Three tests to get from idea to SaaS juggernaut
Hint: "Does it have Product-Market Fit?" isn't one of them.
Hello!
This is a newsletter about finding Product-Market Fit (PMF) for current and future founders. Last week I wrote about the top misconception about PMF I’ve seen kill startups.
This week’s newsletter is about the three “tests” for business-to-business software startups think more rigorously about product-market fit. These are always on my mind when thinking about product strategy, positioning, and go-to-market for my own business.
Reply with your ideas, and I’ll help you score them on these three tests :)
TLDR, The three tests:
Test #1: The “I’ll try anything” test says you’re solving a salient problem
Test #2: The “This sounds different” test says you’ve got an interesting solution
Test #3: The “Why would I ever leave?” test says your solution solves the problem fast and locks customers in
If you consistently hear these sentences from customers and prospects, you’re heading in the right direction.
Why do the three tests matter?
If you’re like me, you want to build a company that’s lean, profitable, and grows fast. You want to waste less time in ideation and the pre-product-market-fit wasteland. You want to build things that matter to customers.
In other words, you don’t want to screw around for years on dumb ideas or flashy products that will never become real businesses.
The three tests help you make sure you’re building something real, differentiated, easy to adopt, and hard to leave.
Above all, these three tests mitigate risk. I’d prefer a company with an 80% chance of survival than one with a 0.01% chance of survival. You may disagree. You will find counterexamples - successful companies who pass none of these tests. Entrepreneurship is a probability game, and I prefer the odds to be in my favor.
Let’s dig in.
Test #1: “I’ll try anything”
Find desperate customers. We’re talking “3 AM in a college bar” desperate. Desperate customers will spend money, put up with bugs, and shout feedback at you because they need your help.
If a prospective customer says, “Honestly, at this point, I’ll try anything,” your ears should perk up. That means they’re desperate for a solution to this problem. It’s likely their #1 priority. They’ve probably tried other things that haven’t worked.
We’ve had prospects tell us this, verbatim: “Right now, we’re considering closing our stores because we’re so understaffed. At this point, I’ll try anything.”
They buy 90% of the time, usually within a week.
There is a causal sequence of events that leads someone to say, “Honestly, at this point, I’ll try anything.” Within the same customer segment, some are at the “I’ll try anything” stage while others aren’t (yet). Figuring out this sequence of events helps you uncover who’s the ideal buyer. It also shapes your marketing and go-to-market strategies.
Our buyer’s sequence of events, as an example:
Franchisee hears from store managers that they’re having a hard time hiring.
Franchisee spends money on job ads that don’t convert. Store staffing situations get worse and worse.
Franchisee says, “I’ll try anything” when they talk to us.
If we talk to a franchisee before Step #1 happens, it’s a waste of everybody’s time. If we talk to a franchisee after Step #2 happens, we close the deal fast. If we focus our content and sales pitch on Step #2, our ideal customers come to us.
Test #2: “This sounds different”
Everyone and their grandmother is building a SaaS product these days. Fortunately for you, most are “me-too” products targeted at high-net-worth Twitter users in big tech companies that charge $5 / user / month. Yawn.
Different sells when it’s combined with a customer segment that says, “I’ll try anything.”
How to be different:
Find unique assets others aren’t leveraging: We found that 80% of applicants for fast food joints aren’t hired the first go-around, and usually never contacted again. What.
Observe existing processes and find the drop-offs / mistaken assumptions: We manually performed hiring for customers and realized that while they SAY they will hire for any shift/position, they actually have very specific needs. Lightbulb. Your competitors are often built for how customers’ processes SHOULD IDEALLY work, which leaves the door open to win the market by building for how their processes ACTUALLY work.
Of course, being different only matters if you’re different in your customers’ eyes. If desperate customers don’t understand why it matters that your project management software is the first to use machine learning, you’re not really different - you’re just drinking your own Cool-Aid.
So you want to hear customers say, “Huh, this sounds different, I haven’t heard of anyone doing anything like this before.” Bonus points if they say, “I don’t know if it will work,” and still buy. That means you’re really onto something.
Test #3: “Why would I ever leave?”
If you pass tests 1 & 2, customers should buy from you. If they don’t, you’re not making it easy enough for them to purchase - consider trials, shorter initial contracts, and other solutions that turn a desperate prospect into a customer quickly.
The third test comes post-purchase. You want customers to be confused when you ask them what will cause them to churn. You want them to ask, “Why would I ever leave?” as soon as possible after purchasing.
This test is about speed-to-value and lock-in.
To maximize speed-to-value:
Design a “foot-in-the-door” product that’s additive and complementary to what your customers are currently using. If you have to displace existing systems, it’s much harder and more time-consuming to get decisions made, product implemented, and problems solved.
Find the bottlenecks to delivering results and determine if you need to redesign the solution, add or remove features, or adjust your onboarding process.
To lock in customers:
Make your “foot-in-the-door” product hard to leave. Why does the value increase over time, why do customers keep relying on it more and more? How do you become part of their business-as-usual?
Over time, add product extensions and new features that make them increasingly rely on you… and cause them to cut out their existing systems, your competitors.
Watch for competitors who could displace you. Why won’t existing adjacent solutions just add your “foot-in-the-door” solution to their product? If/when they do, why won’t your customers leave?
Passing test #3 requires clear thinking and sound business logic. This is strategy. Your strategy should make sense at a 6th grade reading level - no jargon, no BS.
Right now, I’m 99% focused on Step 3. It’s very, very difficult to get right when you’re building something new and different. And very, very valuable when you do get it right.
Go build something real,
Rob