What to expect after your product goes live

Edited excerpt from What Happens at Y Combinator:

If a company is launched and has users (about a quarter are before they come to YC), then the conversations at office hours tend to be about the various things that happen to actually launched companies. The most common problem is that users don’t like the product enough.

This is normal; it’s to learn where your initial hypothesis is wrong that you launch. Now at least you have some evidence to analyze. So for companies at this stage, the conversations at office hours tend to be about how to figure out from available evidence what users want, how to get more data about what they want, and how to reach more of them.

Notes:
(1) “Some companies achieve primary product market fit in one big bang. Most don’t, instead getting there through partial fits, a few false alarms, and a big dollop of perseverance.” From Four myths about product-market fit.
(2) As well as analyzing the usage data you have, try also Sean Ellis’ approach in How to identify your product’s “must have” experience.
(3) More from Y Combinator on this topic: Six simple questions to test product-market fit and competitive advantage.

Is your product a “must-have” according to this definition?

Edited excerpt from Must-Have vs Nice-to-Have SaaS Products by David Cummings:

A must-have product fundamentally alters the way works gets done — either changing existing processes to be 10x better or unlocking new value that wasn’t previously achievable — and once used, companies will never go back. A nice-to-have product provides some value — perhaps being twice as good as doing it by hand or with spreadsheets — yet isn’t valuable enough to compel a critical mass of adopters. Apps that unequivocally help companies make more money, like marketing automation, are a must-have.

Notes:
(1) Not sure this is a convincing definition of a must-have product. What about Gmail? Did it “provide a 10x improvement” over Yahoo! Mail or Hotmail,  “unlock new value”, or “fundamentally alter the way work gets done”? I don’t think so, but many people regard Gmail as a must-have product.
(2) So here’s an alternative definition, using the Job To Be Done framework: “A must-have product enables you to (i) get a job done which you otherwise couldn’t get done at all, or (ii) get significantly more of the job done, or (iii) get the job done in a significantly less painful way.”
(3) Whether a product is “must-have” is always relative to the alternatives. See, for example, the focus on alternative solutions in How to conduct customer cancellation interviews in the “Job To Be Done” framework.
(4) Can you come up with a better definition of a “must-have” product than this?

Documenting your product-market fit hypotheses

Edited excerpt from A Lean Alternative to a Business Plan: Documenting Your Product/Market Fit Hypotheses by Sachin Rekhi:

The most efficient way to operate during the earliest phases of a startup lies in between a formal business plan and unstructured iteration. The process I’ve used involves documenting your initial product-market fit hypotheses, and systematically validating, iterating on and updating them.

1. Target Audience. Who is the target audience is for your product or service? Be as specific as possible. Name the “core” audience to whom your product is best suited, as opposed to the “total addressable market” for folks who might get value out of it. In B2B products, specify both the end users of the product and the business decision makers who have the budget.

2. Problem You’re Solving. What specific problem or pain point does your solution solve for? There is no substitute in product development for developing an incredibly strong understanding of the problem space of your target audience.

3. Value Propositions. Value propositions shouldn’t be the features that you are building, but the “promise of value” that you are giving your customer. This should be phrased in the customer’s terms in how it will address the problem you’re solving as well as improve their lives or business.

4. Strategic Differentiation. What unique assets or capabilities will your solution have or take advantage of to make it a superior offering?

5. Competition. Who is the competition and how are they doing in addressing their customer needs? For nascent markets its important to take a very broad view of competition, including alternatives and substitutes to your solution.

6. Customer Acquisition Strategy. What are the primary ways you expect to drive awareness, interest, desire, and adoption of your solution? As you iterate, developing a more detailed understanding of your acquisition strategy involves understanding the cost of acquisition of customers for each of your primary acquisition channels.

7. Monetization Strategy. How will you generate revenue from your product or service? A more detailed understanding would cover price points and an understanding of willingness to pay in the market, often based on understanding the value you are creating for the customer or based on comps to existing solutions in the market.

8. Key Performance Indicators (KPIs). Document the key performance indicators which you plan to use to gauge how well you’re business is doing. Defining these are early as possible is critical. I like to have a suite of acquisition, engagement, monetization, and customer satisfaction metrics.

Notes:
(1) Compare this to the template in Clarifying your strategy using a simple template.
(2) Note also how this can provide clarity for marketing and PR. See: Questions to answer before you talk to a journalist.

Why more funding won’t help you find product-market fit

From Nine common things that start-up founders tend to underestimate or overestimate by Boris Wertz:

No amount of money in the world is going to get you to product-market fit. And raising too much money before you find product-market fit will usually kill your start-up.

