(2019-08-31) Dunford When Product Market Fit Does Not Equal Growth

April Dunford: When Product Market Fit Does Not Equal Growth. (Conference: SaaStock 2019.) Fundamentally, as startups, we all want to grow, so we’re all looking for a pathway to scalable, repeatable sales. But at the same time, we know that scaling too soon doesn’t work. In fact, sometimes it can be downright dangerous.

We have a set of fundamental assumptions - that we need to validate - before we can efficiently and effectively step on the gas

how do we know we have product market fit?

Some people will try to measure it with something called Net Promoter Score or, how very-disappointed would you be if this product went away? Both of these are kind of measurements of customer happiness.

In my experience, as a repeat vice president of marketing at a series of seven startups - six of those being acquired, which got me landed at five big companies - we had very, very happy customers, and yet we did not know how to scale.

So here’s an example…I worked with a fairly large startup - 30, 40 million revenue - and by all measurements they looked like they had product market fit.

Now here’s where it gets funky. The growth on this company was kind of flat, and if you looked at all of the marketing and sales programs, the results of those things were not so hot.

So, I go to the CEO and I’m like, Okay, who’s your ideal customer in this market? He says, Ideally, we’re going after Fortune 1000 companies.

So, I said, Do all fortune 1000 companies have internal software development projects? What if I’m a mining company? They’re like, We take those off the list.

But when we did the research and we looked at all their super, super happy customers, the commonality that there was amongst those customers had nothing to do with company size at all. In fact, the companies that were the happiest, loved the product because it helped them solve the problem of: How to manage a software development project when you had a distributed team.

Why did they have a distributed team? Because they were outsourcing a lot of development. So, in this case, we rejigged all the marketing and sales programs to focus just on bigger companies that were doing a lot of outsourcing. That unlocked a pile of growth and the revenue began to take off.

If you come to me as your brand new Vice President of Marketing and say, Hey, build me a bunch of campaigns to go after Fortune 1000 companies. I don’t know how to do that. How do I target fortune 1000 companies when there’s no commonality in that segment. But, if you came to me and said, Build me marketing campaigns to go after companies that do alot of outsourcing, now I’ve got something to work with.

Did you know there’s actually a magazine called Outsourcers Magazine and you can take a full page ad in that magazine. It costs $5,000 and these folks drove hundreds of thousands of dollars of revenue just from that one tactic alone.

In order to scale, I need to deeply understand who loves my stuff and why... What I need is an actionable segmentation... Actionable market segmentation means, I know enough about that market in order to build marketing and sales programs to go after it.

There are five component pieces of positioning. You can determine them by working through them in a certain order. (See her book Obviously Awesome.)

I’m going to give you one last story. Straight out of university, I got a job at a company - a startup that was famous for building compilers. That was their main product, but, unlucky me, I was not working on the main product. I was working on this little side-product thing, which was conceived as a personal-use SQL database.

Ours installed really nicely on a PC. You could run it there, no problem. We were geeks; we thought this will be amazing

launched it into the market and… it was a flop.

So, I got the job to call all the customers

The first 10 people I called didn’t even know that they had purchased the product.

Problem was… customer number 10. I call him. I’m like, I’m so and so. I’m in charge of this product. And he says, Oh my God, I love that thing. I love it so much. I said, Really? How come you love it so much?

I did a hundred customer calls, and it turned out nine customers were using it that way and they were the only people that were happy.

we decided… let’s take a run at it.

We ran a bunch of campaigns and the thing took off. We grew super, super fast. Within six months, that database product had overtaken the compiler business.

The company that acquired us ended up getting acquired by the biggest database company in the land at the time, which was Sybase. And, at the peak of its glory, that product - which was called SQL Anywhere.

The lesson here is that sometimes a product market fit is just not a relevant concept. When you’re thinking about growth, a relevant concept is… do I deeply, deeply understand who the customers are that love me, and why, and can I get to an actionable customer segmentation?