Jessica Livingston (co-founder of Y Combinator): “make something that people want. If you create something and no one uses it, you’re dead. Nothing else you do is going to matter if people don’t like your product.”
With this quote in my back pocket, I caught up with Anna-Lisa Wesley. Anna-Lisa is a star mentor at Accenture’s FinTech Innovation Lab, TechStars, SetSquared and Bethnal Green Ventures and co-founder of start-up advisory Sapphire & Steel. Along with her business partner Pete Blake, she works with hundreds of start-up founders every year and I wanted to get her take on product-market fit.
Anna-Lisa: ‘It’s so obvious isn’t it, as a statement. So intuitively correct that it can cease to have any real meaning. Founders know this stuff, but it doesn’t make it any easier to either critically assess their own performance against it or know how to cut through.
If I were to say this to one of our founders, I know they’d be polite; “you’re right, this is front of mind for me too”. But they’d be thinking – “duh! I’m not an idiot! What I want your advice on Anna-Lisa is, how do I get there”?
Product market fit
Product market fit (PMF) is the holy grail – steady growth and strong retention in a large market is any investors dream. You might have a good idea of product-problem fit after my last articles but likely haven’t tested with the masses. Not finding PMF (i.e. the market need) is the biggest killer of start-ups. Ultimately you are hypothesizing around what features you need, who the audience is, and the business model required to reach those customers.
Anna-Lisa: Absolutely. Jessica is rightly asking that you be deeply mindful of the people you are making something for, so that you have a better chance of them using it and even better, liking it. But it’s easier said than done and there’s a major barrier that gets in the way time and time again.
It’s the ‘good idea’ that’s the barrier. A founder’s strength of conviction here can get in the way of progress. As you say Will, what you need to do is work a hypothesis, until you find a tight fit.
The ability to quickly work a hypothesis is the magic weapon of any scale-up CEO, whether launching a first product or stepping towards new markets.
Do your research.
Will: I know that you are a big believer in the power of qualitative customer insight right through the scale-up journey. From my perspective, the people you test your prototype with will give you some idea of who your target market might be. But you need to define the market size, your target segments, who your competition is, what their product and marketing strategy look like and so on. Basically, you’re defining cookie cutter customer segments that you know you can tap into with (pieces of) your value proposition. You need to qualify AND quantify that the market need is there.
Anna-Lisa: There is a lot in what you’ve just said there. Insight always delivers clarity for founders if they are able to listen hard. Of course, it doesn’t stop with the end consumer. If you are B2B you also need to gather that insight from your buyers, sponsors or distribution partners, right down to finding fit with the specific buyer persona in the organisation.
You mention segmentation and go-to-market phasing. These two go hand in hand but are both beholden to first de-coding your target customer’s behaviour. You are looking to find behavioural characteristics that cut through basic demographics. Your understanding of these characteristics help you segment your market in a different way and reach new markets without moving too far from your core.
The power of the prototype.
Will: At ApTap we did a lot of our lean testing through surveys and basic mock-ups on PowerPoint. We created more real, clickable prototypes on Proto.io (check out things like Sketch, Figma and Invision also) based on the top features that solved the customer’s biggest pain points. We took our prototype back to our focus groups and recorded what people tried to do with the ‘app’. Having reiterated yet again, we rolled out a minimum viable product (MVP) via TestFlight at a slightly larger scale to track various metrics (sign up rates, conversion, buttons clicked etc.) and do customer interviews. We were quite keen to get something out and felt we’d done ample user testing, but our MVP didn’t truly satisfy the needs of our users, so we kept iterating. We ended up pivoting our business model and have since had much more success.
Anna-Lisa: I agree on the importance of testing, and of course the first thing to test is your understanding of your customer’s problem set, ambition and pain points. We’d always advocate you do this well before you even start to hint at potential solution features, let alone testing those features with users. This is because you want to understand the full scope of your customer’s pain so that you’ve got room to grow together. It can be too easy to get boxed in to a corner on the back of today’s features.
Whether it’s customers or users you are testing with, we suggest that you carry it lightly. Play it cool.
“We’re just testing out a few things, see what lands, what resonates with you. What’s your first impression? What did you hope to see from us? What should we focus on next do you think?”
Never be defensive. I know that’s easier said than done when there is so much riding on your customer’s response.
This take-it or leave-it attitude encourages the customer to be honest and also to feel confident enough to put forward a few ideas of their own. It’ll pay off.
