It’s easier to fix marketing than engagement (aka product-market fit)

From Growth is a Commodity by Charlie O’Donnell:

If there’s one thing we’ve basically figured out in the digital world, it’s marketing. It’s table stakes. You spend some dollars to get more dollars out. It’s not complicated.

That’s why I care much more about engagement–do people like what you built, versus whether or not more people used it today than they did yesterday. Plus, the startup world is littered with companies that grew exponentially without becoming successful–Fab, Turntable, Dailybooth, etc.

If people engage regularly with your product, but you can’t get more people to use it, you’ve got a marketing problem. Marketing problems, for the most part, are solvable by a very distinct set of best practices.

On the other hand, if people are coming, but they’re not engaging, you’ve got a product problem. Sometimes, it’s easily fixible. Other times, you’re just so way off on product/market fit that you’ve fallen into “bad idea” territory, and there’s really no timetable for fixing a bad idea.

How to sell your product if it’s a “nice to have”, not a “must have”

From How To Sell Your Product If It’s a Vitamin and Not A Pain-Killer by Stuart Silverman:

In general, your product falls into one of two categories. Either it is a pain-killer that solves a very critical business pain, need, or crisis for your prospect. Or it is a vitamin that doesn’t really solve any major pain or crisis, but is a nice-to-have and is just a better way of doing something.

Vitamins are extremely hard to sell, because it is almost impossible to get the prospect’s time and attention, and it’s very hard to create urgency around the sale. So how do we sell a vitamin?

1. Focus on increased revenue
2. Focus on increased budget dollars
3. Show how your product provides a competitive edge
4. Point out that 1-2 of your prospect’s competitors are using your product
5. Tie the sale to your prospect’s boss’s needs
6. Tie the sale to helping your prospect with his/her career
7. Create urgency by using a specific date

The two most important, neglected sales metrics

From Jason Lemkin, in Jason Lemkin: The Right Sales Metrics for Your SaaS Startup:

There are two metrics aren’t discussed enough. The first is lead velocity rate. What rate are your qualified leads growing month over month? Your MRR growth is great, but really that just tells you about the present – how you’re doing now. But if your leads are growing faster than your revenue, I can see the future growth. Being able to quantifiably track the velocity of qualified leads is going to be your best possible indicator as a CEO of where you’re going to be in the future.

The second metric will help founders get from initial traction to scale: understanding revenue per lead and how that works across your company. Once you have a repeatable set of leads and lead velocity, you want to drive up the revenue per lead. That’s an area where you can help the sales team by measuring each individual rep – what’s their revenue per lead? How many leads can you give them before their productivity declines? Why do some reps make certain types of leads more productive than others? The earlier you can do this post-traction the better. Leads are precious for a long time in startups, and if you can get 20 percent more out of each lead, that’s magic. But if you don’t measure it down to the individual rep level and you just look at MRR, you’re missing an opportunity to improve things.

Can trust between VCs and founders outweigh conflicts of interest?

From The trust thing by Roy Bahat:

The investor-founder relationship is, by nature, out of balance. Founders are devoted to the most important (work) project of their lives; investors have the luxury of more than one such project at a time. Founders can do incredibly well personally, under circumstances where the investors may do fine though not great. Founders know much more about their company, investors know a little more about what’s happening elsewhere in the world (maybe).

The ingredient in the startup stew that balances the potential bitterness of these differences: trust. When founders believe their investors will do right by them, even when it may be against their narrow, short-term self interest, and investors believe the same about founders, it’s magic.

Notes:
(1)  Cf. Conflicts of interest between startups and VCs.
(2) Cf. How to build trust with VCs.

How to increase active users

From The Importance of Understanding Your Best Users by Ben Yoskovitz:

1. Define a “good” user for your product/business (which depends on the product, business, and stage you’re at). Be aggressive (aim high!) and don’t cheat yourself. Be intellectually honest.

2. Look for commonalities amongst those “good” users (it could be anything!)

3. Figure out how to get more “good” users (could include feature experiments to encourage more/different usage of your product based on what good users do, could be a shift in market / marketing strategy, etc.)

4. Rinse and repeat.

Product-market fit and fundraising

Fred Wilson, quoted in A Dozen Things I’ve Learned from Fred Wilson by Tren Griffen:

Getting product right means finding product market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it. The first step you need to climb is building a product, getting it into the market, and finding product market fit. I think that’s what seed financing should be used for.

