When it comes to finding Product-market Fit (PMF), entrepreneurial vision is helpful but insufficient. Landing on the moon may be the vision but it requires precise and completely accurate calculations to actually get there.
To increase the probability of finding PMF and to accelerate the process requires the systematic and thorough application of a particular toolset in a stage specific way. Those pioneering tools are: detailed hypothesis building, market engagement and application discovery, analysis and rapid iteration, and validation.
And, of course, the crowning evidence of PMF for product companies is that first set of deals that proves your ability to generate significant revenues at a high gross margin by solving a high value challenge either in a way that no other product can or in a way that is much more effective and efficient. The right set of ‘first deals’ demonstrates market acceptance and pull, and sets in motion a pattern of accelerating revenue capture (traction).
For broader platform companies, the ‘first deal’ challenge involves working with a broader ecosystem to identify applications and build products around your platform that achieve market acceptance. While the goals are the same as with the product company (see above ), the difference here is that there are potentially several different applications that we can apply the technology to. The skill lies in choosing the right initial applications that can have a multiplier effect with regard to: revenue generation; industry acceptance; and technology scaling.
‘First deals’ are different in nature and require a different pioneering skillset than those that follow in the growth stage. To generalise, they are harder to win, demand greater intensity, consume more attention, require more face-time with the ‘customer’, take longer, need a broader more cross-functional consensus within the ‘customer’ organisation, and are substantially more valuable than those that follow.
Whereas with ‘known’ products, resistance is likely to emerge early, curiosity for ‘the new’ means issues are likely to emerge later. For the venture organisation, where the mis-allocation of resource can be an existential threat, a long but ultimately fruitless engagement is deeply problematic. Curiosity is a powerful lever for stimulating engagement but also a trap sprung by the seductive charms of early interest. The challenge is to convert curiosity into opportunity early by creating a stage gate that gives the counterparty a clear choice between disengagement or a meaningful commitment that signals interest has been transmuted into an opportunity. All too often the issue lies in the lack of leverage that a technology company can bring to bear to ensure adherence to a stage-gated process. It is of course the evidenced and transparent promise of the technology that should support a more symmetrical interaction. Once established, the best way to ensure leverage (this is most applicable to platform technologies) is to have multiple competitive companies in the same industry all in the same process which creates an urgency to progress and conclude a deal within a desired timeframe with the carrot (should one be necessary) being some form of preferential access to technology which moves the competitive advantage needle.
At least from the perspective of the technology company, ‘first deals’ are based on no direct precedent. Practice is being formed and enacted for the first time. The execution capability is embryonic. Experience may accelerate the process when wisely applied but it may also hinder progress by adhering to modes of action applicable to different contexts. Generalised knowledge can be useful but is trumped by context specific insight. The goal for product companies as they move from ‘technology visionaries’ and ‘early adopters’ (who will adopt largely on the technology’s potential) to ‘followers’ is to evolve a practiced capability built on: fast learning and systematic iteration to distil what works; a creative process mindset; and extraordinary maniacal attention to ‘customer’ detail.
At each stage, a fit-for-purpose process must be created, tooled up, and optimised. Pooling expertise early into specialist jobs (embryonic functions) is important and is a precursor to scaling. One of the huge advantages of following this type of approach to designing and developing process, whether you are pioneering a product or a platform application, is that it quickly highlights the really critical steps in the process and what is needed to engineer successful outcomes. Those critical steps are nearly always conversations. The end goal is a series of repeatable actions – the smartest and most efficient way executing deals in these formative stages of the product’s lifecycle.
What is critical about building the execution capability is that it is foundational. It sets down the templates for others to follow. A great house cannot be built upon poorly built foundations. Starting over is a difficult and expensive job. Bad habits and poorly defined sub-optimal practices become embedded. A restart will almost certainly require the recruitment of new people. Success is ultimately only measured by results. There may be many ways to tackle a challenge but it pays to select the best way.