So I have this presentation that I've given now at a , at a few startup conferences called The Five Steps to Product Market Fit, and it really puts together everything I've learned over the last two years and 60 plus episodes and puts it all in one place. And I thought, you know what? It's the end of the year. We're now in December. It's probably a good time to effectively do a bit of a , of a recap and put all of the lessons in one place. Welcome to the Product Market Fit Show, brought to you by Mistral , a seat stage firm based in Canada. I'm Pablo, I'm a founder turn vc. My goal is to help early stage founders like you find product market fit. You know, back in, in my gym track days, I, I remember this one, one story, I'll never forget it. I was in, in a boardroom with uh, my co-founder Lee Silverstone, who you heard about , uh, last episode and few other people plus our CFO Ken McCaskill. And Ken was a very experienced person. He, you know, in his fifties had been in and around startups effectively for his whole life as CFO had seen many exits. We were young, right at that time we were like 20 year olds kind of gung-ho moved fast and break things like this is just how , how we thought about things and we really couldn't care less about all the details. And for us, details included, HR included, finance included anything that wasn't hype <laugh> that wasn't, you know, selling to customers, creating a billion dollar company. And in this one meeting Ken was trying desperately to get us to implement like basic financial controls, like really basic stuff. And we were pushing back, we're like, Ken, like we don't wanna do any of these things. This is like all this is gonna do is is just gonna slow us down. This is just big company stuff. It really doesn't matter. We're kind of going back and forth and back and forth with Ken. And at one point Ken turns to me and he's like, Pablo, why do cars have breaks ? I'm like, Ken, what are you talking about? Like, we're in the middle of discussion and like we're getting heated. I'm like, Ken, what are you talking about? And he's like, why do cars have breaks ? I don't know. So they can slow down. And he's like, no, it's so they can go faster. I was like, all right , that that he just won <laugh> . He a hundred percent won that discussion. But I bring that up and I start there because what I realize now looking back is that Ken understood something that neither Lee nor I understood back then, which is that in startup land what I like to say is mistakes are unavoidable, but avoidable mistakes are unaffordable. And Ken having been through it so many times, what he noticed is that by pushing back against pretty basic things, we were just bound to make avoidable we mistakes. And he was trying desperately to get us to not do that. And in fact, like if you actually look at the research, what you'll find is that super founders, these are multi-time founders who've had material success in the past. Super founders are six times more likely than first time founders to create a unicorn. And this is in spite of like anecdotal evidence. Like you think about Mark Zuckerberg, you think about Steve Jobs, like a lot of these big, big successes who are super young, who are first time founders when they started their respective companies. They're the exception. They're not the rule. The rule is super founders are more likely to create unicorns. And one of the big reasons for this, there's a bunch of reasons, but one of them is that having been through it before, super founders are not making avoidable mistakes. And by avoiding those they radically dial up their odds success. And so that's really kind of the goal I think of this presentation is by putting together and frankly this whole show, right, is by giving you anecdotes and myself too, because I've been learning so much by doing this and seeing what other founders have done, the mistakes they've made, the right decisions they've made, we can all avoid the mistakes that we don't have to make. So the only mistakes left over are those that are inescapable, right? Because this is obviously hard, this is startup land, no one does it perfect, but if you can cut out all the mistakes you didn't have to make, you were increasing your odds of success, here's the five steps to product market fit. The first one, maybe just as context, everybody that's listening to this 100% of you have heard of and have probably read the book, the Lean Startup by Eric Reese, right? Because Lean Startup has become like the defining movement for the whole startup world and it's made things like the MVP, the minimum viable product popular beyond belief. I mean, I don't think there's any founder that doesn't know what MVP means. It is great, like it's helped founders iterate on solutions faster, but it does effectively jump a a step. And I think it's led to almost some confusion because what, what often happens is that founders, as soon as they have an idea jump to the MVP, they want to build something, put something out there and start testing and iterating. What I found talking to all of these founders is that before startup mode, there's research mode. And this is really kind of step number one. So here, let's dive in through story because that's really how we'll we'll add color to all this. One of the episodes I did a while back was with Mike, the CEO of Ada , ADA's now a unicorn outta Toronto doing over 50 million in a RR . And here's Mike's story. When Mike started, he, his first product was, was actually his company that then became Ada was called Volley . And the product was like a social search engine