Notes:
(1) Why is it that more money doesn’t help you find product market fit? Because building your core product and understanding your customers’ needs are best done by a small team. Small product teams work better because product innovation requires brainstorming and collaboration, and they are easier with fewer people. Hiring more people doesn’t help.
(2) This is why startups beat large companies. Having a larger team doesn’t help you with core product innovation.
(3) If you expand your company before finding product market fit, you’ll pay the price in two ways: (i) your burn rate will increase, (ii) it will actually be harder to find product-market fit because you’ll be distracted by other activities. This is a common mistake made by some VCs — after investing in a company, they push to expand headcount without verifying that the company has found product-market fit.
(4) Cf. Why you shouldn’t raise too much money in your early funding rounds.

Six simple questions to test product-market fit and competitive advantage (from Y Combinator’s application form)

Questions from Y Combinator’s application form; I’ve re-arranged the order and inserted the headings:

Product-market fit
1. What’s new about what you’re making?
2. How do you know people need what you’re making?
3. What substitutes do people resort to because it doesn’t exist yet (or they don’t know about it)?

Competitive advantage
1. Why did you pick this idea to work on?
2. Do you have domain expertise in this area?
3. What do you understand about your business that other companies in it just don’t get?

Notes:
(1) Note the similarities to Clarifying your strategy using a simple template.
(2) Re. “Why did you pick this idea to work on?”, see Passionate founders and product-market fit.
(3) See the section on Product-Market Fit in Best Practices for Startups.

Four myths about product-market fit

Edited excerpt from The Revenge of the Fat Guy by Ben Horowitz:

Myth #1: Product market fit is always a discrete, big bang event. Some companies achieve primary product market fit in one big bang. Most don’t, instead getting there through partial fits, a few false alarms, and a big dollop of perseverance.

Myth #2: It’s patently obvious when you have product market fit. I am sure that Twitter knew when it achieved product market fit, but it’s far murkier for most startups. How many customers (or site visits or monthly active uniques or booked revenue dollars, etc.) must you have to prove the point? There may be multiple sub-markets, each of which need their own product.

Myth #3: Once you achieve product market fit, you can’t lose it. Four months after founding Loudcloud, we had product market fit by most measures. But in September 2001, the market for cloud services from semi-viable companies went to zero and we lost product market fit as a cloud services provider. We had to rebuild completely and would ultimately find product market fit in a different set of markets altogether.

Myth #4: Once you have product-market fit, you don’t have to sweat the competition. It’s fine to stay lean if you are not quite sure that you have product market fit and there are no competitors in your face every day. But usually there are. In fact, the best markets are usually the ones in which competition is fierce because the opportunity is big. How long should you stay lean before attacking?

Notes:
(1) Ben disputes Fred Wilson’s argument that you should only scale after you have product-market fit. If product-market fit isn’t a discrete event, and if it’s often unclear whether you have product-market fit, how can you wait for product-market fit to scale?
(2) My personal view is that product-market fit is a continuum; there are degrees of product-market fit. You should only scale when it’s clear that you’re fairly far along the continuum of product-market fit.
(3) Cf. How you know when you’ve hit product-market fit.

Four simple questions to help you get product-market fit

From The Best Ways to Do Market Research for Your Business Plan:

Market research aims to understand the reasons consumers will buy your product. The basic questions to answer are:

1. Who are your customers? Describe them in terms of age, occupation, income, lifestyle, educational attainment, etc.

2. What do they buy now? Describe their buying habits relating to your product or service, including how much they buy, their favored suppliers, the most popular features and the predominant price points.

3. Why do they buy? This is the tricky one, attempting as it does to delve into consumers’ heads.

4. What will make them buy from you?

Notes:
(1) The article is actually about doing market research for a business plan. But the questions are also useful for product managers, and can help at the marketing stage.
(2) Asking what your target customers are actually buying now, and why, avoids the pitfall of asking hypothetical questions.
(3) Cf. Jim Gray’s How to learn about your customers.

Obvious, but forgotten: the best way to lower customer acquisition costs

From How Customer Success Meaningfully Reduces Cost Of Customer Acquisition by Tomasz Tunguz:

When discussing customer success for SaaS startups, the conversation focuses mostly on retaining customers and reducing churn. These are two fantastic benefits with meaningful return-on-investment. But great customer success organizations can meaningfully impact another critical part of the customer lifecycle, customer acquisition, by catalyzing evangelists to refer new customers.

