Look for Product Market Fit Before Your Big Launch
We are all too familiar with the gruesome statistic that nine out of ten startups fail. But did you know that the reason behind many of these failures (40% to be exact) is because they can’t find product/market fit? It’s all too common to conceive of an idea that sounds great, proceed to build it, and then realize the market never really needed it in the first place. At best, this can result in wasted time, money, and resources. At worst, it can result in your startup failing before it ever gets off the ground.
Here’s the honest truth: Successful entrepreneurs do not operate by building a fixed product and then hoping they find customers. This is like a shot in the dark. Instead, they set themselves up for success by looking for signals of the elusive product/market fit before they launch a fully functional product. And that’s because they need to learn from customers and then implement those learnings into their product. But even when companies do take this initial first step, false signals can be problematic when deploying tactics that do not index high enough on purchase intent. I’m sure many of you have experienced this pain firsthand, where potential customers express an interest, but never follow through and buy your product.
Entrepreneurs that understand this fact will go the extra mile by seeking to understand a customer’s willingness to pay, not just their willingness to say they will pay. In other words, they make sure they are building something customers truly need — something they suddenly realize they can’t live without — so much so that they will actually make the purchase. For this process to be effective it must be one that continually evolves as you learn more about your customers.
You may be thinking to yourself, ‘This sounds great in theory, but how do I learn from customers without a fully built product?’
As a Product Director at BCG Digital Ventures, I’ve had the opportunity to lead the product build for several ventures across a myriad of industries and have learned firsthand what to do (and what not to do) when trying to find product/market fit. Most recently, I got to apply this knowledge to the build of Ware2Go, a UPS company that provides flexible fulfillment solutions via a nationwide intelligent logistics platform.
Drawn from my experience in building startups, including Ware2Go, here are some tactics to consider, accompanied with actual applications:
Step One: Define Your Minimum Viable Customer (MVC)
By defining your MVC, you will have a clear target segment. MVCs should be your early adopters who are willing to try the latest products and provide a lot of feedback. More importantly, they are also people who feel a friction your product is solving so much so that your initial offering is enough to get them to pay for it. It’s important to focus on customers who are already well aware of their pain points. Why? Because it is significantly harder to first convince customers to recognize that they have a problem that needs to be solved — and then convince them that your solution is the right one.
Step Two: Getting in Front of Your Customers
It’s important to get in front of your customers early on, but this looks a bit different for business-to-business (B2B) vs. business-to-consumer (B2C) products. Here we will look at both:
B2B: Start Pitching to potential customers: If you’re building a B2B product, pitch to potential customers once you’ve defined your offering and key value propositions. Sketch the features and have mockups ready for each step of your key processes and then show them to customers and get some reactions. The goal is to understand their feedback and assess what they really need (and don’t need) from you, so you only build the bare minimum that will get customers to pay. It’s very easy to overbuild a B2B product when there’s not a clear understanding of the customer, which is why this is so important.
At the end of each session, ask potential customers to sign a letter of intent (LOI) and then follow up with an official contract once you have one ready. It’s a longer sales process in B2B, and even more important to get a potential customer’s commitment to escalate along the way, so there’s no need to wait until you have an official contract ready. By pushing potential customers to follow through with an LOI/contract, you will get more honest answers on what you need to have in your product for them to feel comfortable signing with you.
With Ware2Go, when we had an idea with clearly defined value propositions (and before we started our first line of code) we had already started pitching to potential customers and landed four letters of intent which helped us get our initial funding. After that, we continued the process of pitching to potential customers and got more LOIs as we were building and refining the product to ensure we were focused on solving the most pressing pain points. After all, part of the pitch process is about learning more about your customers to assess if you’re on the right track.
B2C: Take Pre-Orders: If you’re building a B2C product, take pre-orders. Some people think that getting an email address is enough. While getting emails is one signal, it’s a low confidence one. The best option is to take pre-orders and have customers go through the checkout process to make sure they really believe in your product through actions — not just words — that demonstrate strong customer intent. If pre-orders don’t make sense for your business model and it’s more about driving usage, then get them to download your product ASAP and measure how and how often they actually use it.
Step 3: How do you Measure Product/Market Fit?
After you talk to customers you want them to either sign LOIs/contracts (B2B) or pay for a pre-order (B2C). If you can’t garner any letters of intent/contracts or pre-orders, this is a strong sign that you don’t have product/market fit with the target segment you have defined. At this point, it’s time to make the tough decision of pivoting to a different product that solves the customer need that they’re willing to pay for, or try going after a different target segment where you hypothesize that you are solving for their needs.
If you do get LOIs/contracts or pre-orders, how do you know if you have enough? The honest truth is that there is no magic number or formula here. This is a metric you must determine based on the specifics of your product. Of course, the more you get, the stronger your chances are, but it’s important to understand that finding product/market fit is an art, not a science. Finding product/market fit isn’t just about solving customer needs, but also making sure that it is sizable enough to justify your business case.
With Ware2Go, we landed many LOIs, and, before our digital product build was complete, we actually onboarded customers on both sides of the marketplace because one particular merchant really wanted to use our fulfillment services ASAP and our warehouse operators wanted to go live as quickly as possible. It was definitely worth using manual processes to support a customer who was very willing to pay for our service, and, more importantly, by implementing the three tactics, we got very strong signals of product/market fit as we were building a product that solved a sizable need.
Key Takeaways
The worst thing you can do is build your new business without talking to customers early on. The best thing you can do is to engage with potential customers and get them to be your first paying customers, even if your product isn’t fully built yet.
And remember, finding product/market fit is not a one and done deal. To put it into perspective, companies that have survived for decades have had to find product/market fit many, many times along the way. It is a continuous process of understanding the ever-changing market landscape and how to best evolve to serve your customers’ changing needs to stay relevant.
As technology continues to evolve at an increasingly rapid pace, this is more relevant now than ever. Continuously get out there and iterate with customers so you build a stronger and more viable product as the landscape evolves. Approach finding signals of product/market fit very iteratively to thoughtfully invest your resources and get to stronger outcomes.
To learn more about Ware2Go, visit our portfolio page. To learn more about BCGDV, follow us on Twitter @BCGDV and visit our website.
