We were sitting there on zoom.
Exhausted.
It hadn’t just been the past hour that we had spent trying to work through it.
It had been months.
What was the company supposed to do? They were a real business. One that most people would be happy to have. Generating money that people could retire from, yet they weren’t performing like they were expected to. Milestones were being missed. Goals revised.
Do you shut the company down?
Do you keep grinding?
If you keep grinding, what do you grind on? Do you just need more customers and if so, how? By spending more money? Maybe you just need to scrap the whole product. Start over. You have something, but it’s not the oft-whispered about, rarely realized product-market fit.
It wasn’t just this company.
All of the sudden my friends started telling me their companies were facing the same problem.
Millions in revenue.
Or tens of millions.
The same problem.
So what do you do?
More importantly - how do you get it right from the start?
This is a problem I’ve been personally thinking through for some time.
You could say I’ve been thinking about it for the past couple months or for years. Both would be true.
The easy answer is to blame the startup <> VC dynamic. Taking on money raises the stakes and puts a different kind of pressure on a company. Companies which otherwise would be considered successful, delivering a valuable product to a set of customers who are happy to pay for it, still end up shutting down because of that agreement.
So sure. Go bootstrap.
Yet many companies are already in this situation and many more will continue to go down the VC path. There are great reasons to do so, ones we won’t explore here today.
Because either way - thinking about how to navigate this is a very real problem that most of us in the industry would love to solve.
And if you do go the bootstrap route - learning how to solve it could unlock incredible growth that benefits you and everyone associate with your company.
Yet - It’s a weird problem to think about. Can you just marketing your way out of the problem? Is it a question of finding the right channel and the right customer and stepping on the gas?
Or do you keep your current business going, but use it to fund some new v2 which may or may not actually be related with v1? Follow in the steps of Slack - the gaming company to workplace collaboration pivot approach.
What makes this problem hard?
You would think this problem is straightforward. You either need more marketing or a better product. Except you have people paying you money. Sometimes a lot of money. So you found customers, and they liked your product enough to pay for it.
This is the messy reality of product market fit. You have ambiguity on the input side and the output side of product market fit. Andy Rachleff, the person who coined the term says “if the customer doesn’t scream, you don’t have PMF” but which customer, how many of them, and at what price?
How can a startup measure that? Some people have tried to put numbers on it. Superhuman has a now famous article where the founder describes the incredible effort they went through to leverage and build on Sean Elliss’ framework for PMF to arrive at a product people love.
It’s become one of the canonical early startup documents.
Yet - They did that… and then completely stalled out…At least that’s how it looks on the outside. No different of a position than that middling startup which never really felt like they got PMF.
So, that brings us to the next issue.
Your growth is a function of the market itself.
Maybe you have product market fit but you found it in a shrinking or stagnant market that’s too small.
How to solve it
Consider this my current thinking. An exploration in what likely will work best, but this is such a messy area that I’m sure there’s more to add here. Perhaps I haven’t properly respected path dependency, for example.
That said, the following is how I’d currently think about it.
Step 1
First, you have to reset expectations.
Everywhere.
With your investors
Your employees
With yourself
You have the company you have.
That is the company you are working with today. Not a future potential company.
You need to do this both emotionally and in real fiscal terms. Scale your company back to fit with where it is at today. There isn’t growth to grow into.
Most companies have done the second piece (layoffs), but it’s unclear how many people have actually emotionally reset their expectations and in my anecdotal conversations it’s very few of them.
Why is it important?
First: If you haven’t done the emotional piece, you’re going to keep trying to accelerate through. The layoffs were just some temporary adjustment to get you to the next milestone. And somehow, if you keep pushing your product to more people, you’ll land in that magical place of a huge company. The market is telling you that won’t work though. You need something different. A different product, different GTM, something.
Second: You need the team you have for the long-haul. That means you need to set up a working environment that is built for the next step. Whatever that means in your situation. This may be giving more ownership to those key people, for example. One of the three reasons employee’s join startups (Money upside, career acceleration, mission) over a large company was just largely removed from the table. So you need to lean into the other other two - career acceleration and mission. Of course, in this market you could discount all of it, but you want great people working for you and in any environment that’s competitive.
Finally: The next step involves leaving your current company behind. If you’re not emotionally there, you won’t be able to do it. You need to plan to build something new, in whatever way is needed. You need people onboard for that (2 above) but you also need to be onboard with it.
