It's every entrepreneur's dream. Revenue is growing, customers are sticking around, and they're happy enough that they're starting to tell their friends and their business ecosystem. Upon reaching this point, most companies let out a sigh of relief and celebrate having 'made it.'
Definitely celebrate reaching this milestone.
Have you 'made it' by carving out a market that you can own and will be profitable?
Maybe. You've 'made it' when you've achieved product-market fit.
You've heard the term. It's sprinkled in virtually every conversation with investors, board members, marketers, and distribution partners. But what is product-market fit, and how do you achieve it?
We asked startup founder and sales and marketing mentor Henrique Dias. He's advised over 100 startups and businesses to crack the code on market understanding, product positioning, and go-to-market strategies, resulting in millions of dollars in revenue.
How do you know you’ve achieved product-market fit?
“80% of early-stage companies have not achieved product-market fit, and only about 20% achieve it. There are some clear signs when a company achieves product-market fit.
First, they start going to customers and pitching their solution, and customers are impressed to the point that their jaws drop. They're like, "Oh my god, how did I not think about this before?"
That's always one of those signs that a customer has been struggling with a problem for so long that they're oblivious to it. And now comes a solution that will eliminate that problem for them.
Second, the product has been around for a while, often through a low-cost or free version. When you move to take it away, the customer says, "No, no, no, I want to keep this and pay for it."
Sometimes, customers need time to form habits. When you give them that chance and then introduce a price increase or threaten to pull the product, the customer wants to pay for it. That means you really added value.
These are two of the signs we look for. Once one of those signs is in place, we can start talking about a sales and marketing strategy because you're onto something.”
What are common stumbling blocks?
“The biggest mistakes I see are twofold.
Startups often develop technology before they know if or how a customer will use it. They create a technology that solves a theoretical or physical problem, but don't take the time to understand the psychological problem it solves for the customer.
Then, they try to get their solution into every possible market because their natural mindset is, "I have some fish. Let me try to sell fish to the whole neighbourhood because someone out there must be hungry."
With new technology, it doesn't happen like that. Technology isn't as simple as selling fish.
When customers consider a new technology, the value isn't as clear-cut as when they consider food and know that it will satisfy their hunger.
Startups often take their solution and go everywhere, trying to sell it. They go directly to consumers and businesses in every market to put their technology in front of everyone and leave it to the market to figure out how to use it.
It's no surprise when startups end up empty-handed. That is primarily because entrepreneurs often don't realize their solution is a vehicle for achieving something else. And that something else is the problem the business or person is trying to solve.”
How can entrepreneurs avoid this mistake?
“If you want to take your product to market, you need to break the market up into different chunks. Identify which segments need your solution the most because their problem today is much greater. Other market segments could still use your solution, but the pain of the problem isn't as significant, and they won't get as much benefit from it.
Don't get trapped into believing a single market is too small. A single market segment can still hold thousands, sometimes millions, of potential customers.
Plus, it's just a starting place. It doesn't mean that you won't sell to the others. Starting with a single market that has a huge pain point gives you a place to focus on until you gain traction.
Focus is often lacking for a startup to get to product-market fit.
When you focus on that one market that needs help the most and show your solution, the market should respond with, "We needed this yesterday. Please, here's my money."
Less is more in the beginning. Especially to get to your first 10 to 100 customers.”
What is the relationship between Product-Market Fit and Sales?
“The exciting thing about SMEs with an MVP+ is that they already have a sellable product. Now, it's time to figure out how to make that happen.
To do that, they need to know their smallest viable market and create a minimum viable brand.
The main thing to succeed in sales early on is to narrow their target market. What's your smallest viable market? Meaning, take your entire potential market—maybe it's a million people —then get it down to a thousand people who need your product the most.
You start by identifying what those people have in common. It's not necessarily demographics, though that can be part of it. But what shared interests do they have?
Then, figure out where your competition is well-established. Don't try to go where your competition is. You can think about beating competitors in five or 10 years. As a startup, it's a waste of time to go after markets that are already taken. Find the markets where the competition isn't present at all. These potential customers are completely unaware that there's a solution to their problem.
Once you have your target market, you need a brand.
Create your brand as if your entire company is about that niche market. By making the brand appeal to only a thousand people with specific characteristics, you'll have a much higher likelihood of getting a percentage of those thousand people than you will if it's about appealing to everyone. Your message will fall flat if you try to go after multiple markets simultaneously.
Craft your brand for that niche market, then pursue it with everything you've got. Market on all the channels you can. And make sure the people in that market have a means of communicating with each other. When you land one customer in that market, do they have a way of sharing a word-of-mouth reference with another person?
After you do all the outreach and advertise on all the channels, look at the results. If you didn't get the expected results, it just means you found one of the markets you should avoid. If you truly believe in your solution and the problem you're solving, then you choose another micro-market.
Remember to evolve the brand to speak to the new market's problems specifically. The solution will remain the same, just with a different application of that solution and a different story. Because that customer is going to experience the problem differently.”
You’re making sales, why all the fuss about customer success?
“I'd say that customer success is more important than sales. If I had to choose one over the other, I would prioritize customer success. The startups that enable customer success well are the ones that do the best.
Too often, startups get excited about winning more customers. They might invest in sales and hire a business development rep (BDR) to hammer cold calls. The sales start rolling in, and they think their job is finished. Then customers start coming back with issues, and no one is there to solve them.
Here's the thing. When you sell a product, you make claims about what your product will do, and the other party hands you their money in exchange for that promised outcome. They now have an expectation, and the job isn't done until that expectation is met.
The customer pays you, and you give them a login. But there's so much work still to be done. They have to use the software, sometimes for two or three months, to start seeing the benefit you promised. And if they don't get the expected outcome, they feel cheated.
If you sold them a physical product, they might want to return it. A return costs more than not making the sale in the first place.
Suppose you're a subscription model, and the customer leaves for a competitor. In that case, it will be very difficult to lure them back. That can take years. And if they're really unhappy, they might write a negative review.
The cost of winning that customer was high. Losing them is more expensive than not getting them in the first place. And if they write a bad review, it makes it that much harder to get more customers.
I always live by the principle that you should prioritize what you have over what you don't have.
If you have a customer who has a problem, regardless of what else you have planned for that day, you need to solve their problem first. You were planning to make sales calls that afternoon? You’ll have to reschedule. Customers you already have take priority—always.
Besides, your product should be good enough that the sale is made easily through word-of-mouth, your website, or because of your reviews. Adding a sales force will help you sell faster. But you shouldn't need a sales function to make sales. Focus on customer success and deliver more than you promise; your customers can become your best salesforce. They tell their friends about you. They mention you at trade shows. They start doing your selling for you.”
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Want more sage advice on navigating the stages of commercializing and scaling your SME? Here's what you can do.
