The Product Market Fit Trap
Assuming that you will be a successful company when you achieve PMF can lead to disaster.
The early 2000s was a wild time for e-commerce, with every company thinking about going digital, and the wine industry was no different. Seeing an opportunity, I founded WineDirect in 2002 (originally and terribly named Inertia Beverage Group — IBG) to help wineries reach consumers increasingly interested in purchasing wine online. We would build their e-commerce platform on the backend and ensure everything ran smoothly on the front end. Demand was intense — we were selling our services to over 50 wineries a month.
But executing our vision was harder. Our customers had so many friction points that it was like walking uphill on the sands of the Sleeping Bear Dunes in Michigan: one step up, three steps back. Ultimately, we could only complete less than half of those new orders a month.
We had fallen into a common situation for startups: we had identified a product market fit — e-commerce software as a service for wineries — but were struggling to execute on product operations fit — execute on delivering our product as fast as we were acquiring customers.
In Startup Land, there is a threshold between having a viable product and being able to execute on delivery—one by which all companies are measured—the moment they achieve “Product Market Fit.”
It is that magical piece of the puzzle when a company’s solution matches the market’s needs. It means you have a product that solves a problem and is something people want and need. However, the number of startups who have crossed into that magical zone and failed is numerous. Most business books or VCs fail to mention two other essential layers that a company needs to achieve before they can actually achieve startup escape velocity — the point where they are in the flight path for true accelerated and rapid success.
After PMF, a company needs to find Product Sales Fit. It’s fine to know that you have a product that people really need, but you have not achieved PSF until you can consistently have an employee or a website sell it at a profitable price. You need to know the quantity of sales you can generate, sales per representative, conversion ratio, cost of sales (COS), churn rate, and average sale amount. Often, the problem is that the founder has led the company’s sales and becomes the iron pyrite of PSF. It gives the illusion of higher close ratios, longer retention, and lower COS. Modern VCs discount founder sales, making the close of a funding round harder to make with many of them. You need to build into your plan how you achieve this successful metric, or you will delay your ability to raise money or achieve success.
I can’t tell you how many companies we’ve found Product Market Fit, but getting others to sell it properly took so much time, training, and energy before we found a repeatable solution that we could use to scale. At WineDirect, the ability to teach wine people how to sell software, or software people to sell wine e-commerce, was years in the making, not to mention a pricing model that could sustain the R&D of supporting a SaaS company but is reasonable enough for a winery to buy.
Once you’ve found a way to a repeatable sales process and PSF, then one of the hardest fits of the business needs to occur: Product Operations Fit. So now you’ve found a product other companies need, you’ve found a way to sell it at a price that matches the ability to acquire customers and make a meaningful profit rapidly, but now the rubber hits the road. How fast can you implement and make customers successful using your platform? So many companies succeed in the final two of these phases but find implementing, supporting, and elevating the success of customers to be the most difficult challenge in running a software company.
As a small sampling, we had to overcome their inability to find their DNS information, help them transfer their customer information from legacy platforms (often problematic or dirty data), overcome their desire to go through a branding exercise, avoid design tinkering, wait for complete new photography or brand new content, ensure they had shipping rates and discounts properly loaded and tested, and so much more.
In those days, we were part of the early wave of e-commerce companies that charged a transaction fee (which is back in vogue), so we barely earned any revenue until a website was up and successfully operating. So, part of our Operational Product Success was teaching an entire industry how to sell wine online. That was everything from how to build their catalog, best practices for shipping costs, proper email marketing techniques, and even as simple as the basics of putting their URL on their wine label and business cards. The operational weight of both launching the wineries AND getting them successful never allowed us to achieve Operational Market Fit. To expedite that part of the process, our COO up-leveled our customer success team to help operate the basic elements of merchandising and email marketing. We took on the burden of operations to speed up the process.
I can’t emphasize how much you need to account for Product Sales & Operational Market Fit in your plan so that you, as a startup, can truly realize the success of your vision.
