You're Too Focused on Product/Market Fit - Brian Balfour at SaaSFest 2016

YOU’RE TOO FOCUSED ON
PRODUCT/MARKET FIT
SaaSFest 2016 Presentation
Brian Balfour - http://reforge.com - http://coelevate.com

SLIDES AVAILABLE AT…
HTTP://COELEVATE.COM/SAASFEST16

“Product/market ﬁt means being in a good
market with a product that can satisfy that
market.”
- Marc Andreessen

“PRODUCT MARKET FIT IS THE ONLY THING THAT MATTERS”
The mantra has led to tunnel vision among many entrepreneurs.
Copyright: Brian Balfour and Reforge Inc. http://reforge.com, http://coelevate.com.

THIS TUNNEL VISION LEADS TO
FOUR INCORRECT THOUGHTS…

BAD THOUGHT #1
PRODUCT FIRST, MARKET SECOND

“We built this amazing virtual goods platform, and now
going to sell it to games, social networks, dating sites,
and more.”

What’s Needed To Build $100M+ Company
MARKETPRODUCT

Solution then Problem

LANGUAGE MATTERS

PRODUCTMARKET

IF WE START WITH THE MARKET,
WE START WITH THE PROBLEM
FIRST THEN THE SOLUTION

1Market <> Product Fit
We need to think about the market ﬁrst, not the product.
What’s Needed To Build $100M+

BAD THOUGHT #2
PRODUCT AND DISTRIBUTION SILOS

“We are focused on product/market ﬁt right now, once
we have that we’ll test a bunch of different acquisition
channels.”

Most Think About Them In Silos
PRODUCT ACQUISITION

IF YOU TREAT THE TWO IN ISOLATION YOU’LL
END UP WITH SQUARE PEG -> ROUND HOLE

PRODUCTS ARE BUILT TO TAKE
ADVANTAGE OF SPECIFIC
CHANNEL

Products Built For Channels
Virality
1. Quick Time To Value - Virality needs short cycles to work which requires QTV.
2. Broad Value Prop - Value prop needs to be applicable to large % of users network (branching factor)
3. Network Makes Product Better - Product value gets better with more of your network on it.
Paid Marketing
UGC SEO
1. Quick Time To Value - Users have less patience to ﬁnd value when clicking on an ad.
2. Med to Broad Value Prop - Value prop needs to be broad enough due to targeting constraints.
3. Transactional Value - Product is built to extract transactional value.
1. UGC - Users create millions of pieces of unique content by using the product.
2. Motivation To Contribute - Product needs to have motivation to contribute.

As new channels emerge, past companies are destroyed and new companies are
created because of product <> channel ﬁt.
New Channels Create New Companies
VR
???
Social MobileCasual

“The kitchen sink approach
doesn’t work. Most companies
get zero distribution channels to
work. If you get just one
channel to work you have a
great business. If you try for
several but don’t nail one,
you’re ﬁnished. Distribution
follows the power law.”

- Peter Thiel

%OFTOTALDISTRIBUTION
CHANNELS
The Power Law Of Distribution
Power Law of Distribution
Most high growth companies get 70% or more
of their acquisition from one channel during their
early life.
Channel One Channel Two Channel Three Channel Four

Power Law Examples
TripAdvisor, Yelp, Glassdoor B2C Content/SEO
Facebook, WhatsApp,
Evernote, Dropbox, Slack
Virality
Supercell, DraftKings,
Squarespace
Paid Marketing

Think About Them Together
PRODUCT ACQUISITION

PRODUCTMARKET
CHANNEL

2Product <> Channel Fit
Products are built to tap into speciﬁc channels. You can’t treat the two in silos.

BAD THOUGHT #3
CHANNEL AND MODEL SILOS

“We are going to create a $25/user tier to increase LTV
and acquire customers via content marketing.”

MODELS ARE BUILT TO FIT WITH
A CHANNEL

The ARPU <-> CAC Spectrum
LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales

LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Dangerous

LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Dangerous
Too Much Friction
The monetization tends to be too much friction
to take the advantage of the low CAC channels.

LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Dangerous
ARPU Doesn’t Support CAC
Your ARPU doesn’t support the higher CAC
channels.

LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Dangerous
$25/userFree $10/user

LOW
ARPU
CAC
HIGH
ARPU
CAC
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Free $10/user $50/user

PRODUCTMARKET
CHANNELMODEL

Channel <> Model Fit
Specific channels fit with specific models. 3

BAD THOUGHT #4
MODEL AND MARKET SILOS

“On it!”
“Build a new $100M line of business, with a freemium
model.”

LOW
ARPU
CAC
HIGH
ARPU
CAC
One Year In - $3M+ ARR
Viral
B2C SEO
Paid
Enterprise
Sales
B2B Content
Inside Sales
Free $10/user $50/user

“Wait, these customers don’t look like core HubSpot
customers.”

Credit: Point Nine Capital

PRODUCTMARKET
CHANNELMODEL
X

PRODUCTMARKET
CHANNELMODEL
Market or Model?
1. Choose to
keep the
model.
2. Change
the market.

PRODUCTMARKET
CHANNELMODEL
Market or Model?
2. Change
everything
else.
1. Choose
the market

PRODUCTMARKET
CHANNELMODEL
We Chose The Market…
Cut The $10
Tier
Doubled
Down on
Content +
Inside Sales
Shifted $10
Features to
$50 tier.
Expanded
features in
$50 Tier

THE END RESULT WAS
GROWING FROM $0 - $10M ARR
IN 2 YEARS.

Channel <> Model Fit
Specific channels fit with specific models. 3
Model <> Market Fit
Your model must fit with the markets pain and perceived value of your solution. 4

PRODUCTMARKET
CHANNELMODEL

Example In The Email Marketing Space
Product Market Model Channel
Marketo
Email Marketing
(Heavily Customizable)
Enterprise High ACV Outbound Sales
HubSpot
Email Marketing
(All In One)
Mid Market Med ACV
Content/Inside Sales
Partnerships
Mailchimp
Email Marketing
(Touchless, Simple)
SMB
Freemium
(Low ACV)
Virality
All of these are $2B+ Companies

THE FITS ARE ALWAYS
CHANGING

The “Fits” Are Constantly Evolving and Moving
PRODUCTMARKET
CHANNELMODEL

WHEN ONE COMPONENT
CHANGES, THE OTHERS NEED
TO CHANGE WITH IT

Happens more often in B2C, but will happen in B2B
Product/Channel Fit Breaking
Initial Adapts
‣ Pinterest grows via
viral sharing to
Facebook product is
more multiplayer
• Facebook grows on
web via email virality
Breaks
‣ Facebook shuts
down platform API’s.
‣ Pinterest adapts to
UGC SEO for
acquisition channel
product becomes
more single player
• Mobile emerges and
time spent shifts
• Facebook buys
Instagram/
Whatsapp, and
builds Messenger

THEY BREAK MORE OFTEN IN B2C
BUT FOR B2B…

Outbound Email
Becoming saturated, facilitated by the
widespread use of sales automation tools.
Content Marketing
Hitting max consumption point, saturation of
email popups, etc.
Facebook Ads
Competition increasing with out inventory
increasing increasing costs

HAVE HYPOTHESES FOR THE
OTHER COMPONENTS. DON’T
THINK ABOUT THEM IN SILOS.

HTTP://COELEVATE.COM/SAASFEST16

THANKS!

You're Too Focused on Product/Market Fit - Brian Balfour at SaaSFest 2016

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You're Too Focused on Product/Market Fit - Brian Balfour at SaaSFest 2016