This growth effect compounds over time if the customer success team can continue to find and cultivate evangelists. The swelling ranks of promoters will become an increasingly meaningful and cost-effective growth engine for the business.

The challenge with this idea lies in accounting for referral properly. There are no water-tight mechanisms for attributing the source of a particular customer. Some companies ask evangelists to use links or codes to track referrals. Customer signup surveys asking new customers how they heard about the product is another effective mechanism. But these mechanisms won’t capture the entirety of referrals. Additionally, the rewards from such an effort may take a while to materialize. As a result, patience is important when building and managing a CS team.

Notes:
(1) Tomasz focuses on customer success. However, customer satisfaction may be more the result of a great core product than the actions of your customer success team. How could you measure that?
(2) Perhaps, at the end of the day, everything comes down to product-market fit. With it, customer churn and customer acquisition costs will be low. Without it, everything is uphill.
(3) Cf. Marc Andreessen on How you know when you’ve hit product-market fit, Albert Wenger on Customer reactions tell you when there’s product-market fit, and Mariya Yao on Is your product liked or loved? Here’s how to tell.

Why it matters who your early customers are

Excerpted and edited from 10 Ideal Customers are More Important than 30 Random Customers by David Cummings:

[When you’re looking for product/market fit], signing 10 customers that fit your ideal customer profile is more important than signing a large number of random customers in the near-term. Here are a few reasons why quality is more important than quantity at the earliest stages:

— Customers will always ask for product enhancements, so it’s key that requests align with the entrepreneur’s vision of the future
— Live customers represent oxygen for the product, so clean air is better than the alternative
— Ideal customers are going to be happier customers and happier customers are going to provide testimonials as well as references for future customers

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.

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.

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?

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.

Customer reactions tell you when there’s product-market fit

Albert Wenger, quoted in Product/Market Fit is a Continuum by William Mougayar:

Product-market fit is best measured by observing how customers react to your product. Better yet, observe them interact with your product. You know you’ve achieved product-market fit when the customers intuitively understand what need the product fills for them, and they have no trouble using it, in fact they enjoy using it… in fact they start telling their friends about it, maybe even telling the world about it on Twitter or other places. That’s how you know if you’ve got product-market fit.

Product-market fit can be hard to spot

Excerpt (with edits) from How to kiss your elbow by Jerry Neuman:

Marc Andreessen says “you can always feel product/market fit when it’s happening.” Unfortunately, this is simply not true. In B-to-B startups you can have a lot of buzz and a few amazing clients banging your door down and still have a product that doesn’t really do much. Or you can have a product that is absolutely amazing that great clients are beta-testing but that no one is paying for.

If you have a product and you have a market for that product, you should stop worrying and start scaling.

In the old hockey-stick curve there is a flat part and there is a steep part. That transition, the elbow in the curve, is hard to see, especially when you’re spending all your time trying to run your company. Here’s a question to ask yourself: if you think you can double revenue next year, what’s holding you back from increasing revenue by 10x? If the answer is that there’s no market yet, then keep grinding away at it. If the answer is not enough people or hardware for scaling, then start spending the money on hiring them, today.

Notes:
(1) Product-market fit is a continuum, not a single point. But if you’re not in “the zone”, you know it. Everything feels too hard.
(2) Is this a viable test of product-market fit? Could you meaningfully increase revenue next year by applying more capital? If so, you have sufficient product-market fit. It’s the same test for raising a growth round.

What problem are you solving?

From Solutionists by Pat Kinsel:

It’s become clear to me that there are two types of entrepreneurs. One type of entrepreneur presents a problem, discusses the research they’ve done, and offers a solution… The other type of person, the solutionist, is obsessed with their solution above all else. It should go without saying, but you don’t want to be a solutionist. So, are you one? And what can you do about it?

1. Describe the problem you’re trying to solve in 3-5 sentences. Actually write it out. Talk about people (or organizations – which are comprised of people) and how they can’t do something or need something.

2. Describe the opportunity in broad strokes, but don’t mention anything about a solution. This should be entirely about the benefit to your customer. Imagine your product were built and you were trying to explain the value proposition to the target customer, why would they buy it?

3. Describe your solution, but keep this about the customer as well. This should simply describe what you’re going to do, not how you’re going to do it.

This seems somewhat obvious. But, you’d be surprised how many [potential] entrepreneurs’ ideas clearly fall apart when examined against this framework.

