ReFocus AI’ (GIA 2023)
ReFocus AI Founder, Colby Tunick
Helping Startups Reach Product Market Fit
By: Colby Tunick, Refoucs AI (GIA 2023)
As a founder, one of the most grating pieces of feedback I hear is about how you know you have reached Product-Market Fit (PMF). Well-known VCs Andreessen Horwitz and Y Combinator have devoted pages and hours of podcast episodes to this seemingly illusive capstone. You can summarize their logic as: "You will know it when you get there."
Rather than rehashing that well-established mantra, I wanted to provide some actionable steps startups can leverage to get PMF. My hope is that if we know the steps along the way, it will be a much quicker journey to reach it.
Ground rules for reaching product-market fit
You have to solve a meaningful problem where customers have an urgency to see the issue solved. You might be thinking, "If Henry Ford had asked what people wanted, they would have asked for faster horses," which is true. However, to get buyers to change their behavior requires a new capability that is at least 10x better than the alternatives. If technology existed to make horses ten times faster and able to run ten times longer, then we might not have ever invented the automobile. However, since that's not possible, cars it is.
The road to PMF starts with your market
Assuming you are solving a meaningful problem, the first few years of a startup are a whirlwind of pivots, large and small. As you learn about your market, your ideal customer profile (ICP), and get a better insight into the core issue that you are solving, your market gets smaller, not larger. The first step of product market fit is when you can completely understand and wrap your hands around the true initial ICP you are selling.
For many startups, this is the first time along their journey that they have extreme clarity on which market subset they are serving. If you have not yet reached this moment, it is essential that you do. The smaller the pond you play in, the less water you have to boil to get to the fish.
The benefit of this approach is that you start with problem identification and validation and iterate from there. My personal ‘aha’ moment was realizing it is much easier to know what problem you are solving when a simple problem statement is where you start. Here are some examples:
Why are some insurance carriers able to better reach new demographics?
How can we serve customers 55+ in a digitized way?
When a claim is filed, what is the most significant friction point in getting that claim paid quickly?
Many startups mistakenly start with the product and then work backward from there. You might even argue that Market-Product Fit would be a more appropriate acronym, but this writer didn't get to make the rules. Starting with the product rather than the market is debilitating. It's essentially free to do market research and reach your ICP. Building an actual product is expensive, and the more code your team lays, the harder it is to abandon it when (not if) you pivot to a different ICP or problem area. The sunk-cost fallacy comes to mind here.
Failing fast with a product
Once you understand the problem, you can quickly begin iterating on a product. Start small and low-cost. I made the mistake of trying to build a fully featured application on Day 1. Hint: It didn't solve the problem like we thought it would and ended up in the digital scrap pile.
A PowerPoint presentation can effectively clarify the functionality needed to address the problem identified for the ideal customer profile you are targeting. After taking that on a roadshow to prospective users, and only after multiple confirmations (I default to 100 conversations) would I even begin to build wireframes.
Along this journey, the best validation is to get the people you are speaking with to put money where their mouth is. I know this can seem extreme, but if they won't commit dollars here, the chance they will do it later is actually relatively small. After all, humans like to be helpful, but opening wallets is a more significant psychological step. In practice, this can be as simple as signing a contract now - once the product is delivered, they will come on as a user for the agreed-upon amount. Alternatively, you can ask them to help with the build-out cost.
I am sure you are asking, "But why would someone in their right mind ever put money down before there is even a product to use?". The simple truth is that if what you are building is meaningful and the problem you identified is painful, money is no longer an object. If you get many 'No's' during this process, keep iterating on the market, ICP, and problem.
Levers to pull to reach PMF
Startups have three main contracting methods as they reach product-market fit:
Proof-of-Concepts (PoC): Used when using non-production data in a non-production environment. It can be paid or non-paid.
Pilots: Uses production data in a non-production environment. Normally paid.
Contract: This will be a SaaS or Master Services Agreement (MSA). It uses production data in a production environment and is always paid.
There is a prevailing strain of wisdom that a startup should follow these contracting methods sequentially for large, key accounts, from PoC to Pilot to an actual agreement. I've learned that unless the customer asks for a PoC or Pilot, just default to an agreement. Why? An agreement has permanence and an expectation of continuance that a PoC or Pilot will never have.
PoCs and Pilots are a snapshot; most companies balk at contractually agreeing to move to a complete operational agreement if success criteria are met. While I recognize this dynamic isn't always the case, I've had it happen to us and seen it affect other startups too. It is always to a startup's advantage to just lock in a contract. Frequently, the initial contract can be for 6 months (or whatever timeline makes sense) with a budget already negotiated and terms agreed to for a following 2-3 year agreement when the effort meets the initial success criteria. This recommendation may seem like splitting hairs, but if your goal is a multi-year contract, then it's worth thinking through.
Next steps
The main issue with startup advice is that a) founders know the most about their companies, and b) no cut-and-paste advice is ever a perfect fit for the stage your company is at. Rather than using this as a rote how-to-manual, use this as a general direction to work towards. Take what will work for you and discard the rest. I'd also like to know what you think! Drop me a line at colby@refocusai.com. May the odds be ever in your favor.
About ReFocus AI
ReFocus AI helps insurance agents, brokers, and carriers reduce churn and improve profitability. Use your existing policyholder data to detect customers who are likely to leave (before they’ve left,) enabling you to reach out proactively.
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