Hello 👋

Martin here. Welcome to another edition of Founders’ Hustle!

I write bitesize newsletters containing actionable insights and insider knowledge across the full spectrum of company building from inception to exit.

In today’s newsletter I’m sharing the journey I went through searching for product-market fit at the last company I co-founded.

Launching a business from scratch is rarely straightforward or easy. Particularly if you’re creating a product or service that’s new and untested in the marketplace.

I’ve done this numerous times to varying degrees of success. From outright product failures all the way up to profitable and sustainable businesses that generated multimillion-dollar revenue.

The most successful company I have built to date didn’t have a bright beginning. In fact, it went nowhere for what seemed like ages.

Maybe a sensible person would have given up, but I stuck at it within a premeditated framework. And, I’m glad I did, because it’s amazing what can change in a relatively short period of time.

One year was the difference between $73.20 revenue per day and $17,448.11 revenue per day.

Most of that growth came in the last few weeks due to the compounding effect of finding product-market fit and doubling down on it.

Here’s a screengrab from my company dashboard at the time, to show how that panned out in dollars and cents:

As you can see, the first few months were tough. Then, things picked up. Then, it picked up again. Then, things really started to take off.

I want to share my experience of this time in a helpful way, so I’m going to walk you through this “$73.20 to $17,448.11” year by breaking it down into major phases (designated by the fun but superfluous use of emojis).

And, I’m going to do this by focusing more on the methodology and less on the scenario-specific decisions we took since the former is replicable and actionable.

So, this is not so much a historical throwback piece but an analysis of the logic framework we used (tethered to an earnings graph).

I will, however, sprinkle in some specific actions and background detail here and there since it helps put the methodology into context.

Here we go.

“Meh”

The first significant phase was my startup’s pre-product-market fit beginnings. I just refer to it as our “meh” period.

A lot of companies go through such a phase of frustration after launching. Sales, customers, and traction goes nowhere meaningful. This happens when there’s zero pull from the market or the target audience is minuscule. No one really wants the product.

It can be weeks, months, or even years before product-market-fit at a meaningful scale is figured out, if ever. Airbnb is famous for launching three times.

Important note: for this business we launched with a functional product. These days I advocate launching with marketing materials or a ‘mechanical turk’ type offering to save time and money (this will be a separate post later).

The little ups and downs of revenue that appear on the graph throughout this pre-product-market fit period are purely the result of us pushing our launch product really hard onto a “meh” target audience who took a teeny bit of interest, but, then moved on.

There were moments we thought we started to see glimpses of success with the model. Somedays our revenue went above $200 and even $300. But, it wasn’t sustainable or repeatable.

If we had applied the same energy to a product that had market fit the results would have been wildly different, which we later experienced intensly.

For example, imagine standing in the street with an undesirable product and soliciting passers-by for their custom with relentless enthusiasm. Some would stop and chat, they will likely even say nice things to please you, take a leaflet, or provide their email. There might even be the odd sale. It can start to feel like traction, even though the unit economics of standing there all day don’t work.

In hindsight, it’s easy to see why what we launched with wasn’t right. But, when you’re going through your initial launch period, desperately probing for product-market fit, there are a lot of conflicting forces pulling you in numerous directions. It’s not always immediately obvious what to do.

First of all, there’s the whole reason you’re doing this in the first place. Your value hypothesis. In other words, your theory that your product idea will be valuable to a specific audience.

This can be emotionally difficult to let go of unless you plan in advance and have some preconceived notion of what failure looks like in hard numbers.

Without that, it’s easy to convince yourself that a little more effort will do the trick, when, in reality, you should have pulled the plug or pivoted a long time ago.

For this particular project, we had one hard number that was pretty straightforward. It wasn’t based on any product or customer metric like you might think.

The hard number was difficult to challenge and reflected our true reality, deliberately, so that we couldn’t later subconsciously contrive a biased (and potentially false) narrative based on vanity metrics.

What was it? To break even, as in reaching zero on the P&L, including paying ourselves living expenses, within three months of launching the product.

As you can see, that didn’t happen. So, we took a moment to pause and thought about how we could change things up drastically for the better when we hit the three-month trigger date.

Crucial to that process was utilizing what we had learned from putting our existing offering in the hands of customers. From that, we could produce a product that would be more valuable to them.

But, that’s not so straightforward either.

Feedback often consists of incremental feature requests that won’t materially move the needle. It can be a little “in the weeds” when what you need is a higher level and more fundamental change.

When you’re this early, as in pre-product-market fit, you really have to focus on improving the core value proposition 10X and not becoming sidetracked chasing initiatives that will realistically only yield incremental gains. An incremental gain on nothing is still nothing.