Notes:
(1) Many of us aren’t solutionists, we’re just lazy about explicitly articulating the user need we’re addressing.
(2) Explicitly articulating the user need and the proposed solution exposes your assumptions and makes it easier to test them (eg. with a survey) and entertain alternative solutions.
(3) This isn’t limited to product. In Seeking Alpha, we often talk about backing into the question. “Hey, I’ve had this great idea!” “What question is that idea answering?” “Ah, here’s an even better answer to that question…”
(4) Cf. Is your company truly disruptive? Try this simple litmus test.

How you know when you’ve hit product-market fit

From THE PMARCA GUIDE TO STARTUPS Part 4: The only thing that matters by Marc Andreessen:

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.

The most important factor in startup success

From Mark Andreessen:

Whenever you see a successful startup, you see one that has reached product/market fit — and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.

Conversely, you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30″ monitors for all the programmers, top tier VCs on the board — heading straight off a cliff due to not ever finding product/market fit.

Ironically, once a startup is successful, and you ask the founders what made it successful, they will usually cite all kinds of things that had nothing to do with it. People are terrible at understanding causation. But in almost every case, the cause was actually product/market fit.

Because, really, what else could it possibly be?

The only way to build a massive business

Excerpted from Sam Altman:

All companies that grow really big do so in only one way: people recommend the product or service to other people.

What this means is that if you want to be a great company some day, you have to eventually build something so good that people will recommend it to their friends–in fact, so good that they want to be the first one to recommend it to their friends for the implied good taste.  No growth hack, brilliant marketing idea, or sales team can save you long term if you don’t have a sufficiently good product.

You can trick yourself for awhile, though: growth is measured on a percentage basis from last month.  When you are still small, you can spend a lot of money marketing or advertising and have a big impact on usage growth.  But eventually, you get so big you simply can’t spend enough money to move the needle–you need your ever-increasing userbase to keep getting you more users.

Big idea? Expect a dark period, and don’t pivot out of it

From Ev Williams:

Any big idea is going to take a while to get there… by definition if it’s big and no one has done it before it’s not going to be 1, 2, 3 – we got it. There is going to be a dark period in there because you don’t know what the key to get in there is.

On which Antony Kuzmicich comments:

Lean startups often rapidly reach a local-maximum product which does not deliver product/market fit. They give up on their original idea and pivot – missing out on a massive opportunity. Pivoting will allow the startup to explore a different space, but they’re just as likely to produce a local-maximum product there and repeat the process.

If we believe in our ideas we should be prepared to properly explore the spaces they inhabit before giving up on them.

Is your product liked or loved? Here’s how to tell

Mariya Yao suggests that if your product is liked but not loved, you’ll have trouble building a business. So how do you know if you’re liked but not loved?

There are two questions that I recommend startups use to differentiate between being liked versus being loved. First is the question Sean Ellis popularized, where you ask your users, “How disappointed would you be if you could no longer use our product?” and have them answer with either, “Very Disappointed,” “Somewhat Disappointed,” “Not Disappointed,” or “I no longer use the product.” Sean did research across hundreds of startups and discovered that companies that had fewer than 40% of their users answer “Very Disappointed” tended to struggle with building a successful and sustainable business.

The second question is known as the Net Promoter Score, where you ask your users, “On a scale from 0-10, how likely are you to recommend us to your friends?” You mark those who answer 0-6 as Detractors, 9-10 as Promoters, and 7-8 as Neutral. Your Net Promoter score is the percent of Promoters minus your percentage of Detractors, which should be a number between -100 and +100. The world’s most successful companies typically score around +50, and top performing tech companies like Apple, Google, and Amazon regularly score over +70.

When a product fails — strategic or tactical?

Excerpted from an interview with Mariya Yao:

A strategic failure occurs when–as Paul Graham is fond of saying–you build a product no one wants. This means that you can’t easily get users through the door despite solid marketing efforts, they aren’t proactively inviting their friends and colleagues, or no one is paying for your product. A tactical failure occurs when you do grow quickly or easily attract passionate users, but see major drop-offs at key points in product usage due to poor implementation and user experience.

When you build a product that is clearly performing poorly from the get-go and you’ve ruled out basic technical, marketing, or executive issues, it’s very likely the product is a strategic fail. However, what often happens is a startup builds a product people like but don’t love. They’ll typically appear to do well early on, but won’t have enough of a passionate following to achieve meaningful growth or revenues.

Notes:
– It’s not clear from the excerpt or the rest of the interview whether Mariya thinks that “like but don’t love” indicates strategic failure (core idea isn’t strong enough) or tactical failure (fine idea, poor execution).