doing PMF right
don't take shortcuts
Dragos here, from Project Arrow, where we guide founders with what to do and who to talk to in order to get funded.
Most of the discussions with founders these days are about finding paying customers and validating what’s called a product-market fit (PMF). Let’s dig a bit into it.
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Finding customers is one of the more important parts of building a business and the rationale for doing a startup in the first place. You build something of value, you get people pay what’s worth. Finding investors is not important, you can run a business nicely without them. But you will never make it without customers.
Here’s some facts:
about 90% of startups from anywhere in this world fail. That’s 9 out 10 going out of business.
on average, it takes startups 2-3 years to turn a profit. If you raised VC funding, it takes even longer as investors push for revenue growth not for building a profitable enterprise. Why - the higher the revenue growth rate, the more money investors can get in return for their investment
post-seed round, less than 10% of startups go on to successfully raise a Series A investment.
less than 1% of startups go public.
a startup only has a 0.00006% chance of becoming a unicorn - valued at $1 billion, that is.
If you look at those numbers, doing a startup will seem crazy. It is! Not even that, but if you dream to build a billion-dollar startup, your odds are super low. You seem to be better off playing the lottery while grinding out on that boring frustrating job. :-)
The people who build companies have a secret though - they focus on finding customers as soon as possible. Not free users, not website traffic, not social media followers or praise from kibitz. Paying customers is the number one thing - people vouching with their wallet that the startup output has value. As soon as you get those, you need to establish a pattern combining a solid group of customers purchasing your product repeatedly that should get you to a comfortable position to predict that your business is sustainable. That is called PMF - product market fit.
Once you get that, the nature of running your startup changes from exploring and testing all sorts of acquisition channels and product features, to predictable business development which should turn into a billion dollar company - that is called scaling.
However, if you start scaling before PMF, your startup will fail. It’s like building a house on top of a foundation that’s not safe - it won’t hold.
Getting to PMF requires a lot of energy, trials and failures. It can get frustrating too and you will be tempted to fall for shortcuts - DON’T! This is supposed to be hard, like everything in life, there’s not an easy way to do it, just the right way to do it. The key to success is to endlessly talk to customers, care about their customers, learn about their problems, and solve them effectively. Be hungry, ambitious and very creative with all sorts of solutions. Don’t overspend, or overhire, just throwing money at a problem won’t solve it - stay focused, have a low burn and build a strong small team around you to help.
It takes time. Sometimes a year. Sometimes 3 or 5. But it’s worthy and rewarding. And what’s a good sign to know that you’re on the right track? You cannot handle incoming customers demand and consider allocating more resources for handling the business.
Are you running a startup that’s achieved PMF? Hit reply and let me know how you figured it out.
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