When I say “core value proposition” I’m not really talking about the product or what it can do, I’m talking about the fundamental value you’re providing to your customer. Very basic concepts like saving time or money.

For example, the product we were offering was a content recommendation widget that websites could install on their website and make money from.

It had loads of useful features like content customization, design customization, easy install, and reporting. We were bombarded with tons of requests along these lines, and, we thought of a bunch ourselves.

But, none of these really moved the needle for the customer. It wasn’t the core value proposition.

What was? Making money. The more the better. Overruled everything else.

OK. But how could we improve that?

“Hmmm”

After our “meh” phase came what I refer to as our “Hmmm” period. It’s a retrospective that develops into a thought map after acknowledging your value hypothesis is false.

Entering this phase can feel like a kick in the teeth. After spending time researching the market, building, launching, and generally investing yourself emotionally into your vision, it falls flat on its face. Your intuition proved to be false, which can make you doubt yourself.

But, that doesn’t really matter. Theories are just theories. What you’ve learned by building the product and shipping it is the real value. It’s the hardest part.

In testing our value hypothesis we began to understand how the market worked first-hand from participating in it. Once you reach this point, you have a much more nuanced understanding of which levers will lead to tangible traction and growth.

The key here was analyzing what we had learned throughout our “meh” period without prejudice, clouded judgment, or fatigue.

To do that, I found “putting down tools” was essential. By that, I mean stop what you’re doing. Interia at this point is mostly psychological.

Take a break and conduct a retrospective.

What you’re working on clearly isn’t working out, so it’s better to clear your mind from the intensity of forcing a lackluster product onto the market, and, instead, focus your energy on figuring out a path forward.

This is easier said than done. Overcoming sunk cost fallacy can be a challenge in itself, and, when you do, there are then so many options to consider. The day-to-day dialogue of the “meh” period generally generates lots of product possibilities and directions.

What direction do you take?

The choice you make at this point is vital. My suggestion is to reduce the general background noise and focus on your core value proposition.

What really matters to your customer? Boil it down to the simplest form.

After coming to the conclusion our product’s core value proposition was revenue, we had some existential questions to answer.

Paying clients more money was key. To make matters harder, during the time it had taken us to develop our initial product, the market had changed significantly, and competition was fierce.

It was basically us, three guys with little more than sweat and hustle, competing for customers against venture-backed companies with armies of employees. They were able to pay clients more than us across the marketplace. Simple as that.

Again, possibly a sensible person would have given up here. But, I didn’t, because I had a process set out in advance that I was going to stick too. The three months were up and we weren't breaking even.

So, we identified what needed to be done. It was a drastic product change that could realistically increase the amount of money we could pay clients. More so even than VC-backed competitors. How?

Next, I’ll explain the approach we took.

“Better...”

After the “hmmm” period came what I refer to as our “Better...” phase because it was a giant level up that seemed to hit instantly, but, it didn’t set us on the right trajectory, as in escape velocity.

This is also a fairly common situation for a new company to be in. A product idea was shipped, it didn’t work out, some big changes were made based on previous learnings, and, metrics improve materially. But, not by enough to send the company on a huge growth curve.

There are numerous reasons why this can happen. In our case, the reason was fairly common. Product-market-fit had been achieved but the market was tiny.

What happened? In the face of stiff competition and with no real unique insights or breakthrough ideas, we adjusted our product and catered to a small target customer profile that the bigger players couldn’t service as well with the core value proposition customers cared the most about— money.

This is a classic “niche to survive” maneuver that worked.

During this time we met our goal of hitting breakeven. This is a truly magical place to be because the combination of the reduced stress from a theoretical indefinite runway and boost to one’s confidence that you’re a capable founder gives a tremendous boost to energy and focus.

Plus, it just gives you tons of bandwidth to figure out your next move — resources and customers to perform experiments with.

Reaching product-market fit with a tiny market doesn’t have to be a bad thing if you have a thirst for building a big company.

It can be a stepping stone for continued market learning as an active participant with real customers (can’t be overstated!) that will help you navigate to a product that’ll have a much larger addressable market.

There are tons of real-world examples of this. Looping back to Airbnb as an example, their main business line today certainly isn’t renting out airbeds and providing breakfast.

A version of this happened to us. We learned something really valuable that led to a big product focus change.

Next, I’ll detail how that happened.

“Breakthrough idea!”

The major turning point in the “$73.20 to $17,448.11” year came during what I call our “Breakthrough idea!” phase.

Lots of successful companies have a breakthrough idea post-launching. They’re often the result of acquiring a unique insight by having been active in the market with customers previously in some form. For example, consider how Instagram started life as Burbn.

From a combination of both the product change we made previously and our learnings from being active in a niche market, we discovered a product opportunity that had both a much larger addressable market and virtually no direct competition.

And, we were able to test and validate the idea with minimal resource requirements first before disrupting our product inertia and recalibrating the company’s limited bandwidth to a pursuit that may prove to be fruitless.

Sounds great. But, what factors made this possible?

1. Collaborative customers. We built up pretty close working relationships with some of our early customers. They liked to experiment with ideas and they could tell we did too. We were an outlet for that curiosity because we weren't account managers from a large company like they’re used to dealing with, we were the founders. This meant our relationship was less encumbered by corporate process. We’d get things done, fast, and, we were open to initiatives that others weren't. This led to tackling problems of mutual interest that our competitors ignored.

2. Spotting patterns in the data. It’s all very well shipping a product to market in order to figure out your next move, but, if you don’t spot meaningful patterns in the data that reveal opportunities, it could all be for nothing. This can’t be overstated enough. In our case, we identified a profound and unexpected behavior in a particular type of visitor on our clients' websites that was totally untapped. It was a very valuable behavior, so we honed in on that as our core product focus.

3. Being a nobody. Going “under the radar” can help in a variety of situations. For us, it helped us identify the “untapped” valuable visitor behavior. Our large competitors were blind to it. Not because of ability, but on an operational level. Due to their size they were unable to access this valuable audience, whereas we could. It gave us an “unfair advantage”.

Once we tested and validated the breakthrough idea with some of our collaborative customers, we pursued this opportunity with all of our energy.

Then, things really started to change.

“Now we’re talking!”

Seemingly overnight we transitioned from our “Better..” period to what I refer to as our “Now we’re talking!” phase. This is when we shipped our pivot product and hit product-market fit for an addressable market that was much larger than before.

You know when there’s “pull” for a product from the marketplace because you can offer a minimum viable product that barely works and lack loads of basic functionality, but people still want it — a lot. For example, Groupon started out as a WordPress blog.

Once we started pushing our new pivot product into the marketplace revenue jumped quickly. Within a few weeks, we hit sustainable $2,000+ revenue days. Shortly after that, we hit sustainable $3,000+ revenue days.

Unlike before, there was visible and meaningful growth. This is the difference between a tiny market and one were there is a ton of room to grow.

But, this was still the early days of our new product focus. All we had done was launch a beta offering. It was bare-bones, so there was a lot of product or technical related things to build or solve in order to scale.

Plus, we hadn’t really figured out how to sell our new solution into the marketplace effectively yet. There was no sales playbook.

Sales growth during this period came from sending out feelers to prospective clients who had previously turned down working with us. If they say “yes” that’s when you know you're headed in the right direction.

Once we had the basics refined and optimized, growth would multiply rapidly.

“Whoa!”

The last few weeks of this year really made us say “Whoa!”. The charts were up and to the right in a big way. Compounding growth is fascinating.

Let’s put this into perspective.

Optimization unlocks exponential gains. Making some small but significant changes to our pivot product and fleshing out our sales operations made a huge impact on client adoption, and consequently, revenue growth.

Plus, the momentum and casestudies (even though short in length) from working with smaller websites in the previous period gave us credibility to onboard much larger websites as customers.

This was clear validation that our relentless focus on income as the core value proposition for clients was right.

With our pivot product we had unlocked a new and valuable revenue stream for our clients that no one else could.

Sometimes this is referred to as “found revenue” and it’s a really compelling proposition. Selling it into the marketplace was a dream compared to before.

Key takeaways:

1. At launch, have a preconceived notion of what failure looks like in terms of a hard number before you release it into the wild.

2. If or when you hit that hard number, take a break and conduct a retrospective. Utilize what you have learned to forge a new path.

3. When you’re intensely focussed on finding product-market fit and think you could be getting there, consider if you’re artificially creating demand or if the market is pulling it from you. Product-market fit hits you in the face. You know when you have it.

4. Focus on your core value proposition and turn down the volume on feature requests and other superfluous incremental gains that don’t move the needle in the beginning.

5. Analyze your data. This is pretty much the only way to spot an opportunity. You’ve put all the effort in, so it’s a huge waste not too.

6. Try not to pull out of the market and keep your launch product out there if it fails. Being on the frontlines with customers provides invaluable room to learn and experiment.

7. Don’t be afraid to do things that don’t scale in the beginning, like catering to a niche customer profile as we did. It may feel like you’re reducing your ambition or goals, but it can be a really useful way to learn and figure out the long game.

8. Work closely with customers. Find those that share similar interests and develop camaraderie with them. Your competition might be goliaths, but your small size can also be used as an advantage.

9. If there is a genuine demand for your product it doesn’t need to be perfect. Ship a teaser or product sooner rather than later. Get feedback, early traction, and then optimize to extract maximum value.

Until next time,

- Martin

Thanks to Emily Finch | Unsplash for the image.

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