The Never-Ending Journey: In Search of Product-Market-Fit
By David Skok
Many potentially great companies fail each year because, while they have an incredible product, they don’t figure out how to get it to market fast enough. Figuring out how to reach customers and break through to Product-Market-Fit remains one of the hardest parts of building a successful startup.
This post introduces a four stage framework and checklist for founders to use when searching for Product-Market-Fit (P-M-F) and exploring the early phases of finding a repeatable sales process. It will help you 1) initiate understanding of the market landscape and the pain point you’re solving, 2) learn how to gain access to initial customers and start to understand your machine, 3) prove out the market and underlying components of the machine, and ultimately 4) scale to gain market share. It also provides a measuring system to determine whether you have reached Product-Market-Fit.
For this post I interview Guy Cohen, the CRO at a New York startup called Wonder, to talk about their search for Product-Market-Fit (P-M-F) and the checklist he built along the way.
Like many companies, Wonder had a product that could be used by many verticals. But to find P-M-F, Guy knew that they would have to go vertical by vertical, as the buyer persona, business benefits delivered, positioning, messaging, pricing, etc. would need to be different for each vertical. In itself, this is one important lesson to be learned in the journey for P-M-F, and it follows the highly regarded recommendations of Geoffrey Moore’s book “Crossing the Chasm”. (If you are not familiar with Crossing the Chasm, I recommend that you take a look at this concise summary.) To cross the chasm, Moore recommends that you focus on a single market, a beachhead, to win domination over a small specific market and use it as a springboard to expand into neighboring markets.
As Guy searched for P-M-F he developed a framework to make the process for all future verticals more scientific and repeatable, so as to not repeat the same mistakes twice. This framework can be applied to many different companies, across verticals, so that you can more systematically approach and define what P-M-F looks like for your company.
David: Tell us about Wonder and how you approached getting to P-M-F?
Guy: Wonder is an on-demand research service that gives you instant access to the intellect and fact-finding skills of a distributed network of thousands of analysts, at the push of a button. Throw any project at us, large or small, and we’ll turn around answers in 24 hours or less (example: “How are Millennials incorporating technology into their healthcare decisions?”). We help you collect the dots so you can spend more time connecting them.
In our search for P-M-F, we’ve always adhered to this mantra: “you want to be a painkiller, not a vitamin – vitamins are nice-to-haves, but people can’t live without painkillers.” We had a product we believed solved a real pain point, we just didn’t know who felt the pain most, and how best to reach them. Wonder is ubiquitous both vertically and horizontally — it’s used by everyone from teachers to consultants to lawyers to recruiters. This presented us with the difficult challenge in that we had endless verticals and roles to explore, and lack of focus generally leads to failure when there are so many shiny toys to chase. We had to be laser focused on 1-2 verticals to gain initial traction.
David: How did you go about selecting the first verticals, and what factors did you score, to help decide the finalist?
Guy: The first thing we did was build a list of 15 different verticals we thought had this ‘pain’ and then cold called hundreds of firms in each to ask every question they’d be willing to answer. We learned about their day-to-days to see how we might fit into their workflow and after stress testing the various markets, 2 quickly stood out. We then put ourselves in a box and sprinted towards figuring every part of the machine for those verticals. We’re almost 2 years in and the learning never stops.
There were hundreds of factors for us to score each vertical on, but we ultimately boiled the selection process down to 3 primary criteria:
- Frequency & magnitude of pain: those who felt the pain most and most often should have the highest propensity to pay for a solution.
- TSAM (total segmented addressable market): a non-negotiable we answered before exploring any of the verticals was: “Is this market big enough?” We dug deep to find out how many companies there really were and how best to reach them… we tried to avoid looking for a fluffy number that would normally be used to impress VC’s. It didn’t matter if there were five million Biotech firms globally, if we could only find contact info and details for five thousand that was our TSAM until we found more tangible leads we could add to our CRM. This question is crucial because if there are only 300 companies in our TSAM, it wouldn’t matter how much of a pain point we were solving — unless we were selling 8 figure deals the market wouldn’t be meaningful and we’d be lead poor in months.
- Inelastic demand: pricing, as we’ll discuss below, is a fickle art and because we had no idea what the right strategy was we wanted to ensure we had a market that was relatively inelastic. Like most other startups, we were guilty of underpricing in the early days and wanted to avoid getting locked into markets that wouldn’t be able to afford future increases.
Then we used targeted outbound selling to reach these verticals. Some startups begin by selling to inbound leads but we chose not to — inbound is an incredibly effective engine (if perfected) but because we wanted to reach a very particular kind of prospect (targeted, and in a particular vertical), outbound was far more effective.
David: How did that evolve into your spreadsheet framework?
Guy: As it became time for us to start thinking about our next vertical we sat down and wrote out all the things we learned from the first market and that’s how the spreadsheet was born.
Disclaimer: There is no panacea — every company has a different product, with a different vision, and a different strategy to achieve that vision. What we’re about to describe is a generic and repeatable framework for anyone who is trying to find P-M-F in the early days of building a B2B SAAS company. Only fools would try to compress years of learning into a few pages of conclusions. We proceed.
This living and constantly updating formulae is the amalgamation of learning through mistakes, observing, reading, and speaking to people much further along and more intelligent than we are. We initially built it for ourselves as our checklist manifesto for things we had to know before deploying resources into each new vertical (to ensure we didn’t scale prematurely). After speaking with David I realized what we built is actually a standard checklist other B2B startups can use before scaling a sales team or dipping into new markets. We’ve borne witness to so many startups repeating the same mistake: following a round of funding they immediately think the sliver of P-M-F they have is repeatable and has the same funnel metrics and go-to-market strategy as every other vertical they want to tap. So they hire 50 reps only to realize that the HR function at private equity firms is completely different from HR in the Fortune 1000. We’ve tried to dose ourselves daily with Munger’s salient advice: “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent”.
Amazing companies fail each year because they have have an incredible product but don’t figure out how to get it to the market fast enough. We hope this checklist helps you expedite your process.
David: Tell us about the framework.
Guy: Our checklist is divided into 4 phases:
- Gain Access
- Dry Run
Below you’ll find the timelines, goals, and key learnings from each phase:
Timeline: Days 1-90
Goal: Understand basic market landscape, what pain point your product solves most, and who your initial targets are.
You can read the rest of this excellent article by David Skok in the below link: