Revenue Traction Doesn't Mean Product Market Fit
I recently had lunch with Mark Leslie, a successful entrepreneur and CEO, who now teaches at Stanford and works with startups, often as a board member. He told me about a paper he and a colleague published in Harvard Business Review called The Sales Learning Curve. I read the paper and it articulates something I have seen quite a few times myself.
The paper starts out with this observation:
When a company launches a new product, the temptation is to immediately ramp up sales force capacity to acquire customers as quickly as possible. Yet in our 25 years of experience with start-ups and new-product introductions, we’ve found that hiring a full sales force too fast just leads the company to burn through cash and fail to meet revenue expectations. Before it can sell the product efficiently, the entire organization needs to learn how customers will acquire and use it, a process we call the sales learning curve.
Not only does the organization need to learn how customers will acquire and use the product, it is also true that the product itself may not be exactly what the market wants. In other words, launching a product is not the same thing as acheiving product market fit. The organization may need another six months, a year, or even longer to get to prodcut market fit.
One of the things I have observed over the years is that a hard charging sales oriented founder/CEO can often hide the defects in a product. Because the founder is so capable of convincing the market to adopt/purchase the product, the company can get revenue traction with a product that is not really right. And that can hide all sorts of problems.
I am thinking of a company, which will remain nameless, that ended up selling itself in a fire sale. The company had strong revenue traction early on, and with that traction raised a big round of financing, which then led to a big increase in headcount, for both sales force and product/engineering, and then faced a lot of churn in its customer base. That led to a very difficult period where the company worked hard to iterate on the product while maintaining this high burn rate. In the end the burn rate killed the company and in my opinion it never really found product market fit.
Like Mark Leslie advises in The Sales Learning Curve, it is dangerous to ramp up headcount and burn until you are certain that you have the right product and the right people and processes in the organization to support the product. And early revenue traction, often driven by a passionate founder, can be a nasty head fake. Try not to fall for it.
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The Return Of MBA Mondays: I am going to try a new take on MBA Mondays, suggested by one of you in the comments last monday. I am no longer going to write posts on specific topics as I was doing. I am going to take a page out of the "case method" and tell stories that have a lesson, hopefully based on real situations that I have lived through. I don't know how well this will work, but I am going to give it a try.
Comments (Archived):
I agree that jumping on data too early and building a scalable org is often a leap of faith that can prove to be incorrect.My sense though is that having a CEO who is that good a salesperson that they can drive an early market to that extent of momentum is way more exception than rule
Until the product is in the hands of users, you don’t know what you really have. For consumer plays, that’s relatively straightforward – and follow the data. For enterprise, you need those early sales and deployments – and then follow the data.
A brief post filled with eternal truthiness. If the rest of the organization cannot fulfill the sales promise, no amount of sincere executive apologies will fix things later.Much better to learn what works, model that, and then find similar customers where the product market fit works and sell them on proven success metrics.Once you have the archetypical client figured out, the selling and onboarding/implementation process is easier to teach to new sales people and then you guide them towards the ultimate goal: order taking. It’s even easier to hire since you’ll know more about the kind of sales person you need (see Mark Suster http://www.bothsidesoftheta… for that stage of your business.
Sales growth causing you to lose sight of whether the product actually is meeting the customer’s needs reminds me of this quote by Jack Dorsey, speaking of Square and Twitter:“If we can perfect one experience for one individual, we can scale to every single one of the 7 billion people now inhabiting this earth.”Or, in other words, the journey to a 1000 (or million or billion depending on the business)starts with perfecting the experience for one customer.
While their observation may be correct, the answer may be “it depends” ? Hopefully, they will share the data. Going forward (if you continue with this), can you juice up the case studies with details ? Industry, Headcount, Burn Rate etc,?
The question is: how can you actually tell whether you’ve achieved product/market fit?There’s a great post on this topic by Marc Andreessen that complements this post (it’s a bit long, jump to “third question” for the juice).http://web.archive.org/web/…
Market is not an absolute term.We find ‘markets’ at different stages and each stage eventually burns out.Sure there is that point when things tip, you stop pushing and the market pulls. But what you are really doing is uncovering a layer–some larger than others and most of these steps sub $100M are in fits and spurts rather than a steep hockey stick.I’ve had a few exception but this invariably is true from my experience.
that was a good read, thanks!
Yes. That is the question. I think its easier to know when you have not. Churn is a big indicator that you have not
Yes, long term, churn is an absolute killer. Short term as you are smaller you can hide it, but as you scale it can quickly outpace new sales.
Analyzing social media also helps in the case of consumer-facing startups, although it’s hard to quantify. But just performing a simple “i love [company name]” search on Google and reading the comments can be eye-opening.Startups can only grow on the basis of fierce support.
Hard or really hard to quantify!What metrics are you finding that are truly providing guidance for decision making? Very curious…we all like to collect and think about social data but putting actions to them?
I probably should have written “impossible to quantify”. Sure, you can compile the exact number of Twitter/Facebook/Tumblr/etc. followers and compare those with other companies, but that won’t yield any meaningful result. People follow company accounts for all sorts of reasons, in many cases they are hoping for a good deal instead of expressing their love for a company.And tools like the net promoter concept (which is a pseudo-quantification of consumer sentiment) have very limited explanatory power and should be taken with a grain of salt.I don’t think there is any hard metric like churn or CAC that can be applied to social media. But I still think it’s very important to listen to what people are saying about your company in public. And in some cases, it’s a great way of discovering the true cause for certain effects (e.g. your sales skyrocket from one day to another but you didn’t change anything, analyzing comments on the web might give you an explanation).
Yup…I was about to call BS on you but glad I held back 😉
I’m glad you held back too 🙂
merten – actually this is easier than it looks with the right toolset, but most people don’t bother, since most social media peopleTake data and plug it through a system like crimson hexagon that ranks the statements on sentiment and sentiment intensity, plus extract from said data word repetition counts.Do this on some regular scheduleSee if you have changing intensely positive sentiment and if the keywords used to describe are consistent and growing.The reason why people don’t bother is the actual system buildout to do this is a technical and above people like my head. But it should work.You also might want to take the second derivative of this data as well, so measuring the change of the rate of change of sentiment to see if product changes tend to make people happier.(PS: I would love to get a startup willing to test this as a buildout, because it would be sweet as a way of figuring out product sentiment)
Hey Shana…You pushed my button on this.Except for the very largest brands of the mass market, please provide an example of how you would use ‘product sentiment’ data to make a decision. An example of a decision that would be helpful to know this data.Convince me!
If you have a bunch of people tweeting about your product, and they consisently are very intensely happy about it except for one feautre, I would say it is time to change that feature. Or another – they’re mildly neutral except for one feature which keeps getting mentioned as amazing or sucky. Time to button down on that feature.Also you can use it to help better position your marketing material. If you sound more like your customers, generally it is easier to sell to them.As I said, if you know someone who wants to let me use them as a guinea pig, let me know, I’d be happy to do the setup.
Agreeing to disagree with a lot of people these days. Another one here.
It’s true that churn is a big indicator, but what about when, in addition to ramping up on sales hiring, you’re *also* ramping up on professional services hiring to manage churn? How do you know when you’re ‘just running the business’ vs. keeping churn artificially low?
Churn is a key statistic. From the other side of the table, no one wants to fund a company with high churn as part of its business model.
You know when you are on a sales call and a customer asks, Do you do this? You say no, and close the sale anyway. (I love Seth Godin’s quote the customer is always right or they are not a customer. Sometimes you need to tell the customer no.)Churn is what happens when you say “yes and more” and the customer figures out that was a lie, it takes more time, but as I always say payback is a bitch.
Very few people are actually capable of answering this question.Even the most successful founders can be guilty of throwing every feature (including the kitchen sink) at the market. No names here LP, MZ, BG……….
you can’t. You just know.
In the beginning the core team – founder, engineers, PMs are all sales people who benefit from direct contact with customers for every sales. Hiring sales is for scale and repeatability but the danger is that the core team is one step removed from customers so this needs to be an ongoing balance – develop a product to a sufficient level and then have sales sell it. If a new product is developed, keep the core team involved until things stabilize and sales can be trained to rinse and repeat.
Great post – I couldn’t agree more. It’s tricky, however, when you’re at the whim of (certain) investors. I think it’s better to build a market for your product first (esp. when your product is still uncertain) than to build a (small revenue generating) product that’s seeking a market (if that makes sense). I ask myself, which is more scalable as a business, especially in the early stages?
VCs can make this worse. They love to step on the gas. Even when that’s the wrong thing to do.
Truer words were never spoken.
From investors I’ve talked to this is really more a sign they’re following numbers, and not qualitative or nuanced understanding of a market.
On the Return of MBA Mondays: Sweet.
And on this post: also sweet. I just don’t have anything specific to say about it, other than a head nod.
Bessemer have an excellent paper “10 laws of cloud computing”. They incorporate The Sales Learning Curve. Takeaway: Build the revenue engine but only invest aggressively if you have a short CAC (Customer Acquisition Cost) payback period. It’s really worth the read https://bvp.box.com/10lawso…
I agree that is a great paper.
That is exactly right. But measuring it accurately isn’t easy
True…but I do like their formula to attempt to quantify. It’s imperfect, but a good starting point. I attach the formula. CMRR (Committed Monthly Recurring Revenue) = MRR + Committed MRR – Churn
build it into the product as much as you can, and into your sales and marketing systems from the beginning. Kind of like social–it shouldn’t be an add-on, it should be intrinsic.
That’s the key.My first audience when joining an early stage company with product that had started to touch the market was the sales force.No one touches the customer more frequently than the sales and cust support teams. Arming them with clarity an core understanding is always a huge leap forward.
What is interesting is how they have taken classic principles and merged them with their understanding of the new environment.I can almost quote the 90’s version of each Law…Its uncommon common sense (do you take $260k in sales @ $5k / mth or $60k of sales @ $10k/mth? is pretty obvious, unless you know your service is low value…).Disqus & my MacBook Air cursor are fighting something fierce this AM…. (that is one of those things about cloud computing and modern SW Dev ideas that does suck………my belief that something that worked yesterday will work today is slowly eroding).
I disagree with their dismissing of professional service business. Suster nails the argument http://www.bothsidesoftheta….
I skimmed Mark’s post and that part of the Bessemer paper too – but it seemed that the concern they had was investor related (‘we are going to take you public one day and we will not be doing that on service company multiples’).You would just have to walk them through Mark’s approach and phase out your growth to show that service was a springboard, no?
It was two points that resonated. For enterprise, you just can’t say ‘we’ve an API’ as you go-to-market. You may need services to drive deployment. Second, and perhaps most important, it’s about a service team to help customers achieve what they need, with your (paid) assistance
very interesting what you say about cloud computing – after google reader i’ll always be asking myself: am i 1 of 100k users for product X being serviced by a company that only cares about millions of users? if yes, move on or at a minimum dont get too attached.[ edit: also realized i should have learned my lesson with igoogle ..but now I’ve really learned not to trust free googleware ]
Ten million users is the new one million users. http://cdixon.org/2012/08/0…
yup. the flip side is probably more opportunity for smaller “lifestyle” software business that are ok with only 100k customers. maybe “packaged” software ready to deploy to cloud providers is where this is going. buy the sw for $$, deploy to amazon, rackspace or google cloud as part of the purchase, pay cloud provider for uptime compute and storage. cloud provider is a new fangled landlord. don’t like the landlord, app controls its data and has a migrate to new landlord button.
This has been my personal trend with the things I’m building working on…I’ve got a handful of free services out in the wild that I’m hoping to keep building/growing over time into millions of users, but they are all currently just costing me money/time (so they are long term investments on my part)…but for all my newer stuff, I’m mostly going back to the smaller scale subscription service model…for me, it’s easier to grow into a cash-flow-positive business and that means it’s easier to keep alive and evolving easier year-after-year (even if it means ultimately being used by less people day-to-day)…
thats awesome.
Sendy does this well (http://sendy.co). We recently switched from a normal email marketing provider to Sendy and are saving a bunch of money, plus have more flexibility with how to integrate with our core software (since we have the source code).