Go-to market
Will: We learned that you don’t need to rush into the market. A bit of patience means you can enter the market knowing you have a product or service people want, and something you can build a viable business around, while differentiating from your competition.
Anna-Lisa: Sometimes some hustle is needed. It’s the Reid Hoffman quote, “if you are not embarrassed by the first version of your product, you’ve launched too late.”
That said, you need to know when to pause and reflect on what your feedback loops are telling you, and whether you are prioritising correctly.
Shortening the sales cycle
Will: Not having PMF feels pretty obvious: customers aren’t talking about your product; retention isn’t great; or deals aren’t closing for example. For many companies finding PMF is an iterative process, so the testing and tweaking doesn’t stop.
Anna-Lisa: I imagine we’ve all had that sinking feeling of unrequited love in our personal lives. It’s no different here. No amount of trying harder will make a bad relationship better. I’d advise that you be as demanding of your customer relationships as you are of your own. If the relationship doesn’t deliver value to both parties, from the start, move on.
Data is your best friend.
Will: It won’t surprise you to hear that we are big data fans. Study the trends: Where are people coming from? What button on my MVP landing page is most clicked? When I moved my checkout button did it increase or decrease conversion? Who are the customers that are getting all the way through the user journey?
Anna-Lisa: I’d love to see what comes through for you here. I think ApTap has the potential to change the role that a bank, for example, plays for customers – from passive custodian of cash to a more active participant in each transaction. I’d like to see if there is evidence of that need in the way customers are using the product, their banking apps and their own on-line research. You’ll have to sit and observe them very patiently working outside of the confines of your product to get the value. Ethnographic research is fascinating and I think foundational.
Will: Don’t stop talking, analyzing and improving. If you have a thousand ‘orders’ come through from 18-25 y/o’s and ten from 30+ y/o’s, guess who you’re going to be targeting? Measure with quantitative metrics: NPS (net promoter score), churn rate, retention, growth rate, market share and so on. Engagement and retention mean much more than pure acquisition as it shows you are offering real value to customers – double down on interviews with the people who stick around. Even if you have found PMF, you need to stay on top of it.
Anna-Lisa: I do agree with doubling down on spending time with those customers that stick around. Blind spots can become a problem though and user testing with more diverse users can be really helpful here. Start-ups in our portfolio have benefited from working with people with learning difficulties. These consumers can’t and won’t accept bad products in the way that the rest of us have resignedly agreed to do. You get more instant feedback. What’s so exciting here is that you create a differentiated proposition with universal appeal.
Competitors
Will: Let’s bring competitors into this. First mover advantage is one thing, but first to PMF will take the biggest slice of the cake. Reduce, raise, eliminate, create. What can you do differently across these axes to put yourself at an advantage? Cut down or completely remove the things on which competitors waste resources not adding much value to users and add new value or double down on the things you know customers find the most valuable.
Anna-Lisa: Competitors don’t need to be the primary concern for a start-up if you are focused on the right things. You must understand your customer’s context, ambition and the pain points that they face along the way. Then very carefully map your features to their pain points, along with the benefits you can commit to.
If a competitor has it all nailed, then there will be no pain point, so there is nothing to fix. Move on.
More likely though, the competitor’s attempt will have left your customer in some way disappointed. It’s that disappointment that you must address, and it’s from solving this disappointment that you earn the right to do more.
Feedback loops mean that you are never the ones to disappoint.
Prioritisation
Utility, price, cost, adoption. In a nutshell, this is a step-by-step process where you ask yourself yes or no at each step. You should have confirmed buyer utility and have some idea of what price suits your buyers. Next ask yourself if your cost structure is viable and then evaluate what barriers to adoption there are.
Anna-Lisa: We take a pretty simple approach to this. In order to increase adoption, you must prioritise which applications and markets you are investing in.
Prioritise against three key dimensions: readiness to buy (desirability), ability to get on-board (feasibility) and potential to grow together (viability).
Getting pickier might lighten your pipeline, but it also increases the chance of success with a few carefully selected targets.
It’s these long-term partnerships that will give you the growth metrics that you need. They take a little nurturing, but it should feel like you are getting as much as you are giving.
In summary
The customer is always right (or so they say). Product market fit is ultimately about finding the utility that really resonates with customers and cutting out the things that don’t. It can be tough as a founder or product owner but in the end you’ll thank yourself. If necessary, get a fresh (brilliant) set of eyes on your product like we have with Anna-Lisa and Pete!