and it , it had some traction like it was doing, it was doing okay, it was gaining users but not much revenue. And then what Mike started to notice is that as his user base grew, his quality of customer supportive customer success started to decrease. And he started to dig into this. And the point that I , that I find is really interesting is that at this point, to be clear, like Mike was a venture-backed founder. So he had already raised from institutional VCs and yet he sees this other prom and he decides, you know what, let's dig into this. And the way that he digs into this, this is the level of research that I'm talking about, he and his co-founder end up spending a full year as customer support agents for third party companies. They're co-founders, CEO and and CTO of this other company. And instead of doing like CEO things, what they do is they spend a full year as customer support agents. And the reason they do that is to learn every single thing that you can learn and truly breathe and live customer success for over a year. And so over time, as they learn the role of a customer service agent, they start automating themselves out of a job. And what comes out of that is ada, which is a customer service chatbot. The thing that stands out to me there is that when Mike started this company, ADA chatbots were like all the rage. There were so many chatbots out there, but there is a huge difference between a founder saying, oh, it wouldn't be cool to have a chat bot for customer support. And another founder who does the work and spends months and months doing on the ground research as close to the customer as humanly possible because they will understand subtleties and get unique insights that nobody else will. So it's no surprise that he was able to build that out to the success that it's become. And so that's really step one before startup mode. There's research mode. Before I jump to step two, another book that's really popular amongst founders is called uh, only the Paranoid Survive by Andy Grove who was the the CEO of Intel at one point. And without kind of getting into that whole book, there's really one quote outta that book that I think is, is particularly important because what it says is success breeds complacency. Complacency breeds failure. Only the paranoid survive. And so the idea there is that, and this is the point that Andy was making in his book, as companies get big and they get successful, they tend to get complacent. But as you're getting complacent, you're inevitably gonna fail. And so the key quality for the CEO of a successful company is paranoia. That doesn't really translate into early stage startups because in early stage startups , uh, well they're not successful and so there's kind of nothing to really be paranoid about. But I have found what I believe is the most important trait when it comes to early stage startups and that is that only the insanely focused survive. And so the key trait amongst the best founders that I've met, that I've spoken with is insane focused , and I use that word on purpose like insane because truly the stuff that this level of focus makes them do from an outside perspective, an objective per perspective is truly insane. So here's an example. One of the, one of the episodes we did was with Wealth Simple . And so I spoke with Mike, the the founder of Wealth Simple Wealth Simple is uh , super popular finance app in Canada worth over $5 billion. They have like 10% of Canadians have this app. Here's what Mike did when he started, and this is a direct quote. He said, I used to call every single user within 30 seconds of signing up. And he would call them and he would say, hi, I'm Mike Co-founder of Wealthsimple . I just wanted to say thank you so much for signing up. Here's my number. If you ever need anything, you can call me directly. I'd love to hear how you heard about us. Thank you to be in touch. Here's why this is insane for a few reasons. Number one, he called every customer within 30 seconds of signup. Just think about how attentive you need to be to when customers are signing up to deliver on that. The second thing is you have to understand these are not like B2B customers paying Mike $10,000 a year. It's not like he has five or 10 of these customers. These are free consumers. Like these are users that may never spend an actual dollar on what's what's simple . All they've done is really just downloaded and started to use an app and he's calling them and giving them his personal phone number. So you can only imagine the sort of calls and texts he would get at any time of the day, Saturday, Sunday didn't matter. It was insane. But it worked. It was insanely focused 'cause all he cared about was customer satisfaction. Another one that's worth mentioning is Mark, the founder of Gobel , he was just named Forbes 30 under 30 and he's got a company called Go Gobel that's in logistics doing over a hundred million dollars in revenue today. What he told me is that in the early days he had a one 800 line and it was available 24 7 as many of those lines are except that he was the one that was answering the calls. He says, I remember taking a call at two in the morning. If my phone rang, I would pick it up whenever because it could have been a sale. Again, think about that. It's like man, it's 2:00 AM can you just like go to sleep <laugh> ? You know what I mean? But the guy would pick it up whenever it rang because he was obsessed with customer service. And you can obviously imagine what that does in terms of word of mouth. If you're calling a company at ridiculous times and you always get an