Product market fit #
First you have to prove a value hypothesis, and only once you’ve proven the value hypothesis should you test a growth hypothesis.
How do I know when I have it?
Consumer side:
- Word of mouth shows you have product market fit. Look for exponential organic growth. Only word of mouth can get you that.
- Net promoter score.
Business side:
- Sales learning curve (Mark Leslie)
- Sales yield: contribution margin of sales team / total cost to field sales team. Aim for sales yield of more than 1.
At the end of 30 days you pull the trial, no matter what. If the customer doesn’t scream, you don’t have product market fit. Because if they’re not going to buy it at the end of the 30 days, they’re not desperate, and if you’re not desperate, you don’t have product market fit.
Crossing the chasm #
The biggest chunk of the market is represented by the pragmatists or the early majority. But there’s a catch-22: How can you go after them first if you don’t have any references? The biggest problem by far, the biggest mistake I see people make, is trying to start with the pragmatists because it’s the biggest market.
The two axes #
Not everybody needs to like your product. In fact, it may even be better if not everybody likes your product.
The only way to make outsized returns as an investor or an entrepreneur is to be right and non-consensus.
Startup ideas have two dimensions: Are you right or are you wrong, and are you consensus or non-consensus? Wrong is always bad because if you’re wrong, you fail. But it turns out that just being right is not enough either.
The definition of a good experiment is one from which you learned, not one that succeeded. - Wealthfront president.
Summary #
If you aspire to create a great startup, consider one simple fact: Great breakthroughs come from insights that defy conventional wisdom. Andy Rachleff referred to this as being non-consensus and right.
At Floodgate, we emphasize that insight development should happen before customer development.
Insight is not the same with analysis. You ask questions like: What is my earned secret? What work have I done to find something out that others don’t know? How did I uncover the secret? Why is it a secret? What work did I do to develop conviction that my secret is real? What is my why now? Almost every startup idea’s been tried. Shouldn’t I assume that my idea’s been tried? Who’s tried something similar? Why did they not succeed? Has there been any major technology change event that makes something possible only now? Is there increasing adoption of a technology that makes something possible only now? Why is now the time for your idea to happen?