The Importance of Establishing Product Market Fit
Today, Stephen Kelly, Chair of Tech Nation, dives into one of his biggest pieces of advice for scaling tech businesses; establishing the right product market fit.
As Chair of Tech Nation; the UK’s leading growth platform for tech scaleups and entrepreneurs, I continue to meet, learn from and be inspired by the UK’s brightest and best scaleups, who are innovating across sectors from healthtech and AI to fintech and climate tech.
One of the best pieces of advice I have for these businesses – and any tech startup or scaleup looking to scale at pace – is to establish your product market fit, and be committed to getting it right.
Once you’ve established your product market fit, you’ve got to build a go-to-market strategy to fit the business model that’s most appropriate. This strategy will differ depending on whether you are D2C or B2B, whether you’re an ecommerce business, and whether you’re domestic or international. There are countless factors that affect how you create your go-to-market model – from price to packaging and placement – but the core essence is product market fit.
My experiences finding product market fit
What I learned 9 years ago when I worked at Oracle was that if you’ve got a great market fit, the market will come, and you must then have strong sales and operations to scale a company further.
One great example of this is from back when I invested in businesses, and found a brilliant business back in 2008 called CloudApps (www.cloudapps.com). CloudApps was built with incredible cloud technology (in the early days of the cloud) and worked brilliantly to help customers build more sustainable businesses and reduce carbon emissions. All the ingredients were in place, with a brilliant Chair and leader, Dr Steve Garnett, (Chair of Salesforce International) and excellent management team.
At the time, with the end of the credit crunch and financial crisis in sight, there was also a real wind of change happening, with a massive geopolitical emphasis on climate change as governments tried to encourage companies to reduce their carbon emissions. The biggest driver for companies to move towards net zero was the introduction of these government regulations. At the time, the Obama administration and Cameron Governments promised wide-sweeping regulations on carbon emissions. With the economic reality of recession and austerity, the Net Zero pledges never materialized. All the promises made to force companies to develop carbon reduction plans, and herald the net zero movement, dissipated as governments became focussed instead on sorting the financial crisis. As a result, without regulations, Cloud Apps was left educating prospective customers with very little real customer demand. You never want to be in the early adopter phase of educating the market without the tsunami of demand looming.
In short, we originally had a product market fit that was perfect – with the right time, right place, and a huge demand driven by regulation. However, as soon as politics moved away from net zero, we found ourselves in the wrong place, wrong time to scale the business. All of a sudden, it was way too early!
How did we solve the problem? We had a brilliant management team with a culture of customer obsession, and together we pivoted the company into helping companies manage sales force effectiveness using AI, as there was huge demand for this. We replatformed the product, built new AI technology combined with behavioural science to power it and effectively allowed large businesses to apply science to the way they ran their big sales teams predictably. It was almost like smart analytics forecasting, with companies who bought the product being able to predict their sales based on AI, behavioural science and its detection of repeatable patterns. They could predict what business they would close on a forward projection, so it helped them much more accurately and effectively plan for the future. It was the right place, right time, and perfect product market fit.
The takeaway is that despite finding ourselves with the wrong product market fit originally, we raised enough money to completely pivot and build a new product to launch into the sales force effectiveness space. Now that company and product continues to perform well and grow – in a completely different space, and solving a totally different business problem!
Don’t try and educate the market
My advice for businesses based on this experience is to search for compelling product market fit and make sure it’s the right time and right place for your product to take off.
If you’re too early, you’ll be educating the market, and you don’t want to do that. If you’re trying to educate the customer on what problem you’re solving for them, you’re not going to scale fast. You want to be in a marketplace where the customer knows what they’re buying.
If you don’t achieve early success within 1 or 2 years, it’s time to pivot to find an adjacent or sometimes a different product market fit. You should be seeing 100% growth with high customer advocacy each year, and if you’re not, you’ve got to ask yourself some fundamental questions about whether your product is right for the current market.
If you have a strong management team, are well funded, and have a brilliant idea that solves a big problem for customers, it’s worth persisting and considering how you pivot the business and move into a different market. In my experience, that’s always been key. Good luck, being bold and brave.