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Most startups fail not because of bad products, but because they don’t get the go-to-market right. It’s why we call it MARKET-product fit (MPF). And getting there–especially for early stage startups– is sometimes counterintuitive.
This is Part Two in our series. Before we dive in, we wanted to answer some of the questions we got on topics in Part One.
Hot Takes to Your Hot Questions
VCs throw around the term Ideal Customer Profile (ICP) a lot.
Although we advocated to “build for the market you can get, not an ICP,” it’s not an answer VCs like. Here’s how to thread this needle: state your initial assumptions as a hypothesis “We believe customers with these key attributes [insert them] will be our ideal targets. We’re doing x, y and z to validate those assumptions.”
Customers should not be “mid-market enterprises in healthcare”—that’s way too general. It should be “a health tech company with all their infrastructure in AWS that has high volume, variety and velocity of data changing.” In the early stages, your ICP evolves a lot.
What VCs do like is you having thoughtful, specific opinions based on market inputs.
How do you convince a VC that an unaddressed market is large enough?
If you get specific and narrow on a problem and market so your product can succeed, how do you show that market is still meaningful in size? Use credible market evidence “I met with 50 CMOs in person, and here’s why they said they’d buy,” or “We already have three design partners ready to sign as soon as we build.”
Market evidence is always more compelling than a purely intellectual market sizing exercise. VCs understand you have to start somewhere. Remember, a good framing to keep in mind is VCs want to fund ideas they can envision becoming a billion dollar company by itself.
Show companies like yours that have made it that far and why you’re the future version of them.
What about the obsession over competitive moats?
In the era of how fast products can be built and code can be written, it’s a legitimate concern. Likewise, will a future foundation model eat your company’s lunch?
You do have to have a novel approach to solving a specific problem for a big market. But here again, VCs know it’s how your product adapts together with your go-to-market that is the ultimate difference maker.
At the early stages, you’re trying to show VCs how good you will be at adapting.
Now on to Part Two
A quick recap on signs you don’t yet have Market Product Fit:
- You don’t have a repeatable revenue fly-wheel–even if your product has some adoption.
- Growth is expensive or feels like you’re pushing a rock uphill.
- You only close deals where you have 1:1 conversations and contort to push deals over the finish line.
- Competitors with very similar product offerings seem to be doing better than you.
MPF is not a one-time state; markets always evolve, which means companies need to as well. Let’s unpack more of the counter-intuitive work at a startup’s earliest stages.
When it comes to messaging, today > tomorrow
When RunReveal first started, they led with the same language many other security companies use: monitoring of log files and security incidents.
RunReveal’s initial product did not try to do everything Security Information and Event Management (SIEMs) products do. SIEMs are bloated and expensive. And no one likes them. RunReveal focused on doing just the most important things better, easier and cheaper.
They shifted their messaging to attack a key limitation of their rivals:
“SIEM doesn’t have to suck.”
This small change made a big difference on their leads from their website. It also had the added benefit of imparting some branded tone and helping them quickly qualify leads.
The lesson: Don’t fall into the trap of messaging what you will be; be clear about what you are right now. Messaging’s job is to orient people around what you do and why they should care. And sometimes, that’s made most clear by comparing how you’re different from what they already know. Messaging can and should evolve as your product does.
PLG is not a GTM, it’s a channel
When Stackhawk launched, they leaned into the open source project their product was based on. Product led growth (PLG) based on open source projects was (and remains) a popular go-to-market standard.
But they learned what nearly every direct-to-developers (D2D) or B2B startup based on an open source project eventually experiences: it is a great channel for leads, but it’s a bounded go-to-market by itself. The real revenue comes when a dedicated sales team develops a robust, hybrid go-to-market process.
For Stackhawk, sales uses PLG as a filter for customers who are a better match. PLG remains important in their mix, but real revenue depends on more ‘traditional’ sales processes and partnerships. Smaller deals are used as a ‘land’ from which to expand. Bigger fish go straight to a more hands-on sales motion.
The lesson: PLG is best for top of funnel leads, but when you’re ready for broader commercialization, sales should use PLG as inbound signal into a hybrid process. Traditional sales still plays a very important role when it comes to revenue.
It’s not just adoption–look at speed of adoption and market “pull”
It’s easy to think things will get easier after your first “big” customer, right? But as Vannevar discovered, sometimes your first customer sends you down a path that isn’t where you find your longer-term growth.
Vannevar–which creates products for national security–had a first product that solved an important but non-urgent Arabic OCR (optical character recognition) problem. So they built a prototype of their Decrypt search product–something they thought was just a feature. During demos of the prototype, people would interrupt saying “I need this on my deployment now,” “How do I get this to my unit?” Their $25K three month pilot of Decrypt generated real intelligence wins. Those translated to a $1.3M contract in ~4 months.
The lesson: Early POCs are excellent indicators of market potential. But it’s the time in which it takes an organization to get to value and your prospective customers “pull” (aka “I need this now!”) that matters most. Improve your POC process to minimize time to value and make sure internal advocates grow in number. When the urgency and need for your product is clear enough, you sometimes won’t even need a POC.
Pricing: don’t focus on what you charge. Focus on how.
Figuring out pricing is one of the hardest things every startup has to do, yet few treat it like a “first class” citizen. They spend most of their time on what they’re going to charge and not what is the right model for monetization. Should it be consumption based? Seat-based? Free trial? Freemium?
Here are key questions when figuring this out:
- How are customers used to buying? It’s fine to be innovative but customers will anchor your pricing by comparing you to something they already buy. Don’t let your initial pricing model create unnecessary friction. You can always optimize it later.
- How do customers measure the value of your product? If they pay for more licenses, are they getting more benefit, more usage, or something else? The perception of value must align with your pricing strategy, and ideally, help drive adoption, not discourage it.
- Can your champion explain the pricing to the person who pays for it? Keep it simple. If your champion can’t explain your pricing to the CFO, you’re going to have problems getting it approved.
- Consider how your pricing scales. If you’re selling to large enterprises, understand what the “maximum level” pricing scenario looks like. How should it change as use of your product grows? Be prepared to discuss volume pricing i.e. discounts.
Also, remember pricing and packaging are two distinct things. Pricing is how much money you’re going to get. Packaging is how you make it easy for a customer to find what best matches their needs and maximizes the likelihood they’ll say yes.
In the early days, assume you’ll be experimenting with both.
MPF is a journey, not a destination.
There is no lack of frameworks or advice on how to get to become a successful startup. But know that no two companies follow the same path to success. Your market, your team, your product, your timing, what you say, what you do–they all matter.
It’s why a startup can go from red hot to not–their markets changed, but they didn’t or vice versa. You’re that startup that disrupts a company that has failed to realize how much the world has changed around them.
That’s why we’re here to help. Please keep the questions coming in comments or DM us on LinkedIn! We’ll do our best to answer them.
