Do You Have the Right Customers for Product Market Fit?

In the early formative phases of CloudHealth, I ran an experiment called “The Sale.” The idea of the experiment was to try to sell my crude Minimum Viable Product (MVP) for $50K, which was my estimated average selling price for the proposed business model. The idea of the experiment was to be rejected for my overpriced MVP, but use this rejection to identify the missing features essential to justifying the target price. The first customer I applied “The Sale” to was a high growth startup using Amazon Web Services (AWS). The short version of this story is that my experiment failed in a way I had not anticipated: I closed my first sale (for the long version of the story, listen to this Tech in Boston podcast episode). I remember leaving the web meeting confused as to why anyone would want to pay $50K for my overly simplistic product. It was only days later I realized why: I had stumbled my way into an earlyvangelist.

Identifying Your First Customers

The Four Steps To the Epiphany (2005), by Silicon Valley entrepreneur Steven Blank, fundamentally changed my perspective on building products. It provided the missing link for me as an entrepreneur: a process by which I could repeatedly drive toward building products that mattered to customers. In the book, Blank introduces the term earlyvangelists, which he says is “a special breed of customers willing to take a risk on your startup’s products or service because they can actually envision its potential to solve a critical and immediate problem.” Blank eliminates all subjectivity by providing five key points by which you can evaluate prospective customers to see if they are an earlyvangelist. They are a customer that:

  1. Has a problem
  2. Understands they have a problem
  3. Are actively searching for a solution
  4. Have cobbled together an interim solution
  5. Can acquire a budget for a solution to solve this problem

Why the Definition Matters

The vast majority of startups fail due to their inability to achieve product market fit. I define product market fit as the ability to repeatedly sell and deliver a solution into a target market. This definition is intentionally broad, since many startup teams overemphasize the product in product market fit, resulting in a focus on identifying features instead of evolving the business. By focusing on earlyvangelists customers in your march to product market fit, you can avoid the three most common mistakes in "hiring" the wrong customers:

  • Problem not important enough (lacking point 3) - Sometimes you can identify customers who feel the pain of your problem and can talk about it with great competence, but unfortunately they are not earlyvangelists. These customers will often give you positive feedback that can provide a false sense of confidence that you are on the right track. Unfortunately, these customers too often lead you to build features that are nice to have at a time when you need to be focused on the must-haves.
  • Have other more important problems (lacking point 4) - When you find a customer who has a problem / understands they have a problem and is actively searching for a solution / has cobbled together an interim solution, you have found someone who really cares about your potential solution. Cobbling together an interim solution is a litmus test for the level of pain a customer sees in your problem. Customers who have not invested in building their own solution may provide valuable feedback, but they lack the deep expertise that comes with actually attempting to solve the problem. This deep expertise is critical in steering your solution toward product market fit. Furthermore, these types of customers will often not make the level of investment you need from your earliest customers, and sometimes will try to steer you towards their higher priority issues.
  • Talking to the wrong person (lacking point 5) - Finding customers who have or can acquire budget ensures you are talking to the right person in an organization, and that the problem really matters to them. One of my early target customers was the VP of engineering of a small startup. He had a deep understanding of my problem, and had built his own interim solution using custom scripts and Microsoft Excel. But at the end of the day, he was not willing to pay for any solution. In other words: he had the problem, but it was simply not critical enough to qualify him as an earlyvangelist. While I always appreciated talking to him, I realized he could never help lead me to product market fit.

I will admit, my first earlyvangelist customer came to me more by chance than plan. They were a startup in rapid growth mode that was positioning itself for a future IPO. They had people, money and cloud expertise - but they lacked time. What I saw as a crude MVP, they saw a passionate entrepreneur willing to solve a critical problem. What I saw as an overpriced product, they saw someone willing to solve a risk to their IPO for a mere $50K. One of my greatest successes was to have them remain a loyal customer for my entire tenure at CloudHealth, providing invaluable feedback that helped us achieve product market fit, rapid growth, and all become a market leading product.

Parting Thoughts

As a member of a startup team driving toward product market fit, earlyvangelists are critical to your success. Their very existence is validation that you are on the right track, and focusing on them ensures you will listen to the right feedback at a critical phase in your business. While you might be able to build successful products and companies without them, why would you want to take that risk? They frequently will surprise you with their insight into both the market and the technologies, and almost always have an opinion not only of what you should do, but how you should do it. If you are struggling with getting to product market fit, is it possible you have "hired" the wrong customers?