“buy the sw for $$, deploy to amazon, rackspace or google cloud as part of the purchase,”One thing to note is that if you “deploy to amazon, rackspace or google cloud” then you are dependent on how they see fit and how they restrict you and of course their customer service and policies.Let’s take, as one small example, the policy that Rackspace has with respect to email.This isn’t the exact link that details my point but it’s close (can’t find it on short notice).http://www.rackspace.com/ap…For a particular project we had a developer that swore up and down to use VPS’s at rackspace for this project. When I looked into it I found that Rackspace (while cost effective) had very restrictive smtp policy and would shut down servers at their discretion. So I decided to ask some questions for clarification. (If you see something say something when the buck stops you can’t point fingers elsewhere it’s your aggravation.)Now while you might be thinking “oh that’s just what the TOS says they don’t really do it that quickly w/o warning” not true. I went to the trouble of having a few email exchanges with the salesman (who was all up our grill about this and would write back to trivial questions with phenomenal enthusiasm and speed) in order to get clarification of exactly what would happen and when it might happen to see if there would be any issues with what we needed to do (send literally 200 to 500 emails per month for a particular project to existing customers.)And what I got was total radio silence. So I wrote to an email address that said “if you have any questions write here” and got back an auto responder which said jack squat as well. Even took the question up a notch or two (google Lew Moorman) and got jack squat. Bottom line: forget using Rackspace for this project let’s just rack a server at a friendly colo place where we can get a live person who will work with us and even will allow a new IP address if things get sticky. (More expensive of course.)So my point is before you decide to build a business based on all that infrastructure you should have a pretty good idea of what you loose by relying on others to do the things that back in the olden days (like when I started) we all used to do ourselves with no abstraction and absolutely nominal need to have anyone decide what we could or could not do.
awesome comment. thanks. those TOSs need too be read carefully and taken seriously for sure.
Look contracts always suck and are one sided and give one party the ability to do whatever they want that’s always normally the case and I’ve been dealing with that for years. Doesn’t mean that they will do what they can do.What bothered me about my interaction with Rackspace was the lack of responsiveness to my questions about the finer points of the policy. And the fact that the AUP was so broad that we just couldn’t take a chance w/o getting specific feedback and guidance from them juxtaposed against a salesman that was so eager to reply to other “sales” issues and totally dropped the ball on something important that we needed to know. (Call it “we care” theater.)Most importantly if you are building a service and depending on something you can’t stick your head in the sand without knowing the lay of the land.Here’s the AUP that I questioned:http://www.rackspace.com/in…Note what you have to do with respect to “can spam” act and how RS has the ability to require you to prove you are innocent. Two things that I questioned have been either redacted or modified because I can’t find them in this updated version.Also any TOS can change at any time so this isn’t necessarily what will be in place 3 mos. from now.
This is human nature. People are drawn by free or by cheap in the absence of specific evidence or personal experience that there will be a problem down the road that they need to pay to avoid.
Great idea on new format for MBA Mondays.
it is always easy to mistake velocity for actual progress
Especially if said velocity is funded by money needed to sustain it.
indeed. Velocity is a vector, comprising speed *and* direction.
I experienced this phenom as the co-founder of a company that gained great traction in the FI space with an automated way to create mobile secure web presences for on-line banking in ’08.We were bootstrapped by our own $ and revenue. As your product/service begins to feed your entity with cash for operations and growth and you become slightly blinded by some quick significant wins, it is far too easy to push the necessary customer use analysis down to #4 or #5 in the priority list for product management and the owners.Of course the hindsight rule allows me to say we pushed it to #4 or #5 when in reality we thought we were doing the necessary analysis. What we missed as an organization was some of the ongoing implications of the successful rollout to the internal operations of the IT organization that adopted the service. Unfortunately, some of these implications can actually be outside your scope in the customers eyes – cross team development practices, 3rd party software updates, etc, etc. The result was an degradation of the offerings service benefits after successful deployment that became too costly for us to manage given the differences across the growing customer base.Traction did not ultimately mean fit. A costly case study that resulted in a fire sale in ’10.
i like this take on the MBA^mondays. crowd source the content, add value with analysis.
