Problem-Market Fit

Almost all advice for early stage startup companies focuses on product-market fit, which is the point at which it’s clear that your product is meeting a market need in a reproducible way and your business can scale.

While I agree with that advice, it takes quite a while before you can even determine if you have product-market fit. You need to identify the market, define the problem, build a product and test it with customers. After that process, it’s unlikely you have product-market fit (it’s very hard to attain) so you repeat the process over and over again until you find it or give up.

There is a much earlier point in the company building process where you can save yourself a lot of time by being more critical, which I call Problem-Market Fit. All successful companies are started to solve a problem (see Are You Sure You Are Solving a Problem?) but few founders spend time validating that it is even possible to build a successful company on the problem they choose to solve.

After you choose your problem, make sure you have Problem-Market Fit by applying the following criteria:

  • Do customers consider it one of the top 3 problems they have?
  • Would customers immediately adopt a solution if you provided it to them right now?
  • If you solve the problem, do you have ways to distribute your solution to the customers?

I am always shocked at how many companies are started, and how much effort invested, to solve problems where the answer to at least one of these questions is ‘no’. If your problem isn’t one of the top 3 problems a customer has, you will have trouble getting their attention since they will be focused on those other problems. If they won’t adopt it immediately, the problem likely isn’t acute enough to warrant a brand new solution. If you can’t distribute your solution, then it doesn’t matter how great your solution solves the problem because no one will ever see it.

This will require you to speak with many, many customers and do in depth market research. However, days spent in doing this will save you months or years of your time in the future!

If you can’t answer ‘yes’ to all of those questions, you don’t have Problem-Market Fit and you are going to have a tough (if not impossible) road ahead. Before building a product, ensure you have Problem-Market Fit or else it won’t matter how many times you iterate.


My new company, Outlier, helps you understand your business by automatically digging through your data and finding important opportunities and problems. Don’t spend time scanning dashboards and spreadsheets, let Outlier find the insights for you. 


 

Outside In

tunnelStarting a company is like entering a tunnel. There is so much for you to do that you have no time to look around, so your world shrinks. You are so busy moving from problem to problem that it gets harder and hard to think about your company objectively.

This is why so many founders develop tunnel vision, they stop looking around. The less they look around the worse it gets and they end up making decisions that are, frankly, clearly wrong.

They have lost perspective.

Being able to think about your company from the outside is an important skill, one that will help you avoid tunnel vision and continue to make sound decisions. By putting yourself in the shoes of someone on the outside, you can see all of the strengths and weaknesses that might not be visible during your daily routine.

If you have trouble thinking about your company objectively, there are a number of ways to reset your thinking and break out of your rut.

  • Reverse Pitch. Have one of your investors or advisors pitch your company back to you. Not the way you pitch yourself, let them pitch you their vision for what your company does. Seeing your company pitched with fresh eyes always opens up new opportunities.
  • Seek out critical feedback. One of my favorite questions to ask investors, advisors and employees (both actual and prospective) is: “If this fails, what is the number one reason why?” It empowers them to share the critical feedback they were holding back from you and forces you to confront the harsh reality you might be missing.
  • Dedicate time to thinking. Sometimes, it can feel like you need to be productive 24 hours a day to keep up with your business. It’s critical to set aside time in your day when you aren’t being productive, you are thinking about your business / market / customers /etc. That thinking time will save you hundreds of hours down the line by allowing you to lift your head up from the tactics of your day to day.

Ironically, the more successful you are the easier it is to have tunnel vision because the feedback you receive is that tunnel vision works. When you are failing the world wastes no time knocking you around and forcing you to look up.

So, make it a habit early to think outside in. Who knows what you might be missing?

Image made available by the Victoriatunnel via the Creative Commons- ShareAlike 2.0 License

When Customers Attack

Not all of your customers will love you. 320px-LemonsharkIn fact, many of them won’t even like you. In my career building products and services, I have been referred to as: idiot, moron, incompetent, joker … and many, many more offensive terms involving profanity which I won’t reproduce here.

It is hard building something new and sending it into the world. As a maker, you feel that your work is a reflection of yourself and the way people respond to your product is how they respond to you. If they love your product you feel validated, but if they hate it you feel like a failure. You have to rise above that in business. You should not fear angry customers.

You should fear customer apathy.

The most dangerous thing for you and your business is customers who don’t care. They look at your product and move along. They never engage, they never care, they never think about it again.

You want customers to be angry, because that means that at least they care. Someone who is angry is someone who cared and was disappointed. Maybe the customer thinks your product is too hard to use, too expensive, not powerful enough, etc. Whatever the reason, they wanted your product to be better than it is. They wanted to love you.

