What is product/market fit?
In the beginning, the entrepreneurs should be obsessively focused on finding a product/market fit, and conserving cash to allow them as much roadway as possible. Mark Andreessen describes product/market fit as “the only thing that matters,” but what is it?
Basically, a startup has product/market fit when it has:
- A set of customers excited enough about your product to pay for it. Usually, that payment is cash, but sometimes it’s time. As Facebook, Twitter and Google have proven, if you can get enough customers spending time with your product, there’s usually a way to monetize it.
- A customer base large enough to create a viable business.
Andreessen says:
ou can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers ….
You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah,’ the sales cycle takes too long, and lots of deals never close.
Lower your burn rate during the search for product/market fit
If your startup hasn’t reached product/market fit, you should obsessively focus on finding it and adjust your burn rate downwards to give yourself as much time as you need to get there.
The best way to find product/market fit is to get in front of customers and validate your assertions. Start early, and validate before you build anything. Use wireframes of the product to walk customers through your vision, then keep validating throughout product development.
Develop objective listening skills, and don’t get caught up in selling too hard. Often entrepreneurs only hear what they want to hear, a trait sometimes referred to as “happy ears.” When a customer disagrees, you’ll often hear these entrepreneurs say: “They just don’t get it.” This is a good indication the entrepreneur isn’t listening.
Also, ask yourself two questions about each of your assertions:
1. Is the problem you’re tackling important to the customer? Too often, companies chase problems that just aren’t important enough to spend money or time to solve. If the problem isn’t important enough, be prepared to drop the idea you’re currently working on and pivot to something different.
2. Do your solutions really solve the problem? Present the solution to the client, and ask them tougher questions such as:
- “Is this a must-have, or a nice-to-have?”
- “Would you commit to purchasing at this price if we build it?”
- “Where does this fall on your list of priorities on which you’d spend money?”
At my fourth startup, Watermark Software, we got a great response when we showed our software to potential customers; our launch went well; and even the New York Times was excited enough to dedicate a half page to covering us. But while it was cool, it wasn’t a must-have, and we struggled to sell it. After two more years of hard work, we found the vertical applications that were a better fit for our product and pivoted the product into a full solution for those verticals. The business took off.
We wasted a ton of money in those two years. Had we done a better job of customer validation up front, we could have avoided that waste. I made the mistake of listening with “happy ears” instead of being objective.
Reduce your burn rate; increase your time
No one can predict how long it will take to find product/market fit. To give yourself the greatest chance of success, you need your funds to last as long as possible. In other words, you need to set your burn rate as low as possible.
The ideal startup team should be the founders, the product development team, and one or two sales people to get the founders in front of customers. That’s it. The founders are the people best suited to interacting with customers to figure out if the experiments are working and to learn from the failures. This work is the key job of the entrepreneur, and cannot easily be delegated to others.
It may also be tempting to hire a large R&D team to get to market quickly.Recognize that few products are immediately ready for broad adoption, and you’ll likely need to go through a few revisions to get to product/market fit. Set your burn rate for a marathon, not a sprint.
There can be exceptions to this spending rule when you can find things that will clearly shorten your time to product/market fit: for example, a new hire that brings in a missing but much-needed skill.
Once you have evidence of product/market fit, you can then find a repeatable and scalable sales model, which I’ll address in my next post.
David Skok has been a General Partner at Matrix Partners since 2001. He founded his first company when he was 22, and since then, founded three companies, including SilverStream Software, and done one turnaround. Skok specializes in SaaS, enterprise software and cloud computing, and blogs at forEntrepreneurs.com.
Image courtesy of Flickr user tonylanciabeta.
In the upper reaches of Wall Street, talk of another financial crisis is dismissed as alarmism. Last fall, John Mack, to his credit, was one of the first Wall Street C.E.O.s to say publicly that his industry needed stricter regulation. Now that Morgan Stanley and Goldman Sachs, the last two remaining big independent Wall Street firms, have converted to bank holding companies, a legal switch that placed them under the regulatory authority of the Federal Reserve, Mack insists that proper supervision is in place. Fed regulators “have more expertise, and they challenge us,” Mack told me. Since the middle of 2007, Morgan Stanley has raised about twenty billion dollars in new capital and cut in half its leverage ratio—the total value of its assets divided by its capital. In addition, it now holds much more of its assets in forms that can be readily converted to cash. Other firms, including Goldman Sachs, have taken similar measures. “It’s a much safer system now,” Mack insisted. “There’s no question.”
That’s true. But the history of Wall Street is a series of booms and busts. After each blowup, the firms that survive temporarily shy away from risky ventures and cut back on leverage. Over time, the markets recover their losses, memories fade, spirits revive, and the action starts up again, until, eventually, it goes too far. The mere fact that Wall Street poses less of an immediate threat to the rest of us doesn’t mean it has permanently mended its ways.
Perhaps the most shocking thing about recent events was not how rapidly the big Wall Street firms got into trouble but how quickly they returned to profitability and lavished big rewards on themselves. Last year, Goldman Sachs paid more than sixteen billion dollars in compensation, and Morgan Stanley paid out more than fourteen billion dollars. Neither came up with any spectacular new investments or produced anything of tangible value, which leads to the question: When it comes to pay, is there something unique about the financial industry?
Thomas Philippon, an economist at N.Y.U.’s Stern School of Business, thinks there is. After studying the large pay differential between financial-sector employees and people in other industries with similar levels of education and experience, he and a colleague, Ariell Reshef of the University of Virginia, concluded that some of it could be explained by growing demand for financial services from technology companies and baby boomers. But Philippon and Reshef determined that up to half of the pay premium was due to something much simpler: people in the financial sector are overpaid. “In most industries, when people are paid too much their firms go bankrupt, and they are no longer paid too much,” he told me. “The exception is when people are paid too much and their firms don’t go broke. That is the finance industry.”
On Wall Street dealing desks, profits and losses are evaluated every afternoon when trading ends, and the firms’ positions are “marked to market”—valued on the basis of the closing prices. A trader can borrow money and place a leveraged bet on a certain market. As long as the market goes up, he will appear to be making a steady profit. But if the market eventually turns against him his capital may be wiped out. “You can create a trading strategy that overnight makes lots of money, and it can take months or years to find out whether it is real money or luck or excessive risk-taking,” Philippon explained. “Sometimes, even then it is hard.” Since traders (and their managers) get evaluated on a quarterly basis, they can be paid handsomely for placing bets that ultimately bankrupt their companies. “In most industries, a good idea is rewarded because the company generates profits and real cash flows,” Philippon said. “In finance, it is often just a trading gain. The closer you get to financial markets the easier it is to book funny profits.”
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
<b>News</b> And Notes: 11.29.2010 - Blueshirt Banter
News And Notes: 11.29.2010. ... News And Notes: 11.29.2010. Joe_2_tiny by Joe Fortunato on Nov 29, 2010 10:03 AM EST in Rangers Analysis � Tweet � 0 comments; Story-email Email; Printer Print ...
Soap <b>News</b>: CBS Renews 'Young and the Restless' and More
Soaps are dying? Not yet. morning, CBS gave 'The Young and the Restless' a three-year renewal! Also this week, a fan favorite who was supposedly.
Fox <b>News</b>' 2012 roster – CNN Political Ticker - CNN.com Blogs
(CNN) -- Five big name Republicans have two things in common- they are all considering runs for president and are each employed by Fox News. Former Alaska Gov. Sarah Palin, former Pennsylvania Sen. Rick Santorum and former House Speaker ...
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html
No comments:
Post a Comment