answer. And by the way, of course he wouldn't tell you it's the CEO , but it was the CEO , which means the level of customer support you were probably getting was a 12 outta 10 sort of experience. And that's one of the key reasons why Mark was able to understand his customer so well, but also deliver the sort of support that truly set him apart and helped him become what he has become today. And so that's step two of product market fit, only the insanely focused survive. The third step, and something that I've actually mentioned many times on the show is you have to be in the market to win the market. I say that not just 'cause it sounds kind of cool, but because it , there's actually some deep truth behind it. You know at first BLTs , if you think that you have to be in the market to win the market, it's kinda like true by definition I mean it , you know, you could assume it kinda la lacks meaning, but if you really think about it, there's two things that you have to be in the market to win . The market means . The first one is that the best founders from what I've found almost always start with niche markets. And it's niche markets that help those founders discover the unique insights that help them become what they later become. The second thing is you can't strategize yourself to success. Markets expand as a result of delivering value. You have to be in the market to win the market. Only by being in the market can you discover unique insights and only by reacting to what happens over time can you get pulled and pulled and pulled until you realize, wow, you have a massive opportunity. But that massive opportunity is unlikely to be found in a gardener report. It's unlikely to be thought through by reasoning through a PowerPoint deck. It's going to come as a result of being in the market. The best example I could think of is the story of Alan , the CEO of Wattpad. Wattpad is a massive marketplace today with 100 million users. It's a global community of readers and writers where anybody can create a story and anybody can read those stories today it's got mass appeal. But when Alan started before the iPhone, what he did, and this is the era of mobile phones, flip phones, no app store, the things people needed to do to get apps on their phone was, was kind of ludicrous if you think about it. And so what he started with was classic books on the go because his problem was nobody's gonna write for Wattpad since there's no audience. And so what he figured out was, you know, we could take classic books, like classic fiction stories that everybody's heard of and just make them mobile friendly. And he did that and that was like such a niche audience. I mean who specifically just think about the world of people who you know have a mobile phone who like to read on their mobile phone, who like to specifically read fiction books on their mobile phone. I mean it's a pretty small market, but he delivered on it and he did it really well and that drove word of mouth, it drove blog posts, it drove SEO and it let the insights. And after a while of doing this, he finally had his first upload, somebody actually upload, he created an audience. It was a small audience of thousands of people, just thousands. And then he finally had somebody create a book and that kind of started and got the flywheel going. And then what he did over time is he kind of lubricated and facilitated that flywheel and he benefited from things that he could not have foreseen like the iPhone in 2007, the app store in 2008 and the mobile wave that kind of drove him and pushed him forward so that 15 years later he exited for over half a billion dollars you have to be in the market to win the market. Did Alan know the app store was gonna come out? No. Did Alan know how many smartphones that even there would be smartphones and how many there would be in the future? No, he didn't. He didn't know how things were gonna play out. He didn't strategize his way to success. He got into the market, he delivered real value, he got unique insights and he let the market pull him to success. The final book that I'll mention has absolutely nothing to do with startups. It's Man's Search for Meaning. It's my favorite book, I've read it over three times. I highly recommended because it's a , it's a life philosophy book that uh, has actually changed my perspective on life. I mentioned it here though because of one quote. So Viktor Frankl was a psychologist, he lived through the Holocaust and he was a Holocaust survivor, one of the few survivors out of his camp. And coming out of that, he wrote What is effectively like a new philosophy on life? Man's search for meaning in here? He says this quote, happiness is, and it must remain a side effect or byproduct and is destroyed and spoiled to the degree to which it has made a goal in itself. Happiness is and must remain a side effect or byproduct. It is destroyed and spoiled to the degree to which it has made a goal in itself. It's like sleeping. The harder you try to sleep, the less you're gonna sleep, the harder you try to just be happy, the harder it's gonna be. You can't just be happy. You've gotta do other things. You've gotta work on meaningful work, you've gotta have a job you love, you've gotta work on meaningful relationships and you've gotta work on health. And if you do those things as a byproduct, you'll be happy. Why do I mention that here? Because if you change just one word, you get what I believe is a deep truth about product market fit. You see, when it comes to product market fit growth is and must remain a side effect or byproduct and is destroyed and spoiled