How product-market fit impacts startup strategy

When advising founders and product leaders I always try to keep in mind how mature their business is from a product-market fit perspective, because many situations should be approached very differently depending on this maturity. Acting like a scale-up (i.e., a company that has found product-market fit) when your product is yet to home in on an ideal audience can stop companies from ever achieving product-market fit.

If your business has not yet found product-market fit, your primary goal is to find it. During this phase:

• Speed of product development is much more important than quality. Time to market is all that matters when you aren’t even sure whether your product is of any use to anyone.
• Individual customers have significant influence over the roadmap. This often involves the building of new features to land specific deals in the sales pipeline.
• Product vision is highly fluid. While early-stage companies usually have a hypothesis about what they should build, new learnings typically have a significant impact on the long-term vision, which could change drastically before product-market fit is found.
• Any sale is a good sale. Before product-market fit is achieved, businesses rarely have a clear idea of who their ideal customer is, so any new lead is typically considered good enough to pursue.
• There is little need for process. During this phase, there is little consistency across the problems being tackled, meaning there is little need for standardised processes. Additionally, small teams require less process, because everyone knows everyone and is working highly collaboratively.

After product-market fit has been found, companies need to scale their product into the market they’re targeting. During this phase:

• Product quality becomes much more important. Moving quickly is still critical, but tech debt becomes a major risk to be mitigated as soon as you start to scale your product into the market.
• Priorities are set based on market needs. Individual customers can no longer have much influence over product decisions because this conflicts with the goal of satisfying the target market. The company is now building for the majority.
• Product vision becomes more opinionated. While flexibility about how the vision is achieved is still essential during this phase, the North Star must stabilise in order to give consistent direction and focus to the business.
• Sales teams become focused on targeting prospects that meet the ideal customer profile. This means many more leads are being disqualified, and customers are becoming less diverse over time.
• Standardised processes are required to deliver a good customer experience and achieve economies of scale (i.e., operational efficiency). As the team and customer base grows, the need to standardise how common situations are handled becomes very clear.

To effectively make decisions, founders and product leaders need to be aware of which of these two mindsets they should be employing. This is especially important when taking advice from consultants and resources like books and blogs — most advice you is only relevant either before or after product-market fit is found. Applying feedback intended for mature businesses to your small-and-scrappy startup can be a real distraction, while applying feedback intended for businesses still searching for product-market fit to a scale up can lead to an unstructured, chaotic environment. For example, many early stage companies agonise over things like technical debt and employer brand when, as important as these things will soon be, they are currently an unnecessary distraction.

14 February, 2022