Great informative post.Ramping up the salesforce is one of the most difficult things to orchestrate at a company. I always say the key is not letting one area drown out another.If you hire too many too quick there are going to be promises made, checks written that development and support are not going to be able to cash.Also if you hire too many for the amount of deal-flow you have there is going to be infighting and the promises will really get out of control as people chase deals that aren’t good fits because they must do so to survive.I’ve heard the argument, hire 2 and expect 1 to survive (and usually that’s more like hire 8 and let 4 survive). I’ve never liked that approach for two reasons: the first is I think its shitty to hire somebody with the thought that there is a 50% chance you fire them within the year (and that might not be their fault, just the fact they didn’t get the good leads/deals) The second is that as they are failing, they are flailing. That flailing is very expensive to the organization, from what they promise, to how they act in front of the customer, to how they act internally.Those are the reasons to be cautious, but these very often get drowned out by shouts of more revenue, more revenue, more revenue!! By every investor (and the CEO who is trying to get to breakeven if they aren’t there)
Your comment makes me think of the unique characteristic of sales leadership.CEOs hire sales leaders, sales leaders hire the team.A post on the unique characteristics of sales leadership over let’s say marketing and finance would be a good one. Sure leaderships is leadership but sales is a unique beast of its own dynamics.
The dynamics of how sales interacts at a company is a very interesting one. Like a weed they can quickly overtake other departments. Maybe that’s why it seems many tech companies have a distain for sales.As you know I think sales is the one area that is overlooked/looked down upon in business even though its critical.I will say this: hiring a sales leader before you know (and I mean damn well are sure) have market fit and a repeatable process, is an absolute killer.I could write a long “got my teeth kicked in” post about that.
Please do…The old saying that every sales leader, every marketing leader and every Hollywood executive will one day be fired from their job is mostly a true statement.
There is also a lot of operational aspects as to how you structure that hired sales force. For example, do you have one rainmaker and a team that supports them, or one support person behind a team. Costs and benefits are different.
I will before the end of the week.
“hiring a sales leader before you know (and I mean damn well are sure) have market fit and a repeatable process, is an absolute killer.”read this, kids
The main post is gold, your comments are even golder. Two thoughts. I’m going through this experience in a private beta I deliberately organized to test adoption patterns and sales model. Haven’t taken big money yet which I believe is helping me to just listen to my customers tell me more about how they would like to buy. These have been unexpectedly rich conversations. The other is more observation that type of sales model and related sales force can really influence organizational culture. It can sneak up on you (and has on me in the past) and make it much harder to switch or refine a model later on.
Thank you for the very kind words.
I have this thought that a CEO’s job is to keep each function from taking over (sales, product, ops, finance) and to know which dog should be at the front of the sled (which changes, given circumstances).
See my comment above this one.
Me too, circa 2006. Gah.
These are wise words that come from experience
Which is the product of bad judgement.
I’m just learning from you all, hoping to skip the bad judgement part by learning from all of yours. 😉 Just kidding..
Groupon
Exactly.
figured you’d come out for this post 🙂
IMHO sales management is the hardest management task there is. And it is a remarkable fact that business schools barely touch on sales.
We agree.
First impressions count!
sadly, i think the hire 2 expect 1 to survive shows the devaluation of the sales process and how it impacts your product. Your sales process is in part a way to get product feedback, so why would you want 1/2 your feedback to automatically fail
A friend of mine who was the CEO of a dating site was telling me this exact story. In the first year they were focused mainly in building a great product. They did small customer acquisition tests and saw that LTV = 1.5 CAC. He decided to raise more money and start acquiring users aggressively instead of keep refining the product. The problem was that the more users he acquired the more expensive they got until a point were LTV < CAC. He wanted to go back and refine the product but it was too late, his company had become a sales company instead of a product company. He told me that his biggest regret was not spending an extra year improving the product and getting to LTV = 3CAC instead of trying to scale revenue so quickly.
There’s a cautionary tale.
This is a great educational point for founders/startups. Do you feel VC’s feed into this cycle too? Too often I hear something along the lines of “We (only) want to add money to help you accelerate your sales/marketing/penetration/reach etc” Sets the expectation that you have to say “Hey we got here with just 2 of us so if we add 10 of us we can get to y!!”
Yes VCs are very much part of the problem
So many blindspots exist when the startup is trying to scale-up, and this is a classic one.The question is how to identify this trap ahead of time?
