A Methodical Approach To Startups For Finding A Product/Market Fit

One of the toughest obstacles to overcome for early-stage companies is finding their product/market fit. The product market fit is when you identify a customer or segment of users that find your product or service highly valuable, and you can create repeat transactions with them which leads to rapid growth of your business.

The product/market fit is important because it will enable you to create a sustainable business and eventually scale. It is also an area many start-ups struggle to find, some taking years to do so. This article will go over how to find a product market fit for business-to-business (B2B) companies and evaluate your companies performance. It will also slightly dive into how at Untapped Founders, entrepreneurs help each other find product/market fits.

Signs You Do Not Have A Product/Market Fit.

Often many startups spend a lot of time trying to find their first customer, and when they do, they put all their energy into working with that customer, and rightfully so. But even with your first customer, that does not mean you obtained a product/market fit, and several signs will be indicative of this.

Cannot Get More Customers

Your first customer may have signed on for numerous reasons that include:

1. They could be friends of yours and being nice.

2. They may genuinely see your vision and the problem you are solving for them, they might be trying a new experiment for their company.

3. The decision maker likes you as a person.

4. They are desperate for help and willing to chance anything to save them.

5. Etc, etc, etc.

But if you cannot get more customers of the same type with the same value proposition, this means initial customer(s) might be a fluke, you have not found a product/market fit, or you might be pitching the wrong way. Either reason will result in you not being able to scale your business.

Customers Are Not Engaged

Customer engagement is an essential part of measuring the value of your product. Even customers leaving complaints to customer service is a sign of engagement. If your customer just sign-ups and never comes back, they are not engaged. Lack of engagement can is attributed to a variety of reasons ranging from poor on-boarding to the solution being too complicated and you have to work out the kinks with why your customer is not engaged. Lack of engagement is also a sign of not having a product/market fit.

High Churn

Churn is when your customer stops using your solution, and ultimately stops paying you which is an indicator of a misaligned product/market fit if it happens in high volume. Churn is inevitable in any company, but at the beginning stages, if churn is higher than 10%, you have a serious issue that you need to address.

How To Find A Product/Market Fit

You may be one of those start-ups that know their market and product so well, that you have a product/market fit on your first try and scale out your business. Unfortunately, that’s the minority of new companies. Next we are going to figure out how to find your initial first customer for B2B companies. We can start by first understanding the value of your offering and who might be interested, then casting a wide net of customer types, and finally narrowing down to a single customer type based on feedback and behavior.

Understanding The Value Of Your Offering : Pizza Robot Example

When you start a business, you believe you are solving a problem for a specific customer, but is your initial customer the right one? I want you to step back and brainstorm who else might find value with your offering. For example, let’s imagine that you hear your local pizza guy complaining how he is understaffed and can’t make pizza fast enough and accurately. To solve this problem you create a robot that can receive an order from an online database over wifi, mix the ingredients + sauce, and put the pizza through the oven without any human interaction.

Many businesses besides pizza shops could use your robot to streamline their service such as WholeFoods in their bakery, McDonald’s in their factory line, Starbucks with their barista, or in the kitchen of a high-end restaurant. With lots of targets that can find value in your offering, the question becomes who should become your sole target for your first product/market fit.

Create A Wide Net of Prospects

Now that we have multiple different customer types to prospect, we need to cast a wide net. Using our food robot example, in your local area generate a list of 5 pizza shops, 5 Whole Foods, 5 McDonalds and 5 high-end restaurants. Are any of these targets low-hanging fruits? Low-hanging fruits refer to when you can have a warm introduction through someone in your network (friend, colleague, etc.) to a business and quickly get a meeting. Begin with those.

After you have used your contacts to reach the low-hanging fruit, the real sales process of prospecting begins. Start by walking into locations asking to speak to managers, visit their corporate websites trying to find a contact, go on LinkedIn to find the right person, etc. By this point, you will have started to figure out who is easy to connect with and who is hard. Walking into a Starbucks, you can quickly talk to a manager, but they might bump you up a long chain of decision makers which can take months to close. Talking to a decision maker of a pizza shop, which is the owner and who is often onsite, is very easy. The ease of reaching the decision maker will influence how fast you can scale.