I’ve seen founders with revenue to essentially fund 2-3 new companies a year burn through that cash on a product that is going nowhere because they couldn’t emotionally think about moving onto something new. They keep pushing instead of iterating, because they can smell but not taste product-market fit.
Step 2
This may take a long time. Years. Hopefully it’s quicker, but this is why you needed to set your company up to be a sustainable company in the way it operates.
At this point, you’ll want to carve out some set of resources and go full-on into experiment mode. Back to the “founders in a garage” days. Only this time, you have more experience all around, likely more resources and if you’ve done step 1 right, less time constraint. Which - don’t let that become a bad thing by losing the urgency.
Advice from here becomes fairly custom but you need to take a few general steps:
Diagnose
Marketing
Focus on high intent channels, and start disproving them where possible. You don’t need to focus on brand building or market making. That type of marketing by definition means you don’t have product market fit. Give each channel the time it deserves. If you feel like you have a channel that’s worked in the past, if it’s no longer working, move beyond it. If you can’t find any channel that works, you’ve effectively disproven marketing as an issue.
Product
Use data to understand what parts of your product resonates and with who. This is both quantitative data, of which you’ll want it granular enough to know who is using what in your product. So - “directors of customer success who discover and use feature x, 80% of them come back and continue to use that feature every week over a 3 month period” is the level of granularity you should be able to get to.
Start talking to your customers as well. Get clear on who they are and why they use your product, specifically. Whatever amount of customer research you’ve done before this time, do 10x. It’s not uncommon that products stall out because their market is too small but also because they over-complicate their original product. Canva for example was able to carve out a HUGE market from Photoshop by just not being complicated.
Your goal is to walk away understanding what specific part of your product resonates with the customer or what specific problem you’ve so far failed to solve for the users.
Moving forward
Once you understand the above, you have a couple options.
If either of those goes really well, then you lean into it. It’s straight-forward.
If you unlock a powerful new marketing channel, lean into it. Focus on scaling it as much as possible and getting more from it.
If you find out one specific feature resonates with a specific customer, scale back your product to deliver fully against that.
The catch
The problem I see most commonly arise here is that it’s very easy to fool yourself. I consistently meet companies that are sure they’ve recently found the customer base, marketing channel, or feature that will unlock 10x growth. After 1, 2, 3 years of talking with those same companies and hearing about 5-10 new magic solutions, it becomes apparent they’re not being truly honest with themselves.
It’s a fine balance of being realistic and being optimistic. Leaning towards optimism is essential when building a startup, but fooling yourself about its performance is not.
Innovating
So if you don’t walk away with an obvious next step when exploring the market or product, then your next step is to build something new. There is nothing wrong with this. Your goal is to deliver something so valuable to your customers that they pay you for it. That’s it. Even if you have a mission driven company, your job first as a company is to make something people want enough to pay for. You are welcome to use the profits from that to continue to build the mission part of it - it’s your company. The only way you do that is still focusing on building a company that makes money.
So - it doesn’t matter if you were building research for researchers to do better analysis of frogs in salt water oceans and you pivot to the next big social media app or into a b2b sales efficiency company. Ship what is valuable to customers.
To do that - you need to go back to those early stages. Where you talked to customers, shipped, and iterated. This is clearly what you need to do if you have walked away from the diagnose steps realizing that no marketing channel will work and customers generally don’t want your product. I think it’s likely what you need to do if you walked away from that with middling results as well, or after that 5th magic feature fails. At it’s core - its should be far higher up the stack in your toolkit of solutions than it is for almost every company out there.
The issue generally is one of focus - you can’t build 75 companies at once. And that’s right. So don’t do this at the start. But you’re facing a company that is no longer growing. That from everything you can see so far doesn’t have real product market fit to grow more aggressively. You can either look to shift that S curve back up in some way, or layer on a new one. One way is finding new customers to go after. In theory that’s what Diagnose should accomplish for you, but if they aren’t there, then you need to find a new product to layer on top.
This isn’t easy
Even as I write this, I realize this isn’t easy and that giving general advice like this is hard. It’s easy to imagine someone reading this who is facing a normal product that any startup is facing, believing they’ve stagnated and pivoting away when they really should have pushed through. Perpetually following that shiny object.
At the same time, there are just as many people who have been doing the opposite. Believing that they can just keep doing a little bit more of the same and their company will take off. This article is for this second group. If you’ve been pushing for a year or more with little true shift in results. For those years, still believing there is some new unlock available for you. Then - all my advice here boils down to this: It may be time to take a step back. Think really differently and focus solely on giving the customer what they want, not trying to make them want what you have.