“One of the things I have observed over the years is that a hard charging sales oriented founder/CEO can often hide the defects in a product.”This is why I have come to hate gimmicky marketing. Most of the time the expectations set are not what is received – and this is the worst thing you can do for relationship building, trust, etc..
dealing with this now. sometimes startups get a lot of false positives which cause them to ramp up in the wrong direction. It’s hard to know as well. For example, suppose you got a false positive from one type of sales activity. Lots of early success and felt you hit a pain point. You invest to blow out this pain point-then see choppy revenue. There are almost too many variables there to find the real problem. Worst thing that can happen is that you start to sort out the problem and big revenue hits in the false positive space causing you to chase it again.
my favorite Dick Costolo line “successful startups go down a lot of blind alleys, but they just figure out that out faster than the others”
Looking forward to those new MBA Monday posts. Going with the “case method” seems like a great idea, as lessons are sometimes easier to remember when related to a particular story.
This is spot on.You absolutely must establish a foundation of early, demanding, and somewhat forgiving customers who teach you how to serve them well.Bugs, user experience, feature set come out of this phase. Refine, rinse, repeat.Then go big, but match your rhetoric to your product.
I think there has to be a balance here. What are start-up founders suppose to do when customer acquisition is a metric and there are only two options available: investment or revenue? A strong CMO can work with the Dev team — the feedback loop is crucial and there is a certain level of hustle in all of this. Learning about product fit can be a trial-error and repeat …if you are learning from the experience.
The reason why a company can have early revenue traction, which then collapses is because either the operational ROI is massively in the negative, or there’s a big churn issue.With today’s digital almost real-time marketing tools, one can increase revenue easily. However, without operational ROI and churn being part of the equation, pure revenue as a metric is like driving to a picnic and checking the weather only through the windshield, without knowing that the dark clouds are closing in on you in the rearview mirror.
I think about this a lot. A fresh product is never what it should be out of the gate. If you’re able to focus on it long enough after launch, you can optimize and dig into the flaws to make the product extraordinary (read: scalable, defensible, and memorable).It is easy to get distracted after you launch a new product. An immediate shift to sales and marketing is the most likely culprit, followed by new features or something new and shiny on your roadmap. Investor impatience makes matters worse, fostering the belief that v1.0 is anything more than the foundation for the value you are building.It’s like day-trading vs. value investing. You can’t achieve something brilliant unless you have a great thesis and really sit with it. Product-driven entrepreneurs are able to protect the product from being marketed or sold until it is sufficiently iterated.I know it’s exciting, but don’t harvest seedlings as soon as they sprout.
I imagine you’d only shift to focusing on sales and marketing if there’s necessity and fear related to bringing in enough to sustain, which to me signals that you didn’t raise enough for a long enough runway for whatever size ecosystem you’re striving to develop / for whatever needs your platform is trying to fulfill.Re: Excitement and wanting to harvest seedlings as soon as they sprout – I certainly am getting hit with this excitement harder and harder after years of planning and moving things forward are coming to a point where there can be a viral-like explosion and adoption.P.S. Loved reading Making Ideas Happen and has certainly helped me. Hope to be able to shake your hand some day in thanks.
Is the runway ever long enough?
Of course it is, otherwise the alternate is everyone failing?
what about to transplant Seedlings can and do get transplanted.I think one of the things about having a thesis is knowing when to transplant. It might work to ramp up sales early if you see where your sales and product process is going
I sometimes think startups are too quick to pivot. The pivot is fashionable. Often it takes many cycles patiently tugging at the string to create something new, to unlock real substance and value. Overnight success often takes many years.
“Patience is bitter, but its fruit is sweet”
Excited for new MBA Monday format – great idea.
This is about the proverbial “nail it before you can scale it”.Issue is in nailing the nailing part.
Many folks in the comments have talked about these resources, but there are phenomenal blogs and papers that talk about various SaaS metrics which can be used to measure true traction vs. excitement-based sales. Repeatability and predictability is the indicator that it’s time to step on the gas.Churn of course is the ugly side of this though extremely important. If you can get a ton of people to initially sign up, but no one sticks around, you may be able to repeatably sell, but you’ll soon be spending more just to keep revenues from imploding vs. growing the business.This balance of growth at the right time can become difficult when you’re in a fundraising climate where folks are pushing for “more faster.” If it’s going to take time to hire the right team and then 3-6 months to ramp up the sellers, how much visibility does one have to figure out when to start the machine…I’ve found David Skok’s blog to be a phenomenal resource in Saas: http://www.forentrepreneurs…
I like this blog as well.