The second step you need to climb is to hire a small team that can help you operate and grow the business you have now birthed by virtue of finding product market fit. That is what Series A money is for.

The third step you need to climb is to scale that team and ramp revenues and take the market. That is what Series B money is for.

The fourth step you need to climb is to get to profitability so that your cash flow after all expenses can sustain and grow the business. That is what Series C is for.

The fifth step is generating liquidity for you, your team, and your investors. That is what the IPO or the Secondary is for.

Notes:
(1) Is achieving product-market fit limited to the seed stage? Not if you view product-market as a continuum, as something you’re always trying to improve.
(2) My personal view: while there’s a minimum level of product-market fit you need before you can scale, it doesn’t end there, particularly if product-market fit is defined more expansively.
(3) Fred’s description of company stage at each funding round is very different from Rob Go’s. See The real difference between funding rounds.
(4) Tren Griffen’s blog is terrific.

The causes of distraction

From Don’t Let Mission Distraction Kill Your Business by David Frankel:

Whenever a company strays from its core market, message or mission, the results can be devastating, particularly for small companies and startups. Here are just a few common causes for distraction at the executive level:

– Waning confidence in current market position or pricing
– Overreaction to existing competitors or new, “hot” entrants in the market
– Sudden stagnation or rapid decline in growth
– Strategic partnerships with no clear metrics for success
– Pressure from investors or board members to change direction
– Internal politics overruling logical decision making
– Successful companies expanding model to markets adjacent to where they achieved their growth

Don’t scale before you have product-market fit

Fred Wilson, quoted in A Dozen Things I’ve Learned from Fred Wilson by Tren Griffen:

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.

Notes:
(1) In Seeking Alpha, we talk about figure it out mode and scaling mode. “Figure it out” = “achieve product-market fit”.
(2) Fred’s point is that you shouldn’t add headcount (ie. move to scaling mode) until you’ve achieved product-market fit. In fact, figuring out product-market fit is easier with fewer people.
(3) The challenge of knowing when to scale is that product-market fit can be hard to spot.
(4) Re. Fred’s assertion that you also shouldn’t ramp headcount if you “don’t have the right people and processes in the organization to support the product”: Surely that’s a reason to add headcount?

What’s your “simple scoreboard”?

Excerpt (edited) from Adam Bryant Of The New York Times On What Makes Great Leaders Great:

There’s a quality [in great CEOs] that I call a “simple mindset,” which is the ability to take a lot of complicated information and really boil it down to the one or two or three things that really matter, and in a simple way, communicate that to people. In any company—there are always a dozen or more competing priorities. And it is the leader’s job to stand up in front of the troops and say, “These are the three things that we are going to focus on this year,” or “These are the goals and this is how we are going to measure them.” If you really want to galvanize people and get them operating as a team, you’ve got to create a simple scoreboard that everybody understands.

The communication style, to me, is secondary to getting the content right. And what I’ve been so often impressed by is leaders who can essentially boil down the company’s goals and operating model into, literally, less than a page. They can figure out, “Here are the four metrics; these are the three or four things that we are going to focus on,” and do it in a way that not only makes sense for today, but is likely to make sense a year from now.

Product-market fit requires a market, a business model and customer engagement

Excerpt (with edits) from Product/Market Fit is a Continuum by William Mougayar:

How do you measure product-market fit and know that you’re there?

1) Marc Andreessen emphasized 3 variables: the product, the market and the team that is executing on it.
=> Take-away: if there is no market, even a great product and a great team will not get you there.

2) Steve Blank argues that Business Model realization is part of the Product/Market Fit.
=> Take-away: if you can’t realize the business model, there is no Product/Market Fit.

3) Eric Ries, Ash Maurya and Dave McClure look at Product/Market Fit based on user engagement, by focusing on conversion velocity, from user acquisition to deep engagement.
=> Take-away: If there is no retention and referrals, there is no Product/Market Fit.

4) Ben Yoskovitz and Alistair Croll remind us that maybe we should think in reverse, i.e. Market/Product Fit, not Product/Market Fit.
=> Take-away: “Instead of building new features, or rebuilding from scratch, try pointing your product at a new market.”

They are all right.