When To Aim For Product-Market Fit In A Crypto Tech Startup — and the Number 1 mistake teams make

Gavriel Shaw
Feb 23, 2020 · 11 min read

The big goal for any startup: Product. Market. Fit.

But when should it happen?

By what sequence of controllable, measurable, strategically placed steps should a tech startup anticipate PMF?

Over the past few years I came to realise a crucial distinction has remained obscure for a majority of founders, product people, and marketing people.

A topic I began to explore in a previous article, saying:

Many entrepreneurs believe so strongly in the simple vision of their ‘product’, that they neglect the common sense due-diligence of proper customer and market validation.

Ouch.

Yet since 80%+ of startups fail to reach PMF, isn’t it wise to consider the strategic milestones that lead toward that elusive goal?

The key distinction described in this article is generally understood by 2nd time founders who achieved scale on a previous venture. It has to do with the meaning of Product-Market Fit — and what has to happen BEFORE it can possibly be achieved.

Strategic milestones toward PMF

In ‘The Startup Owners Manual’, Stave Blank (originator of the lean startup model, later made popular by Eric Ries in ‘Lean Startup’), gives an over-simplification that effects startups to this day.

He conflates PMF with something he calls Problem Solution Fit where he says:

> “Problem/solution fit is virtually identical to what’s sometimes called “product/ market fit,” …. As a result, we use the terms somewhat interchangeably throughout the book.” — Steve Blank. The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company (p. 57). 2012. Kindle Edition.

It’s not ‘somewhat virtually identical’ at all.

Since 2012, practitioners of Design Thinking, Product Marketing and Lean Startup have helped clarify the difference, building from Steve Blank’s foundation.

I believe that understanding the difference could drastically rectify the failure rate (and reduce the blood pressure) of Tech Startup Founders.

So let’s nail this right now.

On the previous page to the quote above, Steve describes Problem Solution Fit very well:

> “The customer discovery process searches for problem/solution fit: “have we found a problem lots of people want us to solve (or a need they want us to fill)” and “does our solution (a product, a website, or an app) solve the problem in a compelling way?” At its core, the essence of customer discovery is to determine whether your startup’s value proposition matches the customer segment it plans to target.”

In a nut shell:

Problem Solution Fit occurs during the Customer Discovery phase. Identifying a match between what they ‘need’ (we’ll come to that in a moment) and what you can offer.

That’s not Product Market Fit.

PMF occurs during the Customer Creation phase (as per the Lean Startup model spearheaded by Steve Blank)… which comes later.

Let’s break this down:

  • Customer Discovery builds towards understanding the potential ‘customer problem’ — profiling, customer scenarios, proto-personas, low-fidelity product prototyping. “How might we possibly add value here?”
  • Customer Validation confirms problem-solution fit via early customer orders, purchase agreements, trial proofs of concept, functional prototypes. “We might have something here!”
  • Customer Creation then builds towards scaleable product-market fit — when you suddenly realise you have actual real-world market traction. All of the pieces of the puzzle are falling into place. “Things are taking off”!

To emphasise the difference let’s revisit a couple of quotes on PMF which you may already know.

Eric Ries describes PMF succinctly:

> “The term product/market fit describes ‘the moment when a startup finally finds a widespread set of customers that resonate with its product’.” Eric Ries

Marc Andreessen colourfully expounded on PMF:

> “You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close. And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.”

Peter Reinhard, CEO of Segment.com recalls his experience of PMF thus:

> It was the first time we had ever felt pull with something. People were discovering this thing on their own and using it. We were never pushing it. That was the important signal of product/market fit.

A startup can save a ton of time and money while increasing the chance of PMF by focusing initially on Problem Solution Fit.

Why Does The Distinction Between PSF vs PMF Matter?

The reason this matters so much is that it helps give teams what I’ve come to think of as ‘strategic patience’ — tolerating the ‘slow progress’ of checking assumptions early on (when adjusting the business model and product direction is still cheap as chips).

Otherwise, true Customer Discovery may not take place and you risk building a product that gets stuck with narrow market relevance — followed by a messy expensive scramble of pivots that mimic Elvis Presley’s dance moves.

Yes, I’ve been there before myself.

Or worse… a Startup thinks they’ve achieved PMF when they win their first few customers who adopt the ‘MVP’ and decide they are now ready for ‘a big marketing push because version 1 of the product is ready’.

