What does product market fit look like? For a business to be ready to scale, there are three stages involved:
1) Search for product market fit
2) Search for repeatable and scalable infrastructure (preparation to scale)
3) Scaling the business.
Stage 1 and 2 require the business to conserve cash while stage 3 involves investing aggressively.
We will focus on stage one, searching for a product market fit. There are several things that happen in this stage:
This involves getting to know your customer better than anybody else. This process starts before and after launching your business. It is still one of the most critical focuses.
Sales & marketing Strategy
In this stage, you’re working on your sales and marketing strategy and finding these traction channels to actually produce paying customers.
Business model, pricing framework and your micro economics are being put into the task.
You are validating the unit economics, cost of customer acquisition (COCA) and life time value (LTV) as you work through the numbers. You may even be adjusting some of your pricing in your business model because remember, you’re iterating a lot in these first stages of the launch. You may be pivoting every week, iterating every day until you really start to get closer and closer to that perfect solution.
Remember, it’s a spiraling innovation process of getting closer and closer. You will never land on exactly the perfect solution when you launch. It’s a constant innovation. I like to say it can be a ten-year overnight success. It takes time to get it nailed down, three to five years to create a sustainable company.
Minimum Viable Business Product
You’re going to be looking for your minimum viable business product success.
Paying customers that you don’t know
You’ve built it, you’ve launched it, and you’re going to be looking for paying customers you don’t know. Everybody is overly optimistic about how everybody’s going to buy their product, but getting beyond your family and friends buying it and people buying it that you don’t know; now you’re starting to make some progress.
You want to create a customer base large enough to have a viable business. In stage one, credibility, cash flow, experience, and word of mouth is what we’re trying to do in that beachhead(total addressable market) market, but we need a base of customers larger enough to survive the cash flow runway.
Minimum Burn Rate
At this point, we’re going to have a minimum burn rate. We’re pinching pennies, every penny is important, and we’re very careful how we spend our money. You may want to prepare in stage one for stage two. You don’t have to wait until you hit product market fit to do stage two preparation to scale.
I would recommend you don’t wait because once you hit product market fit, everything changes. Your focus in stage one of tuning a business is to find product market fit. Most organizations never do.
How do I know that? I’ll bet you can’t count more than five organizations you personally know that hit product market fit.
Product Market Fit (PMF)
What does Product Market Fit look like? What happens with product market fit?
Before product market fit
o Most businesses never achieve it,
o You should be ready to change everything and anything to find a product market fit.
It’s the key thing you’re looking for in stage one. Now, when you hit it, everything changes.
There was an old TV commercial that UPS did where there was a bunch of people standing around with party hats and banners and pizzas laid out. They hit go on their website and the little clicker of products being sold started to move forward. Everybody started cheering and jumping up and down, and it started moving faster, and they broke out the champagne and started having a party, and then it started spinning faster.
Pretty soon it was spinning so fast that they couldn’t see any numbers. They all stopped celebrating and were asking each other what happened. That’s what happens when you hit product market fit.
After product market fit
Let’s look at some of the things that occur after product market fit.
Your workload goes through the roof. You’ve been in the grind to try to find it, surviving as a business owner or a launch team. You’re already working long hours because it’s a 24/7 job. Entrepreneurship is a lot of work.
When you hit product market fit, demand for your product goes through the roof, and there’s no way you can keep up. You are overloaded. Everybody’s overloaded. What do you do as a boss as an owner to your staff?
You make them work harder because the money’s coming in; it’s piling up in the bank. People are working hard, and you’re driving them even harder because you want to make hay while the sun is shining.
What happens to your A level players? You’re going to share your profit; you’re going to give them equity for the success, give them more money. Why should they work harder? Your B and C players for sure; when it comes to your staff, they get overwhelmed and overworked. Your top level players leave because they can find another job.
You start hiring people. Who are you going to hire? You are way behind. You’re going to hire any warm bodies. Sit here and do work because you need to get things done. You are going to hire anybody. What happens to your onboarding process? What happens to your onboarding process, sit here and work, you don’t have time for onboarding?
o Culture trauma
What happens to your culture? Culture goes into trauma. All of this is occurring at the same time, your best players may be leaving. The people that are B and C players don’t want to work any harder. You are hiring anybody.
Your culture goes down the drain because now all these other players you’re bringing don’t fit the culture really well, but you need warm bodies. Everybody gets traumatized, and the orders are still going through the roof. What happens to your quality? Qualities will drop.
All of this happens at the same time. Product Market Fit will kill you faster than the slow grind to try to find it.
Finding a product market fit; most businesses never do. Once you hit product market fit, you’re trying to ramp the business. You may be trying to scale the mainstream while your culture is going down the tubes along with your quality.
Your A level players are walking out the door. All these happen at the same time, and you’re under heavy enemy fire; very difficult to survive. You need to prepare to scale by searching for a repeatable and scalable sales model.