What Four Challenges Come After Product Market Fit?
What comes after Product-Market-Fit?
You are all familiar with Product-Market-Fit from Lean Startup, right? Hopefully you're already close or maybe you've even reached product-market-fit! But do you also know what comes after?
The problem after reaching product-market-fit is that people think, well this is all about growth, right? And everyone starts defining growth in different directions. Growth in revenues obviously, but does that mean multiple markets, multiple products? Does it just mean growth in people? How do you actually define your journey after you have reached initial product-market-fit?
In my book scaling Silicon Valley Style, the second part of which will come out this year, I really set the new horizon to turning that product-market-fit into product-market-dominance. So once you have a toehold in that new market and you have some traction, how do you turn that into a market that you can truly become the leader in?
How do you do that? There are four distinct stages that are important to look at. It is also important not to try to do everything at once because there is a definite order to them.
The first phase, is called the Freshman Stage. As a Freshman scaleup, your challenge is to master distribution. That really means: how do I find a model to reach enough customers and convince them at a cost that is not out of the ballpark. In other words, can I convince customers to join me, to pay for my products? While the total revenue that I can expect from them is going to be clearly more. Maybe two times more, three times more, up to five times more than the marketing and sales costs I've spent acquiring them in the first place.
The second phase is a little bit less intuitive. It's called the Mastering Deepening challenge, and I assigned this to what I call a Sophomore scaleup. It means that, just as you've mastered distribution, you expect your sales to really start increasing, but you actually see them slowing down or really reaching a plateau. That means you have reached the limits of the initial visionary market, the early adopter market. Now you need to go target the mainstream market. What you need to do there is often deepen your understanding of your target market and often hone in on specific verticals where you have a really, really clear advantage. For more about that, read the famous book Crossing the Chasm by Geoffrey Moore.
In the third phase you have become a Junior scaleup. You can see the graduation down the line. What you have to do right now is to master disruption. How do you apply that new knowledge you have learned from the mass market and how do you actually start conquering that mass market piece by piece. Plainly, it's like a chess game. It's really important here not to try and boil the ocean all at once. But to pick the pieces that are most attractive and that will not invite full-blown competition when you cannot afford it yet.
In the fourth phase then, you really have become pretty dominant already and it's becoming a game about staying dominant. So the assignment for a Senior scaleup is to master defense. There are many examples out there of companies have grown big and then have become very defensive about the market they've just conquered. As they should because there's always other startups around that are looking to disrupt your market.
If you want to know where you are at with your startup, then there is a very easy tool that you can fill-out. It has check boxes that tell you "Am I still in the startup stage or am I a freshman, a sophomore, a junior, or even a senior scaleup? And what is the appropriate strategy for the stage you are currently in?
This worksheet “Scaleup Stage Analyzer” is available for download below.
Roland Siebelink speaks and writes about companies that keep growing while also keeping their culture.