While our example is using a pizza robot, apply these concepts to your own business.

1. Define other customers that might be interested in your offering

2. Leverage your network for warm-introductions to potential customers

3. Start prospecting using tools like LinkedIn, Google, tradeshows, etc

Decisive Yes Or No

Your first real goal to understanding a product/market fit is getting a yes or no as quickly as possible. In a start-up, you have a limited about of time and resources at your disposal. If a decision maker says maybe, they then require more of your time and resources in which you have evaluate the pay-off. I’ve seen sales processes last almost a year, and these long transactions can hurt your business if you do not have the revenue to sustain them while maintaining other parts of your operation such as salaries.

Getting a quick ‘No’ is very productive for your business because you no longer have to think about how to approach this person and can spend your resources elsewhere. Also if you see a trending pattern of ‘Nos’ with the same niche, that indicates you do not have a product/market fit or are pitching wrong. For example, if all the Starbucks say no because they prefer human interaction, then you know that it is not a product/market fit. Each time you get a ‘no’, try to get feedback on why to learn how to improve your offering.

Getting a ‘Yes’ is the best possible outcome for your business, but you do not want a false positive. If one restaurant says yes to your robot, and then nine other restaurants say no, you may not have a product market fit until you understand why the one restaurant said yes and can repeat it.

One Price

Another significant aspect of finding the product/market fit for your initial customer is to have one price. Many young companies start by comparing themselves to more established competitors that have a variety of different offerings and complex pricing structures. For a new company, this will complicate and extend your initial sales process and also make it harder to evaluate the impact your solution has. When you are trying to find your product/market it, find one value proposition with one price.

One Niche

For any fans of the TV show Highlander, ‘there can be only one’ will be your final step. After talking with and getting feedback from several customer types, you will begin to see who is a good fit for your company. Ideally you want a customer niche that you deeply understand their problem, is easy reach decision makers, has a short sales cycle, and create a source of revenue for your business.

I push only choosing one customer niche because startups generally have limited resources and time. Going after multiple niches will spread your resources very thin and make it hard to support your customers. Master and own one niche first before moving to other niches.

Example With Robot Food Maker

To wrap-up our example with our robot food maker, imagine this happens:

• Local pizza shops, your initial target, say no because they cannot afford your solution
• Starbucks says no because they value human interaction
• McDonalds has a year long sales process that you cannot afford
• With WholeFoods you can not find the right person to contact and go around in cirlces
• High-end restaurants are easy to find the decision maker and their margins can afford your solutions and multiple say yes!

You’ve found a product/market fit with a niche market! You now can focus all your energy on taking over the niche market of high-end restaurants with your solution.

Testing Your Product/Market Fit

When you think you’ve found a core niche customer type that wants your solution and they are actively using it, now it’s time ask them two critical questions:

1. If my service disappeared, how would that affect your business?
2. How likely are you recommend my solution to others?

The first question will evaluate the impact of your solution. In a multiple choice questionnaire you can give them guided options such as:

• The absence of your solution would have no impact
• I would miss your solution but my business would be fine without it
• I would immediately search for a similar solution because of your importance to my business

The second question of ‘How likely are you recommend my solution to others’ can be a simple 1 to 10 numeric chart. Both of these questions will indicate how valuable you are as a company, which will influence your ability to your scale and retain customers.

In Conclusion

The benefit of being part of a network like Untapped Founders is we are a collective of founders who knows the pains of finding the product/market fit and have our own strategies from experience on how to solve this problem. Someone is smart learns from their mistakes, someone who is wise learns from the mistakes of others.

To summarize, finding a product market fit is NOT easy, and you may have to go through many no’s to find the initial niche customer for your business.
Its okay to spend 6 months to a year testing different customer types. Getting a ‘no’ is not a bad thing but a learning experience that will teach you how to value your solution. When you find your product/market fit, you will know because the process with your customers will seem fluid and organically fit.