A spurt of commercial activity. Branding. Social marketing. Content creation. Paid acquisition. Traffic. Sales. Growth. … Then they hit ‘The Chasm’ (as per Geoffrey Moore), struggle with retention, and run out of runway. RIP another startup.

When MVP = Minimum Viable PROTOTYPE

During the Customer Discovery phase the MVP is really just a Minimum Viable Prototype.

Not until the Customer Creation phase should the MVP be thought of as a Minimum Viable Product.

Viewing MVP as a prototype helps avoid the common trap of the sunk cost fallacy:

> “well, we’ve already begun functional product development so we’ll just have to pursue this path given the investment we’ve already made — we can’t have our development team sitting idle, so let’s build an ‘MVP’ and optimise from there. We’ll figure out the ‘marketing’ stuff later”.

Note: As a ‘marketing’ person myself I can tell you this is recipe for disaster. Marketing is not just ‘advertising and promotion’. It includes market research and positioning which may (and should) directly contribute to the sales strategy and product road-map. This is one of the big insights to emerge from lean startup methodology. ‘Productizing’ a value proposition for early adopters is the vital role of early stage strategic marketing — and it depends on support from the entire cross-function team.

What if customers don’t know they ‘need’ our product?

Ram it down their throats? Try to ‘educate the market’?

No. Pursuing a ‘blue ocean’ strategy of serving an entirely new kind of customer with a shiny new opportunity presents a unique challenge for achieving ‘problem solution fit’.

> “Our technology is so blue ocean, so unique and innovative that no one has ever done it before! It’s never even been attempted! It’s going to change the world!”

Unfortunately that’s what many of us thought about blockchain projects back in 2017.

And then came ‘crypto winter’ lasting 2 full years, a 95% drop in the speculative crypto market — because ‘utility tokens’ actually had zero utility :)

Blockchain projects became ‘a solution looking for a problem’.

Rather than ‘viable products’ they were more akin to ‘science projects’. A painful realisation for many hopeful Founders and innovators at the time.

They hadn’t achieved Problem Solution Fit.. yet raced towards ‘Product Market Fit’ prematurely.

A total train smash.

Many ICO funded projects spent 10’s of thousands of dollars sponsoring conference events, running a booth, pitching their concept to potential partners, investors, future customers — anybody who would listen. Trying to convince them why their shiny new tech was a cutting-edge innovation and deserved attention.

Own the ‘problem’ before the solution

Savvy blockchain teams took the opportunity from 2017 - 2019 to hunker down and learn.

Before any ‘solution’ is possible, we need to identify a problem worth solving (with sizeable market opportunity and viable revenue models).

Some teams realised that Customer Discovery was key — understanding potential customer scenarios to find real-world relevance. A use case. A business model.

”But customers don’t know what they want or need”

Sure. It’s not their job to know. It’s ours.

So how do we figure it out?

We don’t start by asking potential customers ‘what problems do you need solving?’ We start the Discovery process by deeply exploring their current scenario with questions like: ‘what do you do, what is your goal, what do you need to achieve, how do you currently get it done, are there any challenges in doing that?’

And there’s the key: Doing.

That is, what is their list of ‘Jobs To Be Done’ (as per the JTBD Framework in Product Management).

BEFORE identifying a ‘problem or need’ to solve for, we need to understand (within the context of our product vision), what do people actually do, now, today, in order to ‘get the job done’.

Finding friction within their current approach to getting things done is the essence of problem-solution fit.

Compared to your product vision, their current approach might involve inefficiencies, poor results, expense, friction, boredom, etc.

Let customers be the expert on their current situation. Our job is to then validate new ways of doing things at a price that’s right. A solution that customers may never have imagined themselves.

“I didn’t know I needed this”

  • Henry Ford’s Automobile—instead of just a ‘faster horse’.
  • Apple’s iPod—instead of just an mp3 walkman.
  • An Uber—instead of just a taxi.

Each innovation has an entirely new approach, a new ‘solution’, a new way of doing something, creating a new behaviour in the market…

  • The Automobile gets us from A to B — albeit faster and more comfortably than owning a horse and carriage.
  • The iPod lets us listen to music — albeit with more storage and better music selection than MP3 players.
  • Uber gives us a taxi service — albeit with far more convenience than calling for a cab.

Again, what underlies the ‘problem solution fit’ of tech innovations are the Jobs To Be Done.

