Finding product/market fit is, rightfully, a hot topic for B2B SaaS companies.
Here are some quotes from smart and accomplished people, in case you need convincing:
Marc Andreessen (internet pioneer, investor): product market fit is “the only thing that matters.”
Andy Rachleff (teaches the course on product/market fit at Stanford): “When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.”
Don Valentine (storied venture capitalist): “Our view has always, preferably, been: give us a technical problem, give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff.”
Alex Schultz (tech marketing vet, currently at Meta): “The number one problem I’ve seen for startups, is they don’t actually have product/market fit, when they think they do.
Another smart person:
“E=mc2, and product/market fit is important.”
Although most often discussed in terms of start-ups, product/market fit is a universal issue. Finding product/market is important for every company, at practically every stage. And not finding product/market is bad.
But there’s something worse than not finding product/market fit.
It’s finding a fit with the wrong market.
When it happens, it’s usually because the wrong market has found you, or you’ve allowed it to find you.
Here’s an example of the search for product/market fit gone bad.
I was a product marketer for a new-ish product line at an established, mid-sized software company.
This new product line seemed perfect for us because it served a dual-purpose: it complemented our flagship product so it could be used to expand our footprint in customer accounts, but also had enough stand-alone value that it could be used to target brand new markets.
But which new markets?
Some of them seemed already spoken for. Our strategy had been classic fast-follower. Other vendors were already market leaders, dominating key, attractive markets.
Did we want to go head-to-head with these vendors, especially with a relatively immature product? Or try a different strategy?
Candidly, we waffled. And the wrong market found us.
Good for breakfast, bad for market strategy.
We tried going head-to-head. We weren’t very successful.
It didn’t help that we lacked a product strategy — a reason why buyers should choose our nascent product over that of the established vendors. That topic could be a whole blog post unto itself.
Meanwhile, one of our big customers, to whom we introduced the new product, envisioned it as a way it might fix a major problem they had. That problem was quantifiably big, and a solution would be worth a ton of money to them.
The thing was, the product needed some major enhancements to do exactly what they wanted.
So, we got sucked in. We redirected the roadmap to their needs. We shopped the concept to a few other big customers who had similar needs, and they loved it.
We thought we were on to something huge.
We even convinced ourselves that this new product direction was the key to differentiating ourselves against the incumbent vendors in their markets.
But it was all a delusion. We’d let the wrong market find us.
It was like having beer goggles for a market.
“What an awesome market…”
We eventually realized the market for the new product direction was pretty small. We landed a few big deals. But then there was no one else to sell to.
And the larger market didn’t really care about this innovation. They didn’t actually have a version of the same problem. We’d been hearing what we wanted to hear, not what the market was actually saying.
And so our win rate against the incumbent vendors got worse. Our product never got above the “also ran” level.
We won some business by bundling the new product with our flagship product, and by discounting a lot (always a painful way to win).
But in the long-run, the product line essentially failed.
It happens scarily often. Here are some other examples.
These are mostly from my consulting work:
- A company in the data analytics space with a product-led growth strategy found many of its freemium users were hard core data scientists. Over several years, it enhanced the product to meet the needs of these power users and get them to upgrade to the paid version, with the intention of using these paid users as a step towards landing department- or enterprise-wide deals.
But the reality was that these departments and enterprises weren’t ever going to give up their preference for SAS or Python coding, at least not often. So, the company’s products wouldn’t ever be more than a sideshow for its customers.
Meanwhile, the “analytics for everyone” movement came alive, representing a much better market for this vendor. But other vendors had built products from the ground up aimed at serving non-experts, and they did much better in this market.
- A customer experience vendor built a better mousetrap, so to speak, than the large incumbent players in the space. The vendor reveled in competing and winning several enterprise deals against these incumbents, and began receiving RFPs from other, similar customers — and began roadmapping its product to win more of these deals.
But a whole new breed of vendor was about to emerge that made the incumbents’ approach nearly obsolete. This new approach also opened a largely untapped midmarket.
Had the vendor been more deliberate about its market choice, it could have been one of the leaders of this next generation, not the youngest of the “legacy” players.
“We just landed a big customer — take a hard left!”
- An application management vendor was born when an academic developed some innovative new code. As he was shopping around the tech and building the company, the first interested buyers wanted to use it to improve the operational efficiency of their on-premises Hadoop environments. This was after the initial Hadoop hype had calmed, but before on-prem Hadoop had really fallen out of favor.
However, cloud computing environments were already on the rise. The vendor, eager to get the ball rolling by achieving early revenue and growth, pursued the Hadoop market, with notable success.
But just a few years later, the vendor was backtracking and repositioning and trying to explain its relevance to the now-hot cloud computing market, with significant technical deficits due to over-indexing on the need of on-prem environments.
- A marketing tech vendor had pioneered and dominated a niche space focused on enabling a certain type of incentive-based marketing. They achieved great product/market fit over the course of several years. But they wanted to scale the business, and knew they needed to find a bigger market to do so.
Several of their customers wanted them to enhance the software so its use could be expanded beyond its niche purpose and replace one or more existing platforms doing other things. The problem was the markets these other platforms represented weren’t that attractive: low growth and high margin pressure from intense competition. They did represent room to expand for the vendor, but seemed likely to be dead ends, ultimately.
At last check, the vendor was struggling not to cave into the temptation to play along with these customers and enter one of these unattractive markets.
So, with these cautionary tales in mind, how do you avoid making this same mistake?
“This one’s called The Horrifying Tale of the Wrong Market…”
Unfortunately, the reality is there’s no silver bullet. Like finding the right market, avoiding the wrong market is more art than science.
But there are a few sensible things you can do.
Think like a consultant: when considering markets, it’s not hard to do a basic version of a consulting-type project to assess attractiveness. Put another way, do the science part. For example, one simple approach would be to identify markets and then assess them along four dimensions: size, historical performance (e.g., your win rate in that market), fit with product capabilities, and competitive intensity. There are other, equally simple frameworks you could use.
Be skeptical: as discussed, there are a lot of things that can pull you into a market. Before letting it happen, be skeptical about whether it’s the right move. Simply adopting the bias that any market that pulls you in is likely the wrong market can spare you a lot of problems. As you start to feel the pull, assume it’s wrong — and then do a hard-nosed assessment of whether it’s right. Make the market (or its proponents) convince you it’s right.
Love, but beware your customer base: the above is especially true if it’s your existing customers pulling your new products towards them. Love your customers. But beware them. Start-ups with few or no customers don’t have this problem. But they need to beware prospective customers that founders or founding teams know from previous jobs. The easy meetings and quick sales that come out of this familiarity can be the equivalent of the pull of an existing customer base.
Stick to your (roadmap) guns: don’t let your product roadmap get hijacked. Decide what your product is supposed to do, what problems it’s supposed to solve, and what value it creates. Then find markets that are a match. You haven’t found product/market fit if you have to radically change your roadmap to serve that market. You’ve found a different market for a different product.
Fail fast: in the end, as with many aspects of go-to-market strategies, you may just need to experiment. Do the work, identify markets that seem like a good fit, filter out ones that have your attention for the wrong reasons, and go after a few customers. If it works, you may be onto something. If not, fail and figure it out quickly and move on.
Ultimately, avoiding the wrong market and finding the right market is a bit like sailing.
When you’ve got wind in your sails — or are in the right market — you know it. You can just feel it. To find it, you need a combination of skill, luck and exploration.
But what do I know, I’m not a sailor. I’d better quit this metaphor while I’m ahead. You’ll get as much insight from watching this Christopher Cross video.