How to achieve terminal velocity
Product-market fit is the first challenge for startup builders. While this is when most startups fail, the playbook is relatively simple: build, get feedback, learn, and iterate until customers love your solution to their problem. Hopefully, your product will eventually solve a big enough problem for a big enough market, and you’ll be ready to scale your startup. This is where the playbook gets a little less clear.
You know you’re achieving product-market fit when selling your product is relatively easy. Frankly, this is when many startups become mediocre because strategy simultaneously becomes more important and more difficult.
You can no longer cut corners. This is why strategy is especially critical for startups with mature products. The effort required to build new features is more significant because your existing customers need a reliable product. Some new features will dramatically increase your addressable market. Others will have no impact. The effort required is identical regardless of impact, so making the right decision is critical. Even seemingly great ideas can turn into expensive wastes of effort.
For these same companies, strategy is more difficult because mature startups can no longer allow sales prospects to dictate their roadmap. Suddenly, real work is required in order to decide what to do next.
Frustratingly, this is also when software maintenance becomes burdensome. The more customers you have, the more they will test the limits of your product. So, as most software startups mature, they experience resource constraints thanks to an increased maintenance burden. The increasing maintenance burden and the need to build higher-quality software results in founder frustration: "we have more engineers, but we are getting less done".
Product strategy is critical in this environment where the cost of a misstep is ever-increasing.
Any development that shortens your sales and onboarding cycles should be your priority. A business that can turn a lead into a happy customer in one month will grow dramatically faster than a business that can only do this in two or more months. Optimising your onboarding experience and improving existing features is usually better than adding new ones. The compounding impact this investment can have on your revenue is significant. Many founders make the mistake of attempting to expand into new markets with new products before their first product is growing at terminal velocity. You must remain focused on this goal until it is achieved.
Similarly, mature startups need to invest in the scalability of their technology by optimising existing features. Many startups at this stage view maintenance as an unwanted burden. But, continuously optimising the functionality, usability, and reliability of your existing features compounds into tremendous business value over time. Your customers use your product because of the features you’ve already built, not future features they imagine might be coming. It makes sense to make them even better, while improving the underlying technology (performance and reliability are features, too).
Stay focused. That is the core of my message to maturing startups. Almost every idea, if executed now, will become an unnecessary distraction from your mission to sell what you have already built.
Every successful startup should eventually invest in more radical initiatives. This makes sense when:
- You are starting to saturate your target market. Now it makes sense to build features or even entirely new products that expand your total addressable market. While this usually takes a while, it can happen early in the lifecycle of startups that are hyper-focused on a tiny niche.
- You are earning so much revenue that your product development budget is greater than what is necessary to optimise and expand your core product. This is when it makes sense to build additional apps that you can sell to your existing customers for additional ARR, or to expand into other markets with new features or products.
- Your core product is facing severe competitive pressures or is otherwise being disrupted. If the market moves in a drastically different direction, startups need to pivot.
Startup leaders witness the founders they admire launch new products and expand their total addressable market with new features. This can give them the impression that this is how you win as a software startup. In reality, the companies who pull off these pivots and risky investments do so because they have first invested in unleashing the growth potential for their core product. Similarly, they witness their competitors launching new features and think they need to do the same to stay competitive. In reality, when these features distract from the core offering, they could be a sign that your competitors are failing strategically, not succeeding. Remaining focused is how you will outpace the competition. To achieve terminal velocity, you must constantly optimise your sales and onboarding funnels through product development. Everything else comes later.
13 November, 2022
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