So your product gets some first traction. What’s next?
You might have some first paying customers, some media attention and maybe even some first investor. I have met (and worked with) some startups who thought scaling up (staff and product) is the right thing to do in this moment. I will go into details when you should really scale up and when you should rather invest some time into customer development.
Don’t scale too fast!
Scaling up means that you invest in the status quo of your product and processes. This will lead to economies of scale, which means that due to standardization and automation you will increase efficiency. But contrary, changing things afterwards will become much harder. So, if you scale a premature product (and therefore processes), you will end up in a trap: Your team will have to tweak and improve your product while dealing with existing customers and operations at the same time. As I have seen firsthand on several startups, this is very difficult and likely to fail.
So you want to wait with scaling up until you have a mature product.
Achieve product/market fit first
In Lean Startup and product management we use the term product/market fit for a moment when a product (more precise: business model) is mature enough and therefore ready to scale.
For Steve Blank product/market fit means having a repeatable and scalable sales model. This is when you have a very clear idea of your early adopters, their problems you are solving for them and most of the time your product is solving their problems successfully and in a (more or less) standardized way.
Product/Market fit means that you have a repeatable and scalable sales model
As Marc Andreessen put it in a famous blog post: “The only thing that matters is getting to product/market fit.” This means, for your startup being before-product/market fit, you should only focus to get to after-product/market fit.
Marc also claims that you will be able to tell the difference:
You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.
Define the true north
For me, I can feel whether my product has reached product/market fit, I can see it in my employees eyes, I hear it when I talk to customers. But since its always tricky to navigate without real data, it makes very sense to have a true north defined.
There are two approaches to measure product/market fit.
- Sean Ellis suggests a 40% threshold:
Achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product
I call this the “disappointed-without-you” metric.
2. Ash Maurya suggests to focus on the one core metric which measures real traction. He calls it the “one metric to rule them all”. It depends on your business model how this metric looks like (see Ash’s blog post for more details). For a two sided market place like AirBnb, this “core traction” metric would be the number of confirmed bookings. What you then want to see is the famous hockey stick curve on this metric.
Side note: As always in life, you can trick yourself (and your investors) and game these metrics. You could give your product away for free or you could spent millions in ads. Just don’t do it..
Tune the engine
As we have learned, without having product/market fit, you should forget everything else and focus on achieving product/market fit. To help making this quest a bit more concrete and executable, I came up with a simple model:
A product is like a black box (or engine), where you input customers (the fuel) and can measure the output (disappointed-without-you metric, core traction metric or even NPS). To achieve product/market fit, you want to increase the efficiency of your engine (the overall conversion rate), so that your output increases. I call this tuning the engine.
There are three steps to tune the engine
First, you need to better understand how your engine works. This is done by understanding your customers and market in general. I call this part conducting user research.
Second, you implement your learnings with rapid prototyping and minimal feature sets. This can also mean that you just adjust some copy or tweak your sales channels. I call this part conducting experiments.
Third, you measure the output with your metrics defined above and repeat the whole process.
In Lean Startup and product management we call these 3 steps the Learn — Build — Measure cycle. There are many resources out there to help you with this.
How much fuel do you need?
Let’s talk about Scaling again: How many customers (or fuel) should we try to get? The answer is: just enough to facilitate the learning. This can be 10 customers in the beginning, and maybe never more than 100. The real question is, how many customers do you need to demonstrate that your product is working? Again, your startup’s job right now is to achieve product/market fit, not to make profits. So, having your customer base exceed the amount you need to achieve product/market fit is a type of waste and will only distract you.
Let me explain it differently: Imagine again that your product is an engine. When you don’t fill any fuel into the engine, the speed will be zero. You don’t move your startup at all. This is like desk research with no actual customer input. When you input too much (= scale too quickly), you will have hard times tuning the engine while driving 170 km/h.
So let’s keep the engine rather slow, but speed up the user research & experiments instead!
Add some more measurement
In a last step we can add the so called Pirate Metrics (AARRR!) by Dave McClure to make the whole model more measurable.
The Pirate Metrics consist of 5 categories which describe the important parts of your users life-cycle:
Acquisition: How do users find us?
Activation: Do users have a great first experience?
Retention: Do users come back?
Revenue: How do you make money?
Referral: Do users tell others?
To get more insights on where your product is still lacking behind, measure metrics for each category. Our model would end up like this:
When talking to founders this simple model helps me to visualize the concept behind achieving product/market fit and hopefully gives you something to show other people when talking about it as well.
Thank you for reading! Do you have any ideas to improve this article? Please let me know in the comments!