Achieving Product-Market Fit as a B2B SaaS Startup — an Investor’s View
Tags: Startup, Funding, VC, Product Market Fit, Investors

Achieving Product-Market Fit as a B2B SaaS Startup — an Investor’s View

Photo by Austin Distel on Unsplash

Successful startups require more than just good ideas. In fact, many startup ideas do not survive their first contact with market reality, i.e., actual customers. How to increase the chances of surviving this reality check? Iterative product development based on validated customer needs. The goal of this process: Having the right product for the right market, or: Achieving product-market fit (PMF).

Product-market fit is a crucial success predictor of startups. Once it is achieved, founders can focus their efforts on scaling their startup and raising the required funding. Venture capital investors put equally great importance on the degree of product-market fit. To them, sales predictability is key. And a startup with high product-market fit is much more likely to predict their future sales correctly. What can startups do to accelerate the process towards achieving product-market fit? Here are four key learnings:

1. Find the right balance between tailored solutions and standardized features

Achieving product-market fit is about balancing individualized and standardized features. Your most valuable features are those that are replicable with other customers. Use them as your guidance. Focusing on standardized features also means: Do not listen to every customer and their individual requirements. Know who you are and who you are not. If potential new customers require new and tailor-made features which you cannot reuse, reject them — even if this means leaving sales revenues on the table. A certain degree of individualization is fine if the effort is low and/or the feature is replicable.

The balance to be found here also means not to draw this line as strictly in the early days as you will later. Getting first lighthouse customers in is crucial to start understanding what the market really needs. In that regard, tailormade features will lose relevance the more customers you have and the closer you are to product-market fit.

How to identify the most valuable features? Listen carefully to your potential customers and identify key pain points. Establish good customer relationships. Especially in the early stages, sales should be handled by the founders themselves to stay close to the market. It is a non-trivial question of timing when to start involving dedicated salespersons and delegate responsibilities, which in turn is crucial to build sustainable company structures.

In brief: Product-market fit is not about having 10 paying customers with 10 individual products, but about having 10 paying customers with an essentially equal product.

2. Be agile and open for adaptation

Finding a plausible reason why sales is not working is not easy. Often, there are two potential paths forward: Either increase sales efforts or pivot the product. Reasons for poor sales could be: First, people are not aware of the problem they might have and there is a gap of education. Second, your potential customer may think that the solution cannot deliver on what it promises. Third, you are talking to the wrong people who are not dealing with the problem you are solving.

When is it time to pivot?

Initially, lower the barriers to using your product as much as possible to make customers engage with your product. Focus your sales efforts on those customers who are most severely experiencing the problem you are solving. If they are using your product and increase their usage, you are well on track. If usage remains low, you need to adapt features and try out new things.

In brief: Find the right user for your product and observe their behavior. Remain agile and pivot if necessary.

3. Lower the barrier of entry for customers where necessary

There might be cases where you cannot get sales ramped up as you want to. The cause can be multifold — you may be too early in the market, you may be talking to the wrong people or you may be selling something the market will not need.

To validate the general need for a product like yours, you may use “Proof of Concept” (POC) projects as a test — POCs should never be a long-term strategy but are helpful to efficiently test the waters over a limited period. If necessary, you may even offer free pilots to get customers to use your solution. If you add value and become a must-have, they will upgrade to a paid version.

If you are dependent on sales revenues or costs must be covered, offer a POC at marginal costs. If your solution adds value, customers will pay for it. If they are not willing to allocate the budget to compensate your costs, they will most likely not find it for the full solution either. Usage is very important initially, but you always need to have a clear idea on how to get your customer beyond the paywall.

Another option to speed up sales is to quantify the benefits of your product through a simple cost-benefit-analysis — show this analysis to your potential customers. Use data from customers you are already working with and demonstrate their improvements in a whitepaper or case study. If you have no data yet, use statistics from similar solutions and collect your own data as soon as possible. You may even offer aggressive performance-based pricing to become a “no-brainer” solution from your customer’s point of view.

In brief: Get your customers onboard and show them the value-add of your product. Upselling is easy once you can prove this value-add.

4. Show a Return on Investment (ROI) for your customers

Most importantly, speak to your potential customers. No matter if you already have tons of customers, just a few or no customers at all, always stay close to your customer and listen to their problems.

The key challenge in the early days is to find the right target persona — the right individuals within an organization who know and feel the pain of the problem that you are addressing. Once you have identified these individuals, just sit down with them, and listen. They will guide you the way towards becoming a must-have in their everyday life.

In the beginning, this will require getting an overview of all stakeholders to understand different roles and incentives. Later, these conversations may turn into regular update calls led by your customer success team. At some point, a lot of companies have had good experience with offering internal events dedicated to their target personas. That way, you make sure that you a) identify what you need for product-market fit, b) get it and c) keep it.

In brief: Find the target personas in the company, understand their problems in detail and focus on their needs when building your product.