due to the degree to which it has made a goal in itself. You cannot, in the early days, focus obsessively on growth. Growth is a phenomenon that happens Post-product market fit before product market fit, you need to forget growth and find value. The only thing that matters is delivering value. You can't think about forecasts, you can't think about 10, 20% month over month growth. They're fictitious items, they don't even make any sense and they will lead you astray. Here's an example of what this looks like. So Jack, here's the CEO and co-founder of Clio , which is a legal tech startup worth over one and a half billion dollars, almost a thousand employees today. When he started, he decided he wanted to do a beta program, which many, many founders do. But here's what Jack did differently. Jack decided to add a friction to the funnel. And so in order to become part of his beta program, you needed to jump through hoops specifically. I remember like a 30 minute webinar and I think a few other things. And what Jack said to me was that the question we asked ourselves is how can we really create a hurdle to get into the beta? We approached the beta as something that we would rather have a small handful of very highly engaged customers. Now think about it, when you're trying to grow, what is the number one thing you get told? Lower friction. Make it frictionless. You should make your onboarding frictionless. You should make your sales process frictionless. You should make everything, reduce the friction in your entire funnel so that people can through get, can get through the funnel faster and you can grow more. If Jack was focused on growth, he would've done any of this. But Jack was not focused on growth, he was focused on delivering value. And so he did the exact opposite. He added friction to the funnel. So the people that got through are only the customers that really mattered. And then he worked with those customers for six months to figure out what the right feature set and product set and problem solution set were to deliver real value. Once he delivered real value. And he knew that he did because of these beta customers and the way they were engaging with his product, he launched the full version and later on focused on growth. And I guarantee you today Clio is focused on growth. I'm sure they have quarterly targets, annual targets. I'm sure they think about how they can add more sales and marketing more product features to improve growth. But that is something you focus on after product market fit. Because before product market fit, you don't have a formula, you don't know what's going to lead to more growth. So you need to forget growth and find value. So step five, the final and the most important step by far is you must solve a number one problem. And the rule is you need to pivot harder, faster. Here's a little secret. I have spoken with hundreds of early stage startups, hundreds, many and many and many of them have pivoted. Now I have yet, and I don't know what you have, but I have yet to meet a single founder who's ever said to me, you know what Pablo, I really regret making that pivot. Not a single one. I have met many who've said to me, Ugh , I wish I pivoted sooner, but none. That said, I wish I hadn't made that pivot. So that tells you something. It tells you that if anything, which you're not doing enough is you're not pivoting fast enough. You're not pivoting hard enough, you're thinking about everything you've built and your and your sunk costs and you and you're saying, how can I optimize these a little bit better? How can I do these micro changes? But the way you really need to look at things is this is day zero. Every single day is day zero. And imagine, here's the kind of thought experiment. Imagine you were dropped today into your startup as is and you had done none of the work and you had made none of the effort and you had what you had the money, you had the employees and the product, everything that you had, what would you do, right? Clean slate every day is a clean slate before product market fit because you have way more to lose by not changing deep enough, by not changing hard enough than you have by changing too much. So here's an example that that'll really kind of make this come to light , right ? And and this is actually one of the first episodes ever. I did this episode because I knew this story now , powerful. It was. So I spoke with Rob, who's the CEO of Nobu . Nobu is now doing over $10 million in a RR and growing exceptionally fast solving the e-commerce checkout errors problem, which I'll get into a second, but I knew Rob from the very early days. Rob is, is a, a young first time founder in his twenties. And I recall that his first , uh, his first kind of product was 3D stores. And so it starts like many of these first time founder stories start and , and now I've I've realized that this is a sign that , uh, you know, good things are not on the horizon, which is that when somebody, especially first time founders starts a company, an industry they know nothing about with the words, wouldn't it be cool if, and so Rob is, you know, kind of Robin Kalen is his co-founder, you know, they're going around and, and they, you know, just living their lives. And one day after going through some, some retail stores, retailers that are selling, you know, clothing, you know, hoodies, jeans, whatever, he kinda realizes, man, these stores, they put a lot of time and thought into the design, the layout of the stores. But then when I go online to buy something, they all look the same. They're these 2D catalogs. Wouldn't it be cool if we took a 3D kind of imaging of the store and brought that online so people could click through the store online and shop. Now Rob and Keelan , they're hustlers. And so they battled and battled for a couple of years and they actually got somewhere. They had 15 customers, they had 3000 in MRR , but just that, right? 