if you start scaling up as soon as you get funded. You must first locate PMF before scaling up.
What is Product-Market Fit
Product-market fit ought to be commonplace, and it can be illustrated with a picture.
PMF refers to when the market and the product are in sync. A startup company must either evolve products to continuously cover the market or educate the market to buy its products. One option is to innovate for an existing market, while the other is to create a completely new landscape. In either case, a startup only needs to do one thing: find and solve the customer’s problem.
The product was introduced to tackle customer issues. Product-market fit, at its most basic level, means that some people in the market are willing to use your product to solve their problems. SaaS products or enterprise service products must solve the serious problems or urgent needs of customers. If the customer has a tiny issue or demand, the customer’s willingness to pay is negligible, and the market may not exist.
There are two types of SaaS products that are very easy to find PMF. One is that customers who do not use this product will bear a lot of loss, and the other is that customers who use this product will reap excess value. What SaaS companies need to do is to help customers realize the problem and demonstrate their value to customers.
The only criterion for determining PMF is whether new customers are willing to pay. There are two aspects to this: the first is payment, which implies that customers pay for your product. Perhaps you haven’t solved any of your customers’ problems, or the customer has no problems at all. It is, after all, a free product. The customer tells you how wonderful this product is, but they don’t pay for it. Why do customers think you’re a jerk? It appears to be extremely impolite. The second factor is new customers, which means you must choose to find customers you haven’t contacted before, removing the influence of acquaintances and friends. If someone’s an old customer, as a result of a long-term cooperative relationship, he’ll buy your product out of friendship rather than necessity.
The goal of PMF is to identify a target customer group.
The chicken or the egg problem does not exist in businesses. Entrepreneurs should have a clear understanding of the problems they want to solve as well as a better understanding of their target customers. Just after the development of a product, a company’s situation is frequently more complicated:
When your product is first introduced to the market, you identify three target customer groups whose problems your product can specifically address. Customer group A’s questions are the most relevant to your product. If you choose this customer group, 90% of customers will be able to purchase your product. Customer group B is a moderate match for your product, with 30% of customers purchasing it. The issue for Customer Group A is the least well-fitting, with only 5% of customers purchasing your product. Customer group A, on the other hand, is smaller than customer group B and much smaller than customer group C in terms of market size. How will you make your decision?
If it were up to me, I’d pick Customer Group C because the product is adjustable and changeable by the company, but the market isn’t always. Even if you do your best in a market with a small market size, it will still be small. Of course, each entrepreneur has his or her own response. This question has no right or wrong answer.
How to achieve PMF?
A concept that isn’t mentioned in Product-market fit is the channel. The channel refers to how you contact and complete the transaction with your target customer group. PMF can only be considered fully achieved when the target customer group, channel, and product all intersect. There are three variables that can be altered. You can alter your product to meet the needs of different customers and distribution channels. You can change the channel to make it easier for customers to use the product. Alter your target customer group to get the most out of your products and channels.
To get to PMF, you can follow the process below:
1. Create an idea: The creative idea is recognized verbally.
2. Idea validation: found ten customers willing to pay (MVP completed)
3. Design the customer group: create a customer portrait.
4. Test a channel: Create a channel to reach the target customer and test it with resources.
5. Try to win: make the deal.
6. Improve the product: make the product better.
A: Return to ‘Test a channel’.
B: Return to ‘Design the customer group’.
7. Reach the PMF by getting at least $100,000 ARR.
PMF is a long-term process that can take years to complete.
When did you demonstrate these followings you got PMF: You can clearly describe customer portraits, you can invest resources into channels in batches, and you are ready to create a standard sales process because your ARR has reached 500k, NDR has passed, and your CACPP is low.
Don’t expand the scale until PMF has passed the test; otherwise, the consequences will be disastrous.
The next article ‘Insight: SaaS (6) Calculate the sales team’s gross margin.’ is published. Simply send me some claps and feedback if you enjoyed my article.
