How to go from 0 (before) to 1 (after) product/market fit

SDS 007: Clarifying Product-Market Fit

Hey! thank you for reading issue 007 of Startup Definition Sunday (SDS).

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Hi, Jasiel here. As quite a few of my twitter followers guessed, this month I have TWO guest posts from some awesome friends of mine.

The second guest post is by Marge (@margentambi on twitter - definitely worth a follow). Marge has been an investor at RareBreed Ventures for over two years.

While RareBreed is a generalist fund, Marge played a role in developing the fund's web3 thesis and is also responsible for developing the fund's thesis for Africa:

At the end of this issue, you will understand how to go from 0 (before PMF) to 1 (after PMF).

But, let me hand it over to Marge to tell you more.

What is product/market fit?

Product/Market Fit (PMF): when your solution has early signs of paying users to validate that it satisfies the needs of your market

Now, to be clear, without a market with a big enough problem, you’re building a product that either no one or few people will use. Therefore, it won’t grow fast or large enough to attract venture capital.

How do founders fall into the trap of building a product that no one needs? Well, it’s likely they didn’t do any or enough market research and just started building something that resonated with them or a small community they affiliate with. That founder might get caught up in the design, the packaging, or the cool technology the product delivers that the very essence of why the product exists – the value it brings to the ultimate customer – takes a backseat, or worse, it’s completely overlooked. And without that, there can be a lot of wasted time, energy, and resources with little chance for success.

How can you go from (0) before to (1) after product/market fit? - Before spending time, & resources

Too often, entrepreneurs think up a solution, fall in love with the concept or the technology and go headlong into development before they ever know if there truly is a market and anybody (but them) will buy it. By then, they are too committed to backtrack.

So let’s take this step by step.

Step 1: Identify a market with a large problem

If I’m thinking like a founder, you’ve probably come up with an idea to build something. Next, you need to figure out if it's worth building. So before spending a single dime building a website or identifying a cofounder, do market research.

Ask yourself:

• What problem does this idea solve and for who?

• How many people would use this?

• Am I the right person to solve this problem? Why?

• What are the alternatives? Are there many or a few? Are people happy with thealternatives, or COULD my product offering be differentiated enough to convertusers to my solution?

Step 2: Answer the last question above in more detail.

After you’ve done market research and you’re convinced your idea is big enough to be the next unicorn, consider sharing your idea with a friend that’s willing to help you answer the above question. Potentially you two agree that if things go well and this venture scales, your friend will get equity for putting in the time to help you at this stage. But still, at this point, you can go it alone. And here’s how:

TALK TO PROSPECTIVE CUSTOMERS!

Interview people in your target market and ask them if you’re working on a problem worth solving. Vocally share your solution in search of honest feedback that will help you build v1 of your product.

If, from these interviews, you don’t get feedback indicating that people see a need for what you’re making, abandon the project because it only gets more complicated from here.

The objective of these initial conversations is to walk away with a clearly articulated value proposition.

Step 3: Assuming you’re building an asset-light software company, build a simple prototype and validate it using Figma.

From customer feedback, build a prototype using Figma. Design specs that you’ll share with customers to drive the initial design. Have several more conversations with customers to build out features that ensure they’ll be early adopters. Continue to validate and iterate your prototype to the point where your customers confidently say they’d buy if you had a sellable product.

Step 3a: Start building your waitlist

You have enough to build a landing page from the conversations you had in Step 2 and from the specs of your initial design. Your landing page should succinctly articulate your value proposition to drive folks to sign up for your waitlist.

We can assume the customers you’ve already engaged will sign up for the waitlist, but how do you get more customers?

Here are a few ideas:

Idea 1: leverage a referral program.

Let’s say you were speaking to 100 customers in Step 2. Create a program that gives them 50% off if they get ten people to join your waitlist. That’s 1000 customers. You can assume that if your value proposition solves a big enough problem, more than 1000 will sign up through word of mouth. If the problem you’re solving is big enough, it’ll be evident by the size and speed at which your waitlist grows. Take note that this route requires $0 in ad spend.

Idea 2: think outside the box.

You can do what one of our RareBreed founders did and hack into Venmo’s user base; send a penny to each user that’s about to start college with the message

“are you looking to save on student loans through scholarships?”

You’ll get 25,000 signups in 30 days.

FYI - I may have embellished this story a bit, but use it as a visualization. Again $0 on ad spend enabled by virality.

Customer acquisition is really important to RareBreed. We specifically prefer companies with unique and repeatable customer acquisition strategies as signals that what’s being built has the potential to generate venture-scale returns.

Step 4: Now you can code or use no code to build v1, your MVP.

Those 100 users you met in Step 2, give them access to the first version of your working product. This product is bare bones and likely still has several manual aspects. But you’re still trying to be lean because you’re trying to build something your customers want. Continue to get more feedback and iterate. Make sure these first customers love your product. Try to create features that will retain them.

Step 5: Build v2 and v3; keep scaling and iterating. It’s a never-ending cycle.

At this point, you’ve probably hired people, and maybe you’ve raised some capital to build v2. But you’re still maintaining a lean team because you’re likely not yet profitable. In addition, there are still manual and unscalable parts of your business because you’re still working through understanding your customer and ironing out kinks to make the product more convenient, effective, and tech-enabled. Let’s look at an example:

“The Airbnb founders originally offered to “professionally” photograph the homes and apartments of their earliest customers in order to make their listings more attractive to renters. Then, they went and took the photographs themselves. The listings on their site improved, conversions improved, and they had amazing conversations with their customers. This was entirely unscalable, yet proved essential in learning how to build a vibrant marketplace.”

With continuous iteration, you will have achieved product/market fit once you see signs of the examples laid out above (e.g., you’re growing so fast that customers are buying your product just as quickly as you can make it). Conversely, poor retention will result if you haven’t achieved product/market fit.

Parting words...

I left out a lot, but I’m sure Jasiel and I will publish more.

Throughout this process, you, the founder, will experience several ups and downs, highs and lows.

Your early customers might lead you in one direction, but then you’ll find that conversion is low once you open up the product to more customers, and you need to pivot your product.

You might need to hire talent to help facilitate this change.

You might need to go for a different set of customers entirely. There are so many twists and turns that are simply a part of building a startup. Only the right founder can execute through these headwinds to achieve product/market fit. And it’s a specific breed of founder that’s brilliant and resilient enough to find a market, build a product, and assemble a team to succeed through this process.

If you only read one thing this week, read this...

Jasiel here again. I hope you enjoyed today's guest post. If you'd like to read more of Marge's writing, you should check out her newsletter.

If you're interested in the agriculture and food value chains:

Jake from DFS Labs penned a must-read article in this issue of TechCabal's Next Wave.

Here's why you should read it: Jake uses data to tell the story of the opportunity and challenges of food in Africa. The opportunity of solving challenges in agriculture is part of my investing thesis.

Founder's Corner

Let's get real for a second: raising a round in 2023 is beginning to sound like going outside in mid-2020 - everyone is advising you against it. Unfortunately, unlike missing weekly drinks with your friends, you can't just pause on the fundraising.

The team at Africa The Big Deal have been curating a database of investors that have done deals in Africa since 2019.

It costs a fraction what you will pay for Crunchbase or Pitchbook BUT the team has offered a 10% discount for subscribers of SDS. Grab it here (and tell a friend!) to help you target investors in your sweet spot.

Thank you for reading to the end of issue 007.

If you enjoyed reading this, or I missed something, hit reply - it's always great to hear your thoughts on the issue!

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Let's chat again in two weeks,

Jasiel