3000 in MRR after two years of hard work. And this is when things were really about to change because I remember Rob coming to me and telling me, look, I know it's been, it's been a struggle, it's been a battle, but man, we are there because we have this large enterprise customer who is going to totally change the revenue dynamics of this company. They're going to be such a massive customer. And then Rob gets a call and here's his quote says, the retailer came back to us a couple of weeks after. I remember the day, this was February 27th, 2019. They said, Hey, we were reviewing our budget for the year and we had to make some adjustments. We'll reconsider you next year. But you know what, Rob had heard this way too many times next quarter, next year. And he was done with it. And so what he decided to do was shut down his entire product and go all the way back to step one. And he called all 15 customers. He said, look, we're not gonna, we're discontinuing our current product, but we'd love to interview you and really understand your day-to-day, really understand your problems. And so he did true ground level research and after talking to many of them, he identified some problem sets . One of them seemed to really resonate because what one customer told them was, listen, I've got this problem, it affects maybe five to 10% of my revenue. Which is that sometimes people, you know, they'll go to the website, they'll pick out some clothing, they'll add it to cart, they'll get to the checkout page, they try to check out and they face some sort of bugs, some sort of error that prevents them from actually paying and they abandon cart. And Rob was like, wow, that's like powerfully, like that's a powerful problem. And that's, that's really painful because you've done so much work getting that customer all the way to the funnel and because of a bug they can't close. And so what, after looking into it and then he went back and talked to all the other customers, he realized this was not a problem just for that one customer. It was a problem for almost all of them. And he realized that they actually could solve this problem, identify bugs and specifically this is like, you know, you use this device with this browser set, there's combinations, there's a lot of things going on. I won't get too much into it, but the point is, he realized that this was a pervasive problem that he actually could address and he started addressing it. He pivoted hard , right? He abandoned everything else that he was gonna do. He solved a top of mind pain point and he is now the second fastest growing company in the entire country of Canada. So it took him two years on product one to get to 3000 MRR . Two years after pivoting, he was at 300,000 in MRR and he's kept growing sis like I said, now they're doing about a million dollars a month. So this is the power of solving top of mind problems. I think one of the <laugh>, one of the things I like to think back is, you know the movie , uh, with um, with Will Ferrell Tailgate Knights , right? And Ricky Bobby's a race car driver and one of his quotes in, in the early days of the movie is like, if you can first your last and then, you know, he goes off to realize that when it comes to racing, actually, you know, you could be second, you could be third, all these other things. But actually if you think about startups, if you think about product market fit, if you ain't first, you last, you have to pivot harder faster until you solve a number one pain point. And so those are the five steps, right? Going through 'em again before startup mode. There's research mode. That's how you become an expert and you find problems worth solving. Number two, only the insanely focused survive. It's only through insane focus that you can focus all your resources so you can do more with less. Number three, you have to be in the market to win the market. That's how you use you niche markets to discover unique insights. Number four, forget growth. Find value. You optimize everything for value, delivery growth will come as a result. Number five, pivot harder, faster. As soon as you realize you've gone through step ones and four and you realize you're still not solving a number one problem pivot. I wish that this was all there was to it. I wish that this was truly a recipe. Like if I were to give you a five step recipe to cook a steak, you would end up every single time with the perfect steak. And yet I'm gonna give you, and I have given you a five step roadmap to find product market fit and I can't even guarantee that you're gonna find product market fit. Which honestly for a while really me off. <laugh> , it really rubbed me the wrong way. 