Are you creating a new company? If you are, as an entrepreneur, the day you open up your shop, start selling.
In 2016, I consulted with six startups. Two bootstrapped their way through the year, and four lived off of money they had raised. During the last twelve months, it became clear that the most challenging issue these companies faced was not developing a product, but instead, getting to product-market fit, or more simply, finding people they could sell their product or service too.
You have product-market fit (PMF) if you can sell your product to multiple people and can do so at a price where there is a real exchange for value. You do not have it if you have only signed up a beta account or a non-paying proof-of-concept deal. When you have PMF, you can sell your product at a price that supports your business model, and there is repeatability to your deals.
Not surprising, the two companies that were bootstrapping their business acquired paying customers and found product-market fit for their offering. One is selling into a nice niche market that can sustain them as well as offers them a gateway into a larger mass market. The other discovered a massive market which they are aggressively servicing and expanding into today. The companies that had raised money were the ones that struggled to find people to sell their product too and realize product-market fit.
The bootstrappers, having elected to grow their business through personal investments in the company and cash they generated through sales, forced themselves to focus, and quickly iterate to where they could get paid for their offering. In general, those that raised money were less focused and disciplined in iterating as a team to find a clear sellable solution. They tended to take a shotgun approach to finding a market. And they were unable to discover their product’s Superpower and were less scientific in testing for what it could be.
Whether you are bootstrapping your business or have raised money to fund it, until you have discovered product-market fit and have a repeatable sales model, you should maintain a small, focused team. Furthermore, you have to have a clear understanding of what you are trying to sell and to whom, so you can quickly iterate if need be to find a market for your product. Then when you have secured key lighthouse accounts and paying customers, then quickly iterate your sales effort into a repeatable sales model by working your company through the key steps of what is called the sales learning curve. This effort should help you develop a predictable sales process that drives cash into the business.
Moreover, if you think your company has product-market fit, test for it! Don’t just assume you have it. If you have product-market fit, when you engage the market, it should respond with interest. For example, two of the companies I was working with had mobile solutions. The one that had found product-market fit, when they suspected that they had found it, ran a simple test. They sent out an email to 100 prospects. The response they had was strong. They had over a 50% open rate and 20% of those that opened the email reached out to them directly requesting a demonstration and a more detailed discussion of their offering. The mobile company that did not have product-market fit, when they ran a similar test sending out 200 emails to prospective customers, had about a 5% open rate and no company reached out to them for a demonstration or made a request for additional information.
The rule of thumb here is that if you have product market fit, with some marketing visibility you will have prospects seeking you out. Moreover, when you do outreach marketing to your target group, you will see a strong response rate to this marketing effort. If you do not, you have more work to do, so keep your team small, focused and iterate quickly.