Ask enough questions no matter how awkward it feels

Chunk up to higher levels of value abstraction (such as by using the 5 Why’s technique) to fully explore the reasons why a customer may value the offer.

Just as Peter Reinhardt describes:

> …and the real problem is that most people don’t go deep enough. The real problem is that typically a product manager will ask a question like, “Would you find value in this? Would you pay for this?” They get a yes or no answer and then maybe they ask one or two follow up questions, but at that point they make the decision as to whether or not there is product/market fit.
>
> There’s this art of reading between the lines or whatever that product managers try to learn of like, “Are they excited about it or are they not?” And there’s this witchcraft of “How do you interpret the response?” I think it can be relatively straightforward, but it’s quite awkward, which is asking question after question after question after question.
>
> You just keep diving deeper and deeper and deeper and deeper into their problem, until you get to a point where it’s natural to ask for an amount of money to solve that problem.

Customer says “I want ‘a faster horse’”

Why? (what would that enable for you? what improvement would that make for you? how would that benefit you?)

“So I can arrive at destinations more quickly.”

Why?

“Because then I can visit more destinations at greater distances than at present.”

Why is that important?

“Because then I can achieve a larger ‘local’ network.”

Why is that important?

“Hmmmm… so I have more variety, more options, more opportunity — without such a sore ass.”

So while the customer may think he wants ‘a faster horse’… what we’ve come to understand in this analysis are the real Jobs To Be Done at a wider context. Which in this example we might conclude as ‘achieve a more accessible local area for variety, convenience and opportunity in daily life’.

Now the business and product challenge becomes ‘how do we solve for providing customers achieving a broader daily reach?’

If we are Mechanical Engineers our product vision may be a… mechanical horse, or… an automobile.

If we are Town Planners our product vision may be ‘how to arrange community venues, residences and shops with more efficient access’…

The crucial point is that innovations ALWAYS serve an underlying Job To Be Done.

Understanding a potential customers existing scenario is absolutely pivotal to finding a real-world use case for new tech innovation.

Within the context of their Jobs To Be Done, where do they have complaints, where do they have constraints, or where do they feel passionate in terms of values, ideals, beliefs and desires?

And that’s the heart of Problem Solution Fit.

Note: You may not relate to your product concept as solving a known problem. Alright. Consider it in terms of value-based outcomes instead. Rather than ‘Problem Solution Fit’ try ‘Opportunity-Value Fit’. But if there really isn’t a Job To Be Done, achieving Product Market Fit is highly unlikely — because creating a new market that has no appreciation for an innovation, is not a legitimate commercially viable opportunity for a startup. Not until the market develops, which may take years.

Strategic Patience

It can take a while to achieve Problem Solution Fit. And even longer to achieve Product Market Fit.

Pursuing these distinct phases is the best way to mitigate risk by managing cost and validating each stage of R&D as a gated process towards further investment:

  • Fully explore customer scenarios to uncover the Jobs To Be Done.
  • Develop Minimum Viable Prototypes as early as possible to help iterate the value proposition (this could include ‘smoke tests’ which mimics sales for a product that doesn’t yet exist — topic for another time).
  • Pursue Product Market Fit (high risk high cost) only after establishing Problem Solution Fit (low risk low cost).

As a Founder, give yourself and your team the permission, time and space to truly, deeply, and genuinely explore potential customer contexts. Emphasise digging over pitching.

Start by making an assumptions checklist and get honest about what you don’t know you don’t know.

Initiate a new customer discovery phase to collect and organise insights.

How to organize customer insights

Beyond a typical ‘persona’, try creating what I call a Customer Scenario Map (from the Cyclic Growth Framework):

Use this model for a team brainstorm. Identify knowledge gaps to explore. Question assumptions.

Here’s our ‘faster horse’ example:

It may require several dozen interviews with prospective customers to invalidate your model and iterate your value proposition. Somewhere in that soup of experience you can find ‘problem solution fit’ for your product concept.

Product Market Fit then comes within reach as you operationalise the learnings.

There are so many nuance details to this topic but this has already become a long article. Follow my blog for more.

References

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Gavriel Shaw

Written by

The Torn Marketer | www.gavrielshaw.com | www.cyclicmedia.com

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

Gavriel Shaw

Written by

The Torn Marketer | www.gavrielshaw.com | www.cyclicmedia.com

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

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