Congratulations, founder! You did a hard thing. You got funded.
You completed the investor dance—pounding pavement, pitching, presenting, and more—and persuaded someone to back your startup.
By raising a seed round, you’ve reached a milestone many startups will never achieve. So, now what?
If you allow yourself to step back and think at a meta level, your key objective for the next one to two years—or at least until your Series A—is finding product-market fit (PMF).
You can have the best team in the world building the world’s best product or service—but if there’s no market for it, you don’t have a business. So focus on answering this key question:
Does your product or service meet the needs and desires
of enough customers willing to pay for it?
In this series, I’ll walk you through things to consider as you start along your path to finding PMF. In Part 1, we’ll explore foundational concepts around PMF and identifying your customer’s pain. In Part 2, we’ll explore the differences between product-driven and market-driven approaches to finding PMF.
A word on investors
When it comes to any type of startup investing, it’s important to know there are very few hard-and-fast rules. This is especially true for venture investing at the seed and pre-seed stages, which is where we focus at Morado Ventures.
Investors all have their own criteria for investing, things they look for in a startup, preferred metrics, terms, etc. At Morado we invest in companies building the data-fueled revolution. Our portfolio companies are innovating in areas like robotics, AI, healthcare, fintech, IOT and automation. We don’t typically invest in consumer-facing companies.
One thing that most investors at the seed stage agree on is the importance of finding product-market fit.
Find the pain
A lot has already been written about product-market fit, including a number of articles that are well worth the read (see bottom of this post for links). Put simply, finding product-market fit means you’ve built a product that customers can’t live without.
The journey to finding product-market-fit often starts with finding the pain that your product or service can solve. If you can identify specific customers with specific pain points that your service or product addresses and convince them to give it a try, then you know you’re onto something—especially if they’re willing to pay for it.
The question every founder needs to constantly ask themself: “How critical is my product or service?”
In other words, is it a must-have or a nice-to-have?
This is especially important for enterprise companies, because customers have only a few key decision-makers and many potential users of the product or service.
A “must-have” does at least one of these things:
- Increase efficiency, and/or
- Increase revenue.
At the end of the day, most products and services either solve a problem or create a new capability. They either reduce cost and complexity, or they increase capability or revenue. It’s that simple.
A “nice-to-have” might sound wonderful and useful to people, but it’s not clear that it will reduce the customer’s expenses or increase their revenue. A stove is pretty much a must-have in most kitchens; whereas a stove with six gas burners and a dedicated grill is a nice-to-have.
Be careful, though. Many products and services wear the clothes of a “must-have” but fail to meet the standard.
When Hadoop started gaining momentum as the next-generation of data infrastructure for enterprises, lots of startups emerged offering many flavors of Hadoop-related technologies. Enterprise customers began kicking the tires, but building and managing large Hadoop clusters turned out to be overly complicated and not useful enough for many of them. The market consolidated and never reached its hoped-for potential.
Unfortunately for the founders of many of these startups, it was a long and costly journey to finding this out.
Status quo is your biggest competitor
In many cases, your biggest competitor is your customer simply choosing to do nothing. They may just stick with what’s safe and maintain the status quo.
Your customers won’t perceive a real cost from sitting on their hands and doing nothing. On the other hand, spending the company’s time and money to try or buy your offering represents a real cost on multiple levels.
The buyer may be risking their reputation—or worse, their job—by championing something that ultimately fails to deliver on promised results. That reputational risk is real and sometimes more costly than the actual dollars spent on any product.
When an enterprise does end up buying a product or service, it’s often quite difficult to move off of it once it’s embedded into the organization. Most buyers know this—so the bar can be very high to justify the purchase of a new offering.
If your offering is something that touches a core part of the business, the bar will be even higher.
The cost of integration
Moreover, enterprises usually can’t simply flip a switch and turn your product or service on.
Onboarding may involve months of work to train the staff, develop the solution, test and deploy it into production. They might need to make workflow changes, business process changes, and/or changes to other systems to make everything work together. Integration often represents a significant hidden cost to any deployment.
When faced with all of that, a “must-have” offering can get exposed as a “nice-to-have” that the company can live without. So it’s important to pick your initial targets carefully and learn as much information about them as you can gather.
Focus on a few initial use cases
Don’t try to boil the ocean or be all things to all people. Figure out which use case or category is the one you’re going after and focus on those problems really well.
At the seed stage, don’t worry too much about a large pipeline of customers. You want to focus on a few customers to really understand the needs and pain points you’re addressing. You want to really understand who in the organization you are serving and how they get budgets approved for purchases.
Your opportunity cost
Being selective is particularly critical for early stage startups because of the opportunity costs involved.
The time you spend with Prospect A limits the time you’ll spend engaging with Prospect B. If Prospect B turns out to be the one you could close, the time you spent with Prospect A may have cost you both time and revenue. So it’s important to size up potential customers and focus on the ones with the most potential.
First, try to assess whether the company has a reputation of being an “innovator” or “early adopter” vs. one that tends to wait longer in the tech adoption cycle (a “laggard”).
Also, consider who you are selling to. How much influence does your champion have in the buying decision for the company?
On one hand, if you’re working with an “Innovation” team, that could be bad news (for reasons I’ll address in a future post). On the other hand, if you’re selling directly to the company’s IT organization or owner of a specific line of business (e.g.someone with the budget), that’s probably good news.
You want to find these things out, one way or another. Don’t be shy about asking questions.
Listen, listen, listen
Most importantly, learn to be a great listener.
I’ve been on many sales calls where a founder, who is understandably very proud of what they’ve built, does all the talking for the entire meeting. In the meantime, the team learns nothing about the organization, the people involved, their pain points or challenges. They may have given an impressive presentation but no real reason for a follow-up conversation.
If you’re lucky, you may find the one thing that will help you accelerate closing a customer: the pain.
If you find the person—or, even better, an entire organization—who’s feeling the pain, you’ve found the person who wants relief as soon as possible. With any luck, that person will have a budget (or can influence someone who does) to help you solve their problems.
Watch for signals
Sales in many ways is like dating. At some point, you have to ask yourself hard questions like, “Are they just not that into you?”
Watch people’s behavior and their body language. Are they following up on their commitments? Are they bringing the right people in the room and shepherding you through their buying process? Are they helping clear roadblocks for you?
Too often, you might convince yourself of your own value proposition while turning a blind eye to customer feedback.
The one quality signal that someone is truly valuing what you do is their willingness to spend money on it—not just on a proof of concept or pilot but a real commitment to buy (I’ll expand on this in a future post as well).
Going after a market
To be sure, just because you’ve found the pain doesn’t mean you’ve found a market.
A core product marketing function is engaging with the market and identifying a generalizable use case shared by many participants. If you’re finding you need to create a very custom solution, product or service for a customer or use case, you may not be able to translate that into a product.
At some point, your offering should come back to something that you can build, that can be replicated at scale, and that fills a need for a lot of customers willing to pay you over and over again.
If you can find the pain, it can jump start your process to getting to that end.
“Part Four: The only thing that matters,” by Marc Andreessen
“How to Identify and Find Product-Market Fit,” by Melinda Elmborg
“12 Things about Product-Market Fit,” by Tren Griffin