How to Find Product Market Fit

Sean Sheppard, Founder @ GrowthX

Startup Grad School Stage
Ascent Conference 2020

[00:00:01] Good afternoon, everyone, welcome to the Ascent conference. My name is Sean Sheppard, I’m a founding partner at Growth X and Growth X Academy, a five time entrepreneur with three successful exits and a couple of very valuable and expensive learning experiences along the way. And I’ve always been a market developer, not a product developer. And as such, when I moved into the investment side growth in investing in seed stage companies, we learned one very valuable and important lesson very early on about our companies and why they were succeeding or not. And what we learned is, is that most of our companies that weren’t succeeding weren’t succeeding, not because they couldn’t build technology, but because they couldn’t build markets. And in fact, the research, according to CB Insights, who covers the space very closely, says that 70 percent of seed stage funded startups fail and 80 percent of the reasons or eight of the top 10 reasons why they fail have to do with products excuse me, have to do with markets and people, not products and technology. So we and we learned that most of our founders were very much product focused, oriented people. And so we built a program specifically to help our companies focus on market development as much as, if not more so than product development and the concept of what we call product market fit, which is defined simply, in my view, as when the when you frankly can’t keep up with the demands and the needs of your market any longer when it becomes a challenge for you to fulfill because your customers are pulling you in their direction, it’s something you feel just as much as as you as you can track and measure. Sales cycles, get shorter conversations, get easier pricing and negotiation gets simpler. Reference ability starts to come up. People can’t live without your product. And so our focus over the last several years has been on building a program specifically designed to help our companies with that, the process in the path of finding product market fit. And during that time, we’ve built an ecosystem. We have a venture funds a series of venture funds where we invest in B2B enterprise startups. We have an academy to train people to work in those companies in specific market side roles like sales growth, marketing, UX, design, thinking, data science.

[00:02:42] We have a corporate innovation business that does digital innovation as a service to help large corporations commercialize their intellectual property and find product market fit with digital products the same way they have with physical ones in the past. And it’s all at the core of it all is what we call mix up our market acceleration program, which, unlike traditional accelerators, which are all fantastic, that are focused on helping companies develop products and raise money, ours is focused exclusively on helping companies develop markets and make money. Why does that matter so much today? Well, we live in this era that I now call the age of applied technology in recent years due to cloud infrastructure and the fact that 80 percent of what we invest in today is software based technology. Things have never been easier to build and get to market. And as a result, it’s never been more difficult or expensive to sell and get real traction for those products in the market. Problems like lack of differentiation in the market, timing, pricing issues, messaging issues all create friction that prevent us from getting real traction. So the investor community has adopted a different strategy in that they’re taking the same amount of dry powder and they’re spreading it more thinly across more companies early and watching who actually does well with it finds actual product market fit or key indications of it before they start to invest heavily later.

[00:04:12] Point of that being, you need to show indications of product market fit as early as you possibly can to reduce the market risk, not reduce the product risk.

[00:04:29] So our accelerator program, which I’m going to walk you through the framework, because each and every one of you can use this in your own way to find the truth about where your product fits in the market and what to do about it is it was initially designed just for the companies in our portfolio as a way of applying the scientific method towards the market side of the business, not just the product side. And it might sound trite, but I know from personal experience and observing the behavior of thousands of startups in my lifetime, that once people start to express interest in what you’re doing, it’s very easy to get distracted by opportunities that may not necessarily be good for you right now. The whole dynamic of this is about the idea of taking something someplace new, whether it’s an existing product to a new market, a new product to a new market or a new product to an existing market. I like to say that a startup is a stranger in a strange land with a strange offering, seeking out other strangers and asking them to do strange things with you. And if you think about it, not that way. The approach and the methodology that you use to find product market fit and how you take things to market is very different than what you do in an established environment with familiar products and familiar offerings to familiar people. Excuse me. So it requires a different approach. What you’re really trying to do is recruit and not sell. You’re not looking to sell products to customers. You’re looking to recruit people who share your vision, understand your current reality, and are willing to give you the two things that matter most right now. And neither one of those happen to be revenue. It happens to be their time and their truth. Are they willing to make the same take the same kind of risk you are, have the mindset to work with you and invest in a mutually beneficial outcome, because that’s what’s going to propel you to product market fit and scale those references early customers and knowing that you have limited time, money and resources to make this happen, we need to focus our efforts in the right areas. So we’ve created a methodology that is a process plus an approach that’s designed to help you get where you want to go faster and cheaper than you might otherwise might be able to do. And it’s been very successful for us. In fact, our internal rate of return on our fund and our is much higher than the industry standards in venture. And our failure rates are much lower. And we think it has a lot to do with the fact that we focus on finding product, really smart product focused founders and teaching them what they don’t know about the market and helping them along the way. And as a result, we’ve been now licensing our program to companies and countries and other accelerators and incubators around the world.