'cause I'm like, what's the point of all this? I mean, a recipe that doesn't even get you the final product , uh, isn't really a recipe at all. And it's true, it's honestly not a recipe. This is may maybe like best practice because this is still startup world. This is more art than science. As much as we all want a formula, there is no formula. But it still bothered me that there was like no guarantee I couldn't give you something that would actually guarantee that you would find product market fit until I was like driving thinking about this. And I thought back to another story that was on the show with , uh, with Marty, the founder of Block Through . And Marty is like to be the definition of a founder, cockroach. This is a founder who cannot be killed. And I thought back to his story, right? Marty starts in 2010 with his first startup, which ends up failing three years later, 2013, this is when I meet him. He's working on a second startup called Micrometric As I start Trek . And a couple of years in, he actually ends up leaving his own startup because he and his co-founder can't seem to get aligned. So now it's 2013, he's basically failed twice, but Marty has nothing else in his head except for being a founder, except for finding product market fit. In 2015, he meets someone who had started something in the ad tech space. Marty knew nothing about ad tech , but for whatever reason, the problem set , uh, really resonated with with him. And so he decided to join. And the idea that that this, that this , um, person was working on was effectively beating ad blockers. And so if you think about like cnn.com, they, they make money through ads and ad blockers were coming in and blocking all of the ads. And so the , the idea was to try and find a way around the ad walker so they can still serve ads to customers and help companies like CNN make money. Anyways, this was the idea from 2015 to 2018, Marty, Marty and his team put products out that continue to not deliver on what they promised to deliver on. This is a known problem in ad tech and many different folks were trying to solve it and no one had been able to, and yet Marty for whatever reason, thinks that he and his team can do it. But 20 15, 20 16 they put out Product 1 20 17, they put a product two and nothing, none of them work . They fall flat on their face to the point that Marty has to actually lay off his co-founder and CTO the person who brought him on because he felt that that person couldn't deliver on the product. Now, in the meantime, by the way, Marty's on for eight years and he's got zero success, nothing to show for it. When he started in 2010, he was in his twenties, his friends were in his twenties. And so his friends were doing not that much <laugh> like they were students, they were working kinda low end jobs. Marty had none to lose. But now fast forward eight years later and Marty's friends are doctors, they're lawyers, they're successful founders and all of a sudden it's weighing on him. He's like, man, I've been in this for eight years and I've got none to show for it . Like what am I doing? In the meantime, Marty's got bills to pay not just his own bills, but his startup bills. He's only raised like a couple hundred thousand dollars and he's continuously raising, he has to constantly meet investors and pitched them and put on that air of confidence to get like $10,000, $25,000 so that the company can go a few more weeks. But at this point it's 2018 and unfortunately Marty's at the end of the road. He's got four weeks of runway left. That's what he told me. Four weeks of runway when he puts out the third version of his product. And I was, because I was a friend, I and still am a friend, but at the time I was getting kind of these monthly emails. Five months after, I wish I could show you the slide, but five months after he puts out this product in 2018, he's at a hundred thousand dollars in revenue. This product explodes month 1000, month two, 10,000 in revenue, three 20,000 , 40,000. By month five he has a hundred thousand dollars in monthly revenue and he kept growing. After that. He went from a million a RR to 10 million a RR . And last year he sold his business for nearly a hundred million dollars. And this was effectively a bootstrap business. He raised very little money. So you can imagine Marty did really well. I share this story, not just because it's interesting, because it's powerful. I share this story because through this I learned that there kind of is a guaranteed way of finding product market fit. And it's still a little unsettling, but it's still true. It's not so much that you should never give up because that can be taken the wrong way. The reality is Marty gave up on many products 'cause there's no guarantee that a given product will find product market fit. Marty gave up on multiple startups, if you recall, because again, there's no guarantee that any given startup will find product market fit. What Marty didn't give up on is finding product market fit itself. You see, 99.99% of founders cannot be the next Steve Jobs, but 100% of founders, I believe can be the next Marty. But what you have to do is you have to stay in the game. If you've listened to this episode and the show and you like it, I have a huge favor to ask for you. Well, it's actually a really small favor , but it has huge impact. But whichever app you're listening to this episode on, take It Out, go to Product market Fit show and leave a review, please. It's going to help. It's not just gonna help me to be clear, it's going to help other founders discover this show because the algorithms, whether it's Spotify, whether it's Apple, whether it's any other podcast player, one of the big things they look at is frequency of reviews. It's quantity of reviews. And the reality is, if all of you listening right now, left reviews, we would have thousands of reviews. So please take literally a minute. Even if you're just writing like great podcast or I love this podcast, whatever it is, just write a few words. Obviously the longer the better, the more detailed the better. But write anything, leave five stars and you'll be helping me. But most importantly, many other founders just like you, discover the show. Thank you.