Many of the best customers I’ve ever had, the ones that become evangelists for my products and brand, started off hating my products. It is by working hard to reverse their disappointment and make them happy that they become happier than someone who is satisfied at the beginning. An unhappy customer is a chance for true customer success.

So, how do you turn an angry customer into a friend? There is no one answer but here are a few things that will help:

  • Active listening. Respond quickly and clearly, demonstrating that you understand why they are angry. Many people get angry just because they feel ignored. Eschew automated email responses for personal phone calls or in person meetings.
  • Customer empowerment. As I mentioned – angry customers care. People who care have great ideas! Empower them by asking them how they would improve the product. What would they like to see done differently? Take that feedback and show them that you are listening through product improvements. Close the loop and ask what they think after the improvements are made.
  • Stay calm. If someone is screaming at you, it’s easy to get angry yourself. Always remain calm and treat them with respect. Your calm and respectful presentation will calm them down and have them treat you with respect in return.

It is not always possible to turn an angry customer into a friend. Sometimes customers are angry for reasons that have nothing to do with you or your product and are just using you as a punching bag. Even so, you need to treat every angry customer as an opportunity since you can never know that ahead of time.

We all want all of our customers to love us and be perfectly happy. That will never happen, so focus on the skills necessary to turn around bad relationships. You may find some of your best customers that way.


My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here


 

Image made available by Albert Kok via the Creative Commons Attribution-ShareALike License.

The Three Most Important Words

When I was a first-time founder, I aspired Question_mark2.svgto be completely in control. All of my role models were passionate visionaries who appeared to have all the right answers. I thought that part of the job of the founder was to be sure of what to do in any situation.

That, of course, is an impossible ideal and a very unhealthy attitude. Being a founder is more about questions than answers, and you are in unknown territory more often than not. Trying to pretend like you are in control is more distracting than productive.

I became a much better leader and founder when I started using three simple words. Three words that I think are the most important words any founder can say.

“I don’t know.”

It is very scary to say “I don’t know”. Whether you are meeting with your team, your board or potential investors you are admitting that you don’t have all the answers. You are admitting vulnerability and a gap in your knowledge. You are admitting you are not perfect.

Once you allow yourself to say “I don’t know”, something magical happens. You open the door to new ideas from your team. You demonstrate honesty to your board. You show potential investors that you are practical and aware of your limits.

Better yet, you encourage the people around you to admit when they don’t know something. Instead of trying to fill gaps with words or half formed ideas, teams empowered to admit they don’t know the answer will move faster and work together better. No one is perfect, and admitting that sheds unnecessary baggage.

So, next time you find yourself in a situation where you are not sure, allow yourself to say “I don’t know”. Then, follow it up with “but let’s figure it out.”


My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here


 

Image made available via Public Domain on Wikipedia.

 

Backwards, Thinking

When you get to where you are going, are you sure it will be where you needed to be?

Many first time founders set their company treasure-map-153425_640goals based on what they can do. They focus on product improvements they can make, how many customers/users they can acquire and which employees they can hire. All of this thinking is extrapolating from where they are right now to where they think they can get to in the foreseeable future. This kind of thinking makes you feel like you are in control.

Unfortunately, it’s an illusion.

The reality is that where you can go is completely meaningless. What really matters is where you need to be. If you want to raise funding, become profitable, etc. there are clear goals you have to reach. It is rare that you can reach them just by slowly moving forward.

What you need to do is think backwards.

Instead of thinking about what you can do, start with where you need to be. In 12 to 18 months:

  • How many customers/users do you need to have?
  • What does your growth rate need to be?
  • Who do you need to have on your team?

Once you have those goals, work backwards to set your quarterly, monthly and weekly goals. Make decisions that will increase the likelihood you can get to those goals. Those goals should be your lighthouse in the fog of war. If something does not get you closer to those goals, even if you can do it easily, skip it.

For example, I spoke with one founder of a social mobile application which was doing pretty well as a side project. His plan for growth was a series of blog posts and content marketing strategies because that is what he knew well and could get done in a few weeks. However, those blogs only reached a few hundred people. When he learned he needed to get to hundreds of thousands of users (instead of just hundreds of users) to make his business viable this strategy seemed silly. Yes, he could write the blog posts but even if it went well it would never get him to where he needed to be. Instead, it was better to focus his efforts on channels that had the potential to get him there.

If you have read about the “Series A Crunch“, this is one of the major factors. Raising a seed round is a great milestone, but if you don’t work backwards from what you need to be able to raise your Series A you can burn through all of that seed money and not be in a position to raise any more.

Think about where you need to be and work backwards to figure out what you need to do. You’ll be much happier knowing that you are pursuing a worthwhile goal.


