The land where CEOs and their investors often fear to tread
Can you admit your SaaS business still does not have product-market fit?
You can spot a company with good product-market fit. Their messaging is clear and consistent, their product is obvious and sticky, their sales efficiency is continuously improving and the addition of new capital accelerates growth not just activity. If this is your company, then congratulations and please stop reading this. If it’s not, then you are probably like most companies: You believe in what you are doing, you have sales, you are generally pleasing your customers - but it’s unpredictable, hard, increasingly expensive and every quarter is as painful as the last with no end in sight.
While it seems we just described a permanent condition for any SaaS company, it might also indicate an undiagnosed product-market fit problem. This can be equally true for those working on their first fifty customers as it is for those who clawed their way to twenty million in ARR. The truth is, it’s a hard problem to spot from inside your own company and a lot of that has to do with how SaaS companies evolve: In the early days you are forced to obsess over demonstrating traction. Later you shift focus to feature development to ward off competition or retain key clients; all the while selling as much as you can. Once you are in A-round or B-round territory, there is an expectation that you have achieved product-market fit and money is really there to pour gas on the fire by scaling sales and marketing, adding features etc. At very few points along the journey is there appetite for questions like “Do we even have the right product or the right market?” This product-market fit dialogue is the land where CEOs and their investors often fear to tread. As I like to say - it’s a thing - and that means you can’t put off thinking about it.
Why is this a thing?
It’s a thing because your business will not scale without product-market fit. Despite good execution and a solid team you might still spend years chasing a compelling and reproducible value proposition, while customer acquisition costs creep upward and revenue retention rates melt downward. One of the great lies we as CEOs tell ourselves is that the problem is real and product is a great fit for our addressable market and we are just an iteration or two away from growing like crazy. The truth is, even after years of working like crazy, it can still feel like every deal is nuanced and requires heaps of buyer-education while predictable levels of revenue remain elusive. For some businesses that is just the way of things. But if you are trying to grow a SaaS company, it’s a problem you can’t tolerate for too long. Despite what your stakeholders want to believe, the underlying issue may be one of product-market fit. And, left unaddressed, that means two horrifying outcomes for the CEO: (1) you won’t scale past a founder-led sales process and (2) additional capital will fail to increase shareholder value; serving only to further dilute your early shareholders. You are pushing a rock up a hill, forever and with diminishing returns.
Some markets are not ready, or just not worth it
Not every problem can be solved by a SaaS product. Some markets are not ready or just not worth it from a business perspective. You can’t ask tough questions about the appropriateness of your product without also asking tough questions about the worthiness of your target market. For instance:
Are buyers asking for the thing you are selling and are they using the same words you are using?
Once sold, does it require a lot of on-going work on your part to get customers to adopt the primary features?
In your customer’s eyes, does your product clearly replace something or remove the need for something?
Is there a homogeneous buyer with a ubiquitous problem? Are there enough of them out there and does their pain matter enough to anyone to spend money?
If these questions don’t scare you, then you are probably working to serve a legitimate market. One where you stand a chance of eventually reducing friction in both the sales process and the adoption side of the equation. One where you finally feel the market pulling on you. The struggle then may be to simply get out of your own way: Namely, edit your solution to better-fit the problem; or define the problem in more precise terms. Poor product-market fit is often a fixable condition but only if you call it out and get good at talking about it internally. As I said, it can be hard to tell from inside the tornado if you are having normal go-to-market and retention issues that you are on your way to solving, or if it’s something much more fundamental; like a product-market fit problem.
You may have a product-market fit problem if:
You tripled the size of your sales organization and invested in a marketing engine that spits out a 5X coverage of qualified leads, but it still feels like pushing a boulder up a hill to just barely make your numbers.
Your team obsesses over the unique value the product features bring to the table, but never talks about the level of behaviour change you are asking from your clients.
You suddenly realize you are selling "gym memberships” i.e. if people stop logging in regularly, the value of the product drop to zero!
You realize what you do is hard for people to get their heads around. It’s clear to you and those you have spent hours indoctrinating, but folks can’t get to the ah-ha moment on their own.
You can’t figure out if your pricing model is working or not e.g. there is no relationship between how you price and the speed of your deal cycles.
Customers churn for reasons that seem forever beyond your control e.g. we love your product but we had to change our priorities, cut our budget, reorganize the department etc.
The masters of the game
How does one learn to think and talk about product-market fit? What kind of people are really good at this and where are they hiding? In SaaS, I’m not entirely sure. But, a long time ago, I was fortunate to get to know some players in the consumer packaged goods (CPG) space at companies like Unilever and Proctor & Gamble. The product and product-marketing folks in these places are masters at systemically identifying gaps and filling them with surgically positioned solutions with the right price points and delivery models. Some of the things I learned from these folks stuck with me and made me think about how products need to do more than simply work, they need to fit on a number of levels for both the target customers and company. As a result, and because I am a consumer, when I find myself in the supermarket, I like to imagine the thought process behind some of the products on the shelf.
The Swiffer WetJet is one of my favourite examples:
I’m sure the thinkers behind the Swiffer WetJet by Proctor&Gamble observed that people have more tile/hardwood/vinyl flooring in condos and homes than ever, and those floors can look dirty making those people feel sad. They also figured that people hate mops because they leave streaks and are hard to store and … they are mops! At the same time, a sizeable segment of these people love to squirt coloured cleaning-fluid on their countertops and feel good about it after (I admit to this myself). So it would be easy to get people to stop mopping in favour of squirting a similar fluid on the floor while also sliding the equivalent of a diaper on a stick around their homes. The customer didn’t have to learn anything new and, as it turns out, neither did the folks at Proctor&Gamble because they are really good at making both coloured fluid and diapers! And for the win, because there are two consumable elements here that needed refills, P&G basically had a recurring revenue stream once they acquired you as a customer. The product didn’t need to be stellar but it checked all the boxes and fit the spending habits, behaviours and core motivations of the target market. This meant P&G could tune in the consumer pricing and the distribution costs to maximize the market share and still feel good about long-term profit.
I find the apparent thinking here kind of inspiring and worthy of respect. How CPG folks think about product and market, behaviours and trends, segments and drivers and friction should be required learning in SaaS. If you ever have a chance to make friends with a CPG exec, I would encourage you try to understand how they think; it could make a big difference.
Sisyphus, oil on canvas by Titian, 1548–49; in the Prado Museum, Madrid.Sisyphus was punished by being forced to roll an immense boulder up a hill only for it to roll down every time it neared the top, repeating this action for eternity. Tasks that are both laborious and futile are therefore described as Sisyphean