[00:07:18] And you can even look at it yourself that that growth and look at the online program.

[00:07:24] And if you’re an individual entrepreneur, you can certainly guide yourself through this this process or participate with with one of our our partners. So here’s the most important philosophical thing to get your head around. There are three objectives. To our market acceleration program. The first is to find the truth about where your product fits in the market, if it does it all, and what to do about it.

[00:07:50] Have the right mindset for that and recognize that that while you think you may have a solution for the market, your customer may not necessarily agree, but that’s not necessarily a bad thing.

[00:08:01] You have to have a growth mindset and you have to be open to receiving that feedback. The second is to create a functional learning organization out of the team of people responsible for finding that path to the truth so that you can do it in the most efficient and effective way possible, recognizing once again that we all have limited time, money and resources to find our truth. I can’t tell you how many times in the early days of being an entrepreneur turned investor turned frustrated investor because companies were failing. I’d hear the reason why these companies are failing as they ran out of money. I say, nonsense, you misallocated the money that was provided to you on the wrong things at the wrong time, in the wrong place. So instead of just focusing on hiding behind your screen and building cool stuff, you need to get out from behind it and go out and talk to humans and identify what problems they have and how you might be able to solve them through your technology or your service. And then the third thing, oh, by the way, is you’ve got to find a predictable, scalable, repeatable business model. And not all of them have to be venture capable. You don’t necessarily have to have a highly scalable product in a massive market to be successful. If you can build a sustainable business that takes care of you, your family, your employees, their families, and gives back to society in a productive way, you are a successful entrepreneur. It doesn’t have to be a venture backed deal for it to win. So the other question that people always ask me at this point is, is this just for B2B because you invest in B2B technologies? No, it doesn’t matter what whether you’re B2B or B2C or a marketplace or piece of hardware, a piece of software, a service, a consumer product. It doesn’t matter why, because the framework is all about learning. I call every business to age. It’s human to human. And so the idea here is that products and markets are certainly unique. But the path to product market fit is not. If you ask any experienced entrepreneur to look back on their experience, they will say that they had to do the things we’re going to be talking about here in a minute. They may not have done them in the same organized and efficient way in which we are laying it out here for you, but they had to do it.

[00:10:16] So it’s all about learning quickly from the right customers at the right time, in the right way, so that you can achieve referenced ability and validate a business model.