 

My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here


 

Image belongs to the Public Domain

Cheating is Allowed

One of the things I struggle tracingwith as an artist is a constant inferiority complex. While I am a pretty good illustrator, whenever I spend time on any art sites I see the amazing work done by others and feel like I am a complete novice. I’ve spent 20 years learning and perfecting my technique but these others make me feel like I’ve only just gotten started. How did they find an easy button where I still struggle?

If you are a founder of a company, you understand that feeling well. You see your friends and colleagues raise large rounds of funding or get lucrative acquisition offers and you are still struggling to get those first few meetings. Where is the easy button they found?

Often, when you feel this way, you are making some bad assumptions. For example, when I first see a beautiful illustration of a person’s face I always assume that the artist draws the same way I do – from memory or imagination. In reality, many artists trace photos. In fact, there is evidence that even the great Renaissance painters were tracing their subjects with the use of mirrors. Tracing is infinitely easier than drawing free hand, and the result is always significantly better.

However, by assuming they were approaching the problem a certain way I assumed they were simply better than me. In reality, they just found another approach to the problem which is easier and has much better results!

Some artists consider tracing to be cheating, but in reality no one cares. No one looks at a given piece of art and says “Well, they didn’t do this the hard way…”. The same is true for your company! Your goal is to build a successful business, not to build a business the hardest way possible.

What are some short cuts you can take as a founder?

  • Sell to your friends. Every enterprise software company’s first 10 customers are friends of the founder. In fact, many of those customers might buy the product only because they are friends! That is perfectly fine as long as you quickly move on to non-friend customers, since all they gave you was a head start.
  • Leverage existing networks. Every YCombinator enterprise software company launches with 50+ customers – how do they do it? Most of them are other YC companies who want to help out a fellow founder. You can do this as well, by plugging into the network of your investors and advisors.
  • Hire your old team. Many experienced founders initially hire people from the teams at their prior job. Considering how hard it is to hire in the technology market, having the advantage of a trusted relationship and existing work style is a great way to build your initial team. It’s both less risky and easier to close someone who knows you already.

These short cuts won’t build your business for you, but they do give you a head start in a time when you desperately need the help.

The next time you feel like things are really hard perhaps it is worth rethinking your approach to try and find a short cut. Or, maybe it’s just really hard.

Image courtesy of Flickr user Smoobs via the Creative Commons Attribution 2.0 License.

Selling Your Company

It happens to every founder at some point. Fsbo_tabletYou realize building your business is harder than you expected. You’ve been working for a few years without finding breakaway growth. The team is tired and losing some of their passion, overwhelmed by the work that needs to be done. You need to start a new round of fundraising soon and are not sure you want to invest another 3-4 years into building this company. All of a sudden, you find yourself thinking of selling.

Selling your company always seems like an attractive option. Instead of working harder you can get out now for a few millions dollars, pay back your investors and pocket a little extra for the few years of hard work. You read about it happening everyday in Techcrunch so why not you? You have a great team and an awesome product, some large company would surely pay for that.

Unfortunately, that is not how it works.

Companies are bought, not sold (as everyone will tell you). Selling your company when things are not going well requires a number of forces to converge in your favor at the same time:

  • An acquirer must have the need for your team, product or customers at a price you will accept.
  • Your team must be willing to work for the larger company for a few years.
  • Your investors must be willing to sell for a price that is likely a loss for them.

It is surprisingly rare that these three factors converge at the same time. When acquirers come knocking, you and your team might be fresh off a round of financing and flush with your dream of riches. When you and your team decide to sell there may be no acquirers ready to move. And even if your team and an acquirer are on board your investors might not be willing to give up.

That being said, selling while under distress can be done. It takes a lot of work on your part, as a founder, as you need to do a number of things at once:

  1. Focus on maximizing the value (and hence attractiveness) of your business by emphasizing the things acquirers will value. That includes your customers, product, team, etc.
  2. Spend a lot of time networking to find any and all potentially interested acquirers. You need two or more to get a decent deal in negotiations and these will usually come from existing partners who know your business well.
  3. Convince your team to continue to work hard during the search for an acquirer, despite all the uncertainty and unknowns. This can be the hardest part, especially if they are already feeling burned out.

It is a hard balance and few companies successfully navigate it. I have seen teams fall apart right before a deal is closed because of fear and uncertainty. I have seen great teams with great products look high and low never to find any interested acquirers. Even if you find an acquirer, most distressed companies are treated as “acqui-hires” which means the team gets a token bonus in addition to a job offer. A small reward for years of hard work.

The only real chance you have for being rewarded for all your hard work is to build a business that grows. If that looks impossible, maximize the strategic value you can provide through your product, team and customers while pursuing relationships with potential acquirers. In other words, the normal things you do as a founder.

So, time to get back to it.

Image made available By Prokopenya Viktor (my own picture collection) [Public domain], via Wikimedia Commons