Beware the False Dawn of Product Market Fit

A few wins doesn't mean you have repeatability

Sometimes in early stage startups after you close a few deals you figure you’ve checked the box and can start scaling. Because now you’ve got that everlasting Product / Market Fit that your investors have been hammering you about. But are those early deals really representative of the market? In some cases they might be one-off custom development deals or as a result of founders calling in favors within their network.

There’s nothing wrong with that. It’s a good way to get feedback and exposure. But it can create a false dawn. It looks like daybreak, but that faint glow on the horizon is just dust particles in space. It’s noise, not signal. Founder-led sales are not particularly scalable. Founders carry a certain charisma that regular sales people might not be able to pull off. Prospects might feel obliged to listen to an intro through their board. You get a polite reception and then… they’re just not that into it.

The best way to think of product / market fit is as a continuum, rather than a binary, one-time event. As your business grows and the market evolves, you will enter new market segments where you will need to continuously prove your value. Having adoption among European tech companies doesn’t mean it’ll play in Peoria, and vice verse. New market segments have their own distinct requirements and buying processes.

Crossing the Enterprise Chasm

In the early days of MySQL (and Zendesk and Duo Security and pretty much every Enterprise software company) we were excited to book meetings with large Enterprise customers like GE, American Airlines, PeopleSoft and Siebel Systems. No doubt, they were ready to buy. I mean, why would they book an in-person meeting if they weren’t serious?

So we scrambled to build an Enterprise Edition, staff an Enterprise sales team, create an Enterprise pitch deck and so on. And we learned the lesson that every Enterprise software company learns: Enterprise sales are slow and complicated!

Ironically, when we built the Enterprise sales team, there was a lot of envy among the existing mid-market sales reps who were vying for those roles. Everyone anticipated the commissions that million dollar Enterprise deals would deliver. Three months later, when the Enterprise team hadn’t closed anything, the mid-market reps figured they’d dodged a bullet. Six months, later the Enterprise reps were wondering if they’d committed career suicide.

We eventually figured things out and built the required features that Enterprise customers needed. These went well beyond the requirements of our early adopters. We started closing larger deals, but it took a lot perseverance and maturation of our product, services and approach. It also took time for Enterprise customers to trust open source enough to use it for mission-critical applications.

The key lesson is that selling to mid-market companies and high-growth startups didn’t mean Enterprise customers were ready for us, or that we were ready for them. Each new segment you target has its own specific requirements. Having product market fit in one segment doesn’t guarantee success in others.

Enterprise customers have far more complex needs in terms of integration, reporting customization and security. It’s not enough to “do the thing” for Enterprise customers. You’ve got to integrate with their existing systems, provide the reporting they want and prove the value. Unlike smaller companies who are willing to work around your product limitations, Enterprise customers are looking for a “whole product” that can be integrated into their existing operations.

As you develop your go-to-market strategy, you should understand what product or service capabilities you need to add to expand into specific market segments or territories. In effect, your product roadmap is the key to expanding your reach to unlock new use cases and new segments. Each new release should give you some competitive advantage that opens up a bigger slice of the market.

Are You Ready to Scale?

Premature scaling happens when investors (and sometimes founders) are so impatient for growth that they mistakenly assume that success with a few customers means the company is ready to double or triple overnight. On a spreadsheet, it looks so easy, it’s hard to argue. But in the real world, ramping up sales and marketing before you have product-market fit can be a frustrating and costly distraction.

The best way to counter this, is to make sure you really have a repeatable, efficient process before you staff up. Here are a few questions to consider:

• Can you define your ideal customer profile?

• Do you understand the key personas involved in the purchase and the specific problems they are trying to solve?

• Do you understand their buying process and the approvals required?

• Can you explain how your product is better than competing solutions?

• Can you reliably predict which prospects have a higher likelihood of closing?

• Can you efficiently engage high-likelihood prospects through marketing?

• Can you close prospects without calling in favors or dropping your price?

• Can you get customers into production in a predictable and reliable process without calling on Engineering for custom work?

While you don’t need to have a perfect answer to every one of these questions before you scale your business, an honest assessment should help you determine how repeatable things really are and where you need to improve. You should be able to point to specific customers in production and show how they are representative of your go-to market strategy.

If you don’t have good answers to at least five of the above questions, you should spend more time trying to uncover patterns among your prospects that will help you improve your targeting and strengthen your understanding of the problems they have.

As with the most complex challenges in life, product / market fit is an ongoing process. In rapidly evolving markets, there can be changes in market conditions (new competitors, new customer expectations, new technologies) that knock you back a few steps. When that happens, get out and talk to customers. Understand their problems, listen and learn.

It’s a Numbers Game

Also recognize that when it comes to product / market fit, quantity trumps quality. The more at-bats you have, the more wins under your belt, the easier it is to identify repeatable patterns. Those patterns might not represent a majority of customers, but if you can consistently target them and close them, you should double down on that bet.

Sometimes there will be multiple patterns that emerge, each one occurring 12 to 20% of the time. You will need to think about what marketing approach, content and product features matter most to each of these groups. It might be that there’s a class of prospects who are frustrated with a competing product. Or it could be pressure that is being felt in specific market segments around a particular common problem, whether that’s seasonality, shopping cart abandonment, cost-cutting or some other scenario. You want to go beyond generic “one-size-fits-all” communications to focus on what really matters to the buyers in each different segment.

If you can identify prospects who fit into these patterns and speak to the value you provide, you are on your way to building a truly scalable business.

The picture above is not dawn or false dawn (I’m never up that early), but it is one of my regular running routes at Timbers Recreation Area in Traverse City, Michigan.