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The First Thing That Matters: Product/Market Fit

Written by Ash Maurya

After my last post on landing page (UVP) optimization, Nivi, from VentureHacks, pointed me at Sean Ellis’s blog and suggested that I might be better served achieving product/market fit before spending time on landing page optimization and positioning. While I completely agree that achieving product/market fit is the necessary prerequisite to kicking into growth mode, I believe some level of preliminary landing page and positioning testing is absolutely required towards achieving product/market fit. After our call, I re-read both Steve Blank’s and Sean Ellis’ views on this and think they would agree too. Although I think Steve has a stricter definition of what achieving Product/Market fit looks like than Sean.

But before I go there, for those that haven’t read Marc Andreesen’s post on product/market fit, it’s an absolute must-read for any lean startup practitioner… Unfortunately, Marc doesn’t address how you achieve or measure product/market fit and leaves you with more questions than answers. Thankfully, both Steve and Sean provide some guidance here.

The Customer Development Approach- Steve Blank

In his book, Steve outlines four stages to the customer development process as iteration loops with the following success end goals:

  1. Customer Discovery – Achieve Problem/Solution Fit
  2. Customer Validation – Achieve Product/Market Fit
  3. Customer Creation – Drive Demand
  4. Company Building – Scale the Company

The Customer Discovery stage ends with a Problem/Solution fit and a Minimum Viable Product (MVP). During Customer validation you validate your MVP by attempting to sell it – Nothing speaks clearer than a sale. Successful iteration here should result in a repeatable and scalable sales model.

A repeatable and scalable sales model is what Steve defines as achieving Product/Market fit.

It is only after achieving product/market fit that substantial effort be spent on marketing and demand creation.

Steve outlines several phases that prepare you to sell your MVP. However, adapting them to a consumer product like CloudFire was a little challenging because of the his mostly Enterprise perspective. Unlike big ticket enterprise sales that are usually done face to face and characterized by long sales cycles, CloudFire has to primarily sell itself through a website. This is both liberating and difficult.

Here’s how I interpreted and applied Steve’s Customer Validation phases to CloudFire:

Articulate a Value Proposition
I created several Unique Value Proposition statements and tested them both face-to-face and through other channels as detailed in my last post. My objective was not so much optimizing the landing page for conversion but for engagement – Distilling the essence of the problem/solution to a single sentence and testing the level of resonance with customers.

Prepare a Preliminary Collateral Plan
The website is the only sales and marketing collateral customers see. In addition to the landing page, I created the following pages which flowed easily from the results of my previous customer and product presentations:

  • Landing Page – Unique Value Proposition
  • A 2-min video – Demo
  • Why CloudFire Page – Preliminary Product Positioning
  • About Us Page – Preliminary Company Positioning
  • Pricing and Signup Page – Transaction

Develop a Preliminary Distribution Plan
The simplest distribution channel is through the website and obviously where I started.

Develop a Preliminary Sales Roadmap Plan
A logical place to start was digital moms who typically end up being both influencers and decision makers.

Sell to Visionary Customers
As face to face selling beyond what I did for Customer Discovery is not going to be scalable, selling is mostly going to be a function of building and testing a few low-hanging paid and free channels.

Verify Product/Market fit
Developing a repeatable and scalable sales process will most likely necessitate some iterations through conversion and signup flow optimization.I believe Steve’s test for selling to 3-5 visionary customers applies just to Enterprise sales. I don’t what the number should be for a consumer app but am thinking a 10x multiplier sounds right.

As comprehensive as Steve’s Customer Validation steps are, he doesn’t build user gratification/retention into his model which is a critical element for services like CloudFire. This is something that Sean Ellis does address and builds right into his definition of product/market fit.

The Startup Pyramid Approach – Sean Ellis

Sean has a somewhat similar roadmap to Steve’s that reads like this:

• Validate the product/service is gratifying a reasonable percentage of users.
• Create a value proposition that will attract the right type of users and pull them through the conversion funnel to gratification (and ultimately a transaction). 
• Eliminate friction from the conversion funnel. 
• Fine tune a business model that supports scalable customer acquisition channels. 

This is better visualized in his Startup Pyramid:

startup_pyramid

Gratifying a reasonable percentage of users is what Sean defines as Product/Market fit.

He has even come up with a 40% test for measuring product/market fit:

Achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product.

Again the actual number of users that qualify for early traction is a little vague here.

So while both Sean and Steve agree on achieving product/market fit before growth, on the surface it seems that Sean places an upfront emphasis on gratifying a reasonable percentage of users before crafting a value proposition. Although my interpretation is that he is open to crafting and testing several preliminary value propositions, conversion and signup flows even before product/market fit (something he groups under Understanding and Iteration). How else can you acquire enough users to make the 40% test meaningful?

On user acquisition, Sean recommends starting with free channels before moving to paid channels.

But are free channels really FREE?

Jason Cohen had a post on this not too long ago. The obvious free channels viral/referral, SEO, and blogging/bloggers all take considerable time to build and can actually slow down the speed of iterating through Customer Validation. When they do kick-in, the payoff is well worth the effort but I’ve found it better to invest in a few small-buy paid channels for early traffic while building the free channels in parallel.

The bottom-line

As Marc Andreesen put it: Product/Market fit is the only thing that matters.

Both models emphasize the importance of keeping burn rate as low as possible while iterating towards achieving Product/Market fit. Some level of preliminary value proposition iteration and signup flow optimization is necessary to establish some early traffic but then the focus should quickly shift towards measuring product/market fit before anything else. You typically know when you achieve product/market fit but metrics help you measure and hopefully get you there faster.

Now that my preliminary value proposition, sign up flow, MVP, and early traffic channels are *mostly* in place, the next step will be optimizing for user gratification and putting metrics in place to measure product/market fit.