On Product/Market Fit

THE BIG IDEA

Don Valentine said: "Startups screw everything up."

Not because they're stupid.

Because they've got:

No money.

No people.

No infrastructure.

No experience.

So startups can't compete on execution alone.

Meta has 'limitless' engineers.

You have 5.

You can't beat them at execution.

So the only way you win?

You can only beat them if the market wants something different.

The market has to PULL the product out of your hands.

That's product-market fit.

Nothing else really matters.

DESPERATE CUSTOMERS

Andy Radcliff’s thesis boils down to one question:

"What do you uniquely offer that people desperately want?"

Not "sort of want."

Not "might be interested in."

DESPERATELY want.

Because here's the thing:

If there's a good-enough alternative, you're dead.

Doesn't matter if yours is better.

Good enough beats better every time.

Lower risk.

So you need customers who are desperate.

Who've already spent money trying to solve this problem.

Who reach across the table and grab you by the collar.

"When can I have this?"

Anything less than that?

You haven't got it.

ENTERPRISE: THE DESPERATE CUSTOMER TEST

You've got a sales prospect.

Big company.

They say: "Interesting. Let me think about it."

You think: "Great! They're interested!"

Wrong.

They're not desperate.

Here's how you test for desperate:

Give them a 30-day trial.

After 30 days, pull it.

No extensions.

Pull it.

If they scream?

Desperate.

If they say "OK, thanks anyway"?

They were never going to buy.

Most founders won't do this.

Scared of losing the customer.

But here's the thing:

They weren't a customer.

They were a time-waster.

THE THREE TRAPS

Trap #1: Chasing the big customers first

Every enterprise startup does this:

"We need a big logo!"

"If we get Goldman Sachs, everyone else will buy!"

So they chase Goldman Sachs.

Six month sales cycle.

Endless meetings.

Custom features.

Special pricing.

Finally they say: "Show us five references."

You don't have five references.

That's why you wanted THEM.

Catch-22.

Goldman Sachs isn't desperate.

They're pragmatists.

They only buy what's proven.

You know who IS desperate?

The crappy little trading firm in New Jersey.

They've got the same problem as Goldman.

But they've already spent $200K on consultants trying to fix it.

And it still doesn't work.

They're desperate.

They don't want references.

They want the problem solved.

NOW.

Sell to them.

Get five of them.

Build your product properly.

THEN go after Goldman Sachs.

Trap #2: Adding more features

Product not working?

Everyone thinks: "Add more features!"

Wrong.

More features don't make people desperate.

Your product's fine.

You're just talking to the wrong people.

Change the WHO, not the WHAT.

Find people who are desperate for what you've already got.

Trap #3: Paying for growth too early

Company's growing!

Must have product-market fit!

No.

You just spent money on ads.

That's not product-market fit.

That's a credit card.

Real product-market fit?

Exponential ORGANIC growth.

Word of mouth.

Because customers are delighted.

Can't fake that.

MAYBE = NO

Someone says "maybe"?

That's a no.

Just a polite no.

Maybe with more features?

No.

Maybe if you change this?

No.

Maybe later?

No.

Only two answers exist:

Yes or no.

Maybe is worse than no.

Because maybe gives you false hope.

You waste time chasing maybes.

No tells you something useful.

Why is it no?

Now you can learn.

THE VALUE HYPOTHESIS

Three things:

WHAT are you building?

WHO is desperate for it?

HOW will you charge?

That's it.

Prove that first.

Only THEN worry about growth.

How do you cost-effectively acquire customers?

Get that order wrong?

You're wasting money.

Doesn't matter how cheaply you acquire customers.

If they don't want your product, they'll leave.

THE ENTERPRISE SIGNAL

Here's how you know you've got it with enterprise customers:

They're already spending money trying to solve this problem.

Not thinking about it.

SPENDING money.

Consultants.

Internal team.

Duct-tape solutions.

And it still doesn't work.

You show up.

They lean forward.

"When can we start?"

Not "Send me some info."

Not "Let's schedule a follow-up."

"When can we start?"

That's the signal.

Anything less?

Keep looking.

HOW TO MEASURE IT: SALES YIELD: THE ONLY NUMBER THAT MATTERS

Here's how enterprise companies fool themselves:

"We've got 50 trials running!"

"We've got 200 prospects in our pipeline!"

None of that means much.

Here's what matters:

Sales yield.

One number.

Mark Leslie figured this out.

Sales yield = Money your sales team generates ÷ What they cost.

Simple.

A sales rep costs about $200K.

Systems engineer: $175K.

Inside sales rep for prospecting: portion of their salary.

Management overhead.

Total cost per sales team: $500K-600K.

Now.

How much gross margin did they generate?

$300K?

Sales yield is 0.5.

You don't have product-market fit.

You're losing money on every team.

$700K?

Sales yield is 1.2.

You've got enterprise product-market fit.

And here's the thing:

Once you hit 1.0, it jumps to 3.0 really fast.

Because you've found desperate customers.

You know how to talk to them.

You know what they'll pay.

Before 1.0?

You're experimenting.

After 1.0?

You're scaling.

Most founders hire 10 sales reps the moment they see any traction.

Wrong.

Hire one.

Maybe two.

Prove they can hit 1.0.

THEN hire more.

Otherwise you're just burning cash to learn the same lesson 10 times.

START WITH TECHNOLOGY, NOT MARKETS

Everyone says: "Find a problem, build a solution."

That's commodity thinking.

Everyone can do that.

The really big companies?

They did it backwards.

Saw an inflection point in technology.

Realized what new thing could be built.

THEN found who wanted it.

Technology → Product → Market.

Not: Market → Problem → Solution.

How does a 25-year-old run a billion-dollar business?

They've got no management experience.

They've never run a team.

Half of them have never had a proper job.

So why do they win?

Because they had an INSIGHT.

Not skills.

Not experience.

INSIGHT.

They saw something nobody else saw.

An inflection point in technology.

Airbnb:

"Trust systems can now work digitally."

"People will rent out their homes to strangers."

That's insane.

Every hotel executive: "Never going to work."

Every VC: "Too risky."

Everyone else: "I'd never do that."

Non-consensus.

But right.

The 25-year-olds?

They're not better executives than the 50-year-olds.

They see the technology shift.

They build the product.

They find the desperate early adopters.

The market PULLS the product from them.

Of course, after they succeed?

They rewrite history.

Tell everyone they started with the market.

THE BOTTOM LINE

Find desperate customers.

Not interested ones.

DESPERATE ones.

Prove they'll buy.

Prove they'll tell their friends.

THEN spend money on growth.

Not before.

And remember:

Markets beat teams.

Markets beat products.

Markets beat everything.

Get the market right, you can screw up everything else and still win.

Get the market wrong?

Doesn't matter how good you are.

You're dead.

That's product-market fit.