[00:10:29] So we take what we call a milestone based approach to this effort. We have three key milestones, the first milestone. Again, these are traction based milestones. They are not revenue based milestones. You can’t predict a future with forecasts if you don’t have a past many forecasts or an exercise in futility. If if you don’t have that history. What you can do, however, though, is take attraction based approach towards finding product market fit. And in the first milestone, we call it Market Foundation and Discovery. There are two key areas, what we call resources and market discovery. All right. What resources do you have to execute and who’s my best first customer to go after? So as we dove into these and I’ll give you a high level overview of each milestone, each stage in each milestone, and then the goal of that stage, the focus areas in the outcomes, the goal is what is it we’re trying to accomplish, the focus areas, what we need to do in order to accomplish that. And the outcome is a document that demonstrates that everybody understands exactly what we’re trying to do and can use that to go to market. So the goal for resource review is to create a roadmap of the people, processes and technology and tools you need and capital to create and support that functional learning organization. Why does this matter? Because you’re going to set a key market milestone that says over the next period of time, I need this many wins to learn and this is what wins look like. And if you don’t have the resources to achieve that, you’re setting yourself up for failure and frustration and disappointment. So we level set. What resources do we have now? What resources will we need when we actually start to execute on this milestone? How are they being allocated? And who owns market development, Doolan’s product development and how do they interact so that we can learn quickly? So the focus areas are there are we map and plan all of those resources? Then we look at what you’ve done to date to attract and acquire customers, if anything, and identify areas where we can quickly improve that. And then we want to understand how you measure that through a current marketing and sales technology stack. How do you track all of your outbound resource allocation and all of your inbound activity that that eats up those resources? And the outcome is, is that you’ve got a very clear roadmap of who’s doing what, when and how and how. That’s going to be tied to your first market milestone to create and support that functional learning effort that I laid out earlier. Once we’ve done that, the heavy lifting becomes the second and most, I think the most important area of the entire market acceleration methodology, which is who’s you’re not your Mr. Right customer, but who’s your mister right now? Customer, what I call your initial customer profile. This is where most of your resources are going to be allocated. So it’s really important that you map out and understand the problem you’re solving and for whom and what the specific use case is and how that’s going to get measured and who has the right mindset to work with us right now at such an early stage when we have an incomplete product. As part of that, we want to understand how our resources are going to get allocated towards attracting those people and acquiring them and then serving them successfully. We also want to understand our business model, what’s our cost to acquire customer versus our lifetime value. And out of that, we come up with a defined customer acquisition strategy and a data acquisition strategy says these are the people we’re going after here, the ways in which we’re reaching out to them. Here’s how our resources are going to be allocated towards that. Here’s the proposed pricing models that we’re going to be talking through with them once we have that conversation. And here’s how we build a list of those folks. So that starts to give us a prioritization schedule that says these are the customers. This is my initial list. This is where I’m going to find them, and this is how I’m proposing to make money from them. So at the end of Milestone one, in summary, you’re going to need to answer these questions, you’re going to know what resources you need to test and execute on your idea. You’re going to have a good idea, hopefully, of who your initial customer profile is and how to prioritize for learning, which leads to revenue and then ultimately growth. You’re going to learn how to find these folks. You’re going to learn how to talk about how pricing will work. If you have a relationship together, you’ll know what channels to reach out to them. You’ll have a market milestone that says we’re going to get this many wins over this period of time. And this is how we’re going to achieve that. And we’re going to this is how we’re going to build a list of those folks that we’re going to reach out to. And once we’ve done that, now we can go to milestone two, which is all about messaging. How do we talk to people in a way that doesn’t sell but gets us to the truth about whether or not they are a good fit and they meet our criteria for an additional customer profile. Do you have to have a qualifying out approach, not a qualifying in approach? When you’re thinking about going after early customers, they need to be a really good fit. So a milestone, too, is all about market messaging, outreach and instrumentation. So what we want to do here now is develop an initial value hypothesis, a series of value propositions that tell us what we do for them, a series of selling propositions to tell them how we’re different than what they’re currently doing and build a market message map that says for this channel and this format, this is the message that we’re going to use to start trying to get that early response and get those early meetings. And then we’re going to create a conversational framework that shows us how to actually run a meeting that’s focused on seeking fit and not selling, because, again, you do not want to spend six months or a year working with bad fit customers or people that never have the ability to do business with you, even though they may want to. And so you come out of that with an initial messaging prothesis for each initial customer profile and a map that says this is the message I’m using in my acquisition strategy, once we establish that, then we put in instrumentation which says this is how we’re going to track people. This is how we’re going to track our activity and make sure that our resources are being used correctly so that we can learn in a data driven way very quickly what’s working and what’s not. And then we implement an opportunity in sales and marketing funnel and we start managing our pipeline through that. Then we begin the campaign outreach once we have all of that in place, and then we build the portfolio of assets that we need to be successful in in providing the resources our customers are looking for white papers, case studies, sales, decs web pages, et cetera. So at the end of Milestone two, you should know how to talk to your market in a way that gets them. To tell you the truth, you should know how to attracting qualified leads should know how to build value in selling props. You should know how to learn from those, build a market messaging map and the assets needed, and then create a close feedback loop for quickly learning and testing and experimenting again set messaging. Now that we’ve done this and we actually start outreach, milestone three market results is all about managing the learning and iterating on everything in Milestone one and two and constantly asking yourself, is my customer profile correct? Are my resources being allocated correctly? Is my value proposition in this channel correct? Is my selling proposition in this format correct? Is my conversational framework helping me find fit? Am I doing the things necessary to achieve my traction based milestones? So the whole idea here is now to operationalize all of our activity, measure and market track and track responses to optimize our messaging or outreach and our conversions, validate all the hypotheses or iterate on them until we can. You’re trying to find patterns. That’s the goal. So the focus areas to put in strategic opportunity and pipeline management, then you want to develop an onboarding and implementation framework that says, how easy do I make it for customers to start working with me, doing business and making sure they’re successful? Then we’ve got a nurture framework that takes all the people we’ve reached out to that aren’t interested today but might be tomorrow. And we start delivering automated messages to keep them warm over time and then we implement a product market feedback loop. This is where whoever’s responsible for market development needs to be in constant communication with whoever’s in charge of product development to ensure that we’re building what customers want, not just to our vision. And you should have three things at all times that your customers are asking for at the top of that roadmap. And you need to be advocating for that if you’re the market developer here. So at the end of this, we should know how to successfully run a functional learning plan, measure and manage market response at scale, how to validate most of the steps across all three milestones, how to scale our outbound and conversion rates and the team. What messaging works for each use case by channel and format and customer profile. We should start thinking about our employment brand to attract a players as we continue to grow and then should know how to build support, supportable, repeatable, predictable revenue. At this point, you should have all the evidence that indicates that there’s product market fit and this is when you go to raise money. This is a reason to raise money. The last question I get for this whole process is always how long does this take? The answer is I have no idea. I’ve seen it happen in three months and I’ve seen it happen in three years. The point is, is that there’s so many factors in the market. It doesn’t know we don’t know what we don’t know until it’s already happened.

[00:20:27] That’s it for me. Thank you.

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