I should have written the ugly side of churn if you are using salespeople is that my salespeople are going to use your churn as a baseball bat to beat your salespeople over the head. Here are our references……oh you might just call on XYZ to see how they liked our competitors product.Consumer, nobody knows…..direct sales….its hand to hand combat.
I like this blog as well.
Re: “One of the things I have observed over the years is that a hard charging sales oriented founder/CEO can often hide the defects in a product. Because the founder is so capable of convincing the market to adopt/purchase the product, the company can get revenue traction with a product that is not really right.”Here’s how you find out if the product-market fit has been achieved. 1. Get the CEO out of the sales loop2. Ask the CEO to codify the selling approaches that they learned3. Use the CEO’s learnings to see if the leads convert to sales without the CEO’s involvement and at a repeatable rate.If #3 doesn’t happen, that funnel is leaky, and one of the key causes might be that the product is too complicated or hasn’t achieved the market fit.The issue is that early on, the type of selling is consultative and not entirely scalable. As the product-market fit gets realized, the type of selling starts to become more mechanical and less consultative.
Early on the selling is based on the commitment that the CEO will deliver on promises that have not been delivered.I will never get out of the sales loop. My job depends on it.You know you have market fit when the customer can find the boundaries in your product, your salespeople actually know what those are, are not afraid to admit them, and you can sell.
Re: last paragraph. I disagree. What you described is not market-fit, but it’s an indication that your salespeople are able to sell according to a playbook.If there is product-market fit, then it’s time to repeat your sales process. The CEO must step aside and one of their success criteria will be to find sales people or a sales manager that can execute the scaling-up part.
Love the case study format idea.
Fred, it would be fantastic if you started your case studies with a startup that … failed at Product Market Fit 🙂
There are not enough Mondays left…..
Something like this can happen for free consumer products, too, such as social networks: Do a big press launch, get a bunch of users early on, think you’ve hit product-market fit, try to move forward—without realizing that you haven’t solved the retention problem, achieved real virality, or found a sustainable user acquisition strategy. I’ve heard a few founders use the phrase “fooled by early traction”.
NOVELTY IS GREAT WAY TO GET FIRST VISIT. IT DO NOTHING TO GET SECOND ONE.
Oh boy.. I could tell so many 1st hand stories about this.. What a great topic of discussion.A few CEOs that i have worked for (especially those that come from a sales background) come with the philosophy.. “If it is built, it must be sold, and in large numbers.”. Another interesting data point is the agenda of the board meetings of these CEOs at the early stage before getting product-market fit. You’ll see a lot of time spent on revenue forecast and sales modeling,I wonder how much of this behavior is just ignorance / wishful thinking.
WHAT PREDICTION IS WISHFUL THINKING? ALL OF THEM.
This is definitely one or the most insightful and relevant posts I’ve read in a while. I liked these points particularly:1) while conventional wisdom states that once you raise funding you should spend it on sales people to drive revenue, the reality is that you’ll burn cash before you truly understand your customer2) that commission based sales people are the wrong fit early on during the initial stages where it’s more about learning than sellingMy company is in the initial phase with new product and I’ve been interviewing sales people who want commission however the reality is that we are not ready for it yet. This post has reiterated my instincts. While the product might seem ready, until you understand the features your customers value and what it is worth to them plus the value the product creates, you are not yet ready to burn cash on sales.Great article Fred!!! Shared it with my new board and investors! (We just closed our first round)
BEST TIME TO SELL TO PEOPLE IS AFTER YOU KNOW WHAT YOU SELLING.
Not just a pretty face FG!
ME NOT PRETTIEST FACE ONE OF ALL!
That is the old joke: What is the difference between a software salesperson and a used car salesperson? The used car salesperson knows when they are lying.
Unless I am much mistaken this is precisely Steve Blank’s core point, which he first articulated in ‘4 Steps to the Epiphany’ and has been refining endlessly thereafter.
absolutely . . he provides a great roadmap to make sure you don’t fall into the trap.
