PSP: Three Step Framework to Reach Product-Market Fit

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💡 PSP: The Three Step Framework to PMF

People often think changing product is the only way to reach product-market fit, but that's not true. In reality there are three variables you can play with:

1. Product: what you sell

2. Segment: who you sell to

3. Positioning: how you sell it

You'll know you've reached product-market fit the moment you stop pushing your product onto the market, and the market pulls the product out of you.

Customers will give positive feedback, they'll ask for more features, usage will be high. The needs and wants of customers will draw the product out of you and help it evolve over time.

It's a great moment when this happens. You can invest more into nailing distribution and building a scalable go-to-market motion.

But only focusing on product is tunnel vision. You should consider how segmentation and positioning can help you reach product-market fit also.

🖥 Product: What you sell

Start with an MVP (minimum viable product). Get it out to customers as quick as possible. Listen to feedback. Learn. And iterate. Small incremental iterations are better than large step function improvements.

Don't wait one month to build an MVP before getting customer feedback. Ship after one week and iterate four times instead. Both approaches take a month, but the one with four iterations will be light years ahead of the one who only receives feedback on launch day.

If you've iterated your product a million times and there's still no traction, it might be a sign that you need to make a 180 degree turn and pivot the company completely. New product, new market, new problem.

Sometimes great products solve worthless problems. You should find problems in need of a solution, not the other way around.

👨‍👩‍👦‍👦 Segment: Who you sell to

Iterating product involves big investments. Engineers, wireframes, and a lot of lines of code. But what if it's not your product that needs changing?

Sometimes it's the people you sell to.

You build a data analytics tool. Perhaps you think data analysts are your target audience. You realize your core value proposition is simplicity and ease of use. You get feedback from Chief Data Officers. They say your product is not comprehensive enough. It lacks too many features to be useful.

Instead of building more features and adding complexity, what happens if you just sold it to someone else? Someone who understands and appreciates your value proposition.

You realize sales and marketing department leaders also need access to powerful data analytics, but they value simplicity over complexity. You pivot your audience away from internal data teams and focus on revenue leaders. Without touching a line of code. BINGO. You have traction.

Pivoting segments can be a blessing and a curse because of changes to your target addressable market.

Almost every startup has a sales and marketing team, but not every startup has a dedicated data analytics team. By pivoting segments, not only might you find a stronger product-market fit but, you might increase your target addressable market too. Be careful though, if pivoting segments meant reducing your target addressable market you will have to consider the impacts to your business model such as higher pricing, higher cost-of-acquisition, and so on.

Testing new segments can be hard. Doing so with an outbound sales team can be slow and costly. Inbound leads, on the other hand, can speed up your access to a diverse array of segments, but with inbound you'll have little control over who you speak to.

Use inbound for variety and outbound for precision. The goal here is to pivot through segments quickly to identify the problems they have and identify which are worth solving.

🎯Positioning: How you sell it

Before you rush to build new features or pivot to a new segment, think about testing your positioning. How do you sell your product? How do you frame it? How do you position your value proposition compared to the status quo?

Some founders think every problem can be solved by building product. After all, to a hammer everything looks like a nail. But have you considered you may just suck at selling?

Test positioning early and often. It's easy to validate and mostly costs nothing. You can change your positioning on every cold call or demo or test messaging copy via paid Google Ads on targeted keywords, monitor click-through rates and adjust accordingly.

For example, Spendesk sells spend management software. We compete with credit cads (like Amex), expense claims (like expensify), and account payable tools (like bill.com). So how does positioning impact us?

Well, whatever you choose to compare yourself to has consequences. If we chose to be 'a better corporate card' customers have expectations of similar features. Credit lines, cash back and they'd expect the product to be free. We do have cards, but seeing as we charge a monthly free and don't offer credit, this would be bad.

At Spendesk, it's far easier for us to frame the problem. Anchor ourselves to that. Rather than existing tools.

"No existing tools are built with finance teams in mind"... hence why we never anchor ourselves to them. We anchor ourselves against an enemy we created. Which in our case, is not the incumbent competition, but rather a broken system.

"We don't compete. We differentiate. We aren't better. We are the only."

Positioning is an art. But when done well it's incredibly effective.

Positioning will help you get customers in the door, but don't forget; only product can keep them there.

If you want to learn more about positioning I strongly recommend reading April Dunford's book "Obviously Awesome". And for communicating a corporate story check out "Storybrand" by Donald Miller.

🌯 Wrapping it up

Product is the most important variable in reaching product-market, but don't be fooled into focusing on it as the de facto variable while ignoring segmentation or positioning.

Build an MVP, take it to your customers. Listen to their feedback. Modify your positioning. Assess your current segment. Quantify the TAM. Only modify product once you've addressed segmentation and positioning first.

Thanks for reading.

Have a great week!

💜

P.S Would you like to hear more about segmentation or positioning in a future newsletter? Positioning is a topic I love, would it be worth sharing more on it? Let me know what you think.