YES.
yes
For commercial products, Selling the Wheel (Cox) does a GREAT job of explaining this phenomena – and puts it in perspective so that everyone can understand it. If you have a revolutionary product, like a “wheel”, choosing where to FOCUS and how to tell your STORY can be really painful – it means choosing to focus on one market opportunity (ignoring other opportunities) and telling one story (and not discussing all the possibilities). Trying to do this with a team of people is really hard and pursuing false positives because of a charismatic seller and/or unique buyer can also be difficult to gauge. My company sold the same product to: Wal-mart, IKEA, Lowes and HP – yet they each applied it for very different use cases. We had many possibilities and that was a key part of the challenge. Once you know you have that problem – I highly recommend you read/follow: The Four Steps to Epiphany. Seems like most people on this site are more tuned into consumer apps and infrastructure – I am not sure how well these apply there – but for selling to business, this is good stuff.
On product market fit – Andrew Chen notes an important wrinkle when he discusses the TPMF – time to product market fit.http://andrewchen.co/2013/0…
Focus on product first- you could build an Apple. Focus on sales first- you surely build a Dell.
This went meta too readily.
LET MARKET TELL YOU WHEN TO SELL THINGS TO IT, NOT OTHER WAY AROUND.
I was speaking with a prospective investor the other day. He asked me why I was only hiring one salesperson at the outset and not five. His point was this: If you’re so confident, why don’t you ramp up faster?My answer was this: I’m confident in my ability to learn, not in my ability to do things right the first time. In my twenty-five years of life, I am yet to hire even one salesperson, let alone five. So I want to take it slowly and not get ahead of myself.The best part was that he was happy with that answer. Anyhow, this post resonated with me because of that conversation.Editor’s note: Hey Fred, thanks for writing. You should be proud of what you do.
thanks Max
Getting to “Product Market Fit” should not be a one time thing, that when finally reached you feel the game is won, many companies reach it but don’t realize the market will continue to change and your product market fit will need change to keep pace or lose.
follow the pirate rule.AcquireActivateRetainReferRevenue.the most important one here is rentention – not achieving this in product will see customer / user churn…..even if you get to revenue.thanks Dave Mcclure for this – we use it
Great post, with helpful comments.I’m in the process of grappling with this exact challenge of how to handle a product launch, this post helped me make up my mind to keep it small and grow organically without hiring a dedicated sales team.Thank you!
$GRPN is a good example
Early traction that is really a “techcrunch effect” based on prior reputation and cool tech is almost always the wrong ultimate market, but the investment pressure to show traction before funding can force false and unsustainable numbers. Successful companies recognize that products and markets are a symbiotic relationship, a mutual collaboration of value and delivery. So to add a word to a common phrase – “release, listen, then iterate”.
This is really relevant to where I am right now. I’m admittedly a sales-driven CEO–but one thing that I’ve learned from a few years of reading many awesome VC & entrepreneurial blogs, and watching some promising companies implode along the way–is to remain teachable always.I truly believe that our customers WILL tell us loud and clear what they want us to build for them. All we have to do is hear. In the immortal words of @fakegrimlock (paraphrased): fight for your customers, even when it means fighting yourself.On another note, I’m really excited about the “new” MBA Mondays.
THEM GOOD WORDS!
I think your new case study approach will be extremely effective. The sales learning curve was a very interesting read; however, I don’t support applying a singular methodology – products, markets, barriers and target customers vary.
There is a systemic issue here. Investors often not only fall for this head fake but demand it. That is a hard spot for a young company to be in.
new mba mondays: Sermon style, I can dig it.
I’ve seen this problem impact very early stage startups, even earlier than scaling up an expensive sales force. Spending too much time on any acquisition strategy (infographics, content marketing, heavy PR, buying ads, etc.) before getting real people to play with a real product can waste not only money, but time. Time better spent in customer development and live-testing prototypes.
I just want to say I admire and appreciate your approach to your blog. You try what you think will work, and if it doesn’t work, you’re completely honest about it and try something else. Iteration at its best.
Here is a great blog post by Aaron Ross http://predictablerevenue.c… which lead generation but started by addressing the issue of deciding when to invest in sales”Here’s a question for you: “If you got more appointments with the right kinds of prospects, what is your confidence level that you would sign up new customers that would be happy with your service?” The more confident you are, the more you can invest to grow. The less confident, the more you should invest to learn.”
Fred:Great post. Quick follow up question.How does one know reliably that there is a product – market fit? Doesn’t the fact that sales is scaling the indicator? What other indicators are there?