Jan. 8, 2024

5 Steps to PMF with Rob

We released The Five Steps to Product Market Fit a few weeks ago and received lots of questions on how to apply the steps. In this episode, Rob and I share more colour and more stories on each step to help you understand how to apply them, and also, when these steps might need to be broken.

Send me a message to let me know what you think!

01:27 - You Can't Teach to be an Entrepreneur

04:38 - Research in Practice

09:36 - No one will fund your research

15:38 - Be Focused but Open to Opportunity

28:00 - Find Value Not Growth

36:39 - Rip the Band-Aid Off and Pivot

40:07 - PMF and Fundraising are Separate Skills

WEBVTT

00:00:00.283 --> 00:00:42.965
So a few weeks ago I put in an episode called the Five Steps to Product Market Fit. And I had a lot of of great feedback, but also a lot of questions around how to actually implement these steps. So today with Rob, what we'll be doing is going through the steps again, we'll be sharing a lot more stories and , and just adding a lot of color so that it's a bit clearer kind of how to implement these steps and also when some of these steps might break when they meet reality. 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. Rob, welcome again to the show.

00:00:43.625 --> 00:00:48.204
Thanks, Pablo. Yeah, like when you're running headfirst at full speed into a brick wall, you mean, right?

00:00:48.484 --> 00:00:49.283
That's , that's exactly it, man.

00:00:49.344 --> 00:00:49.924
That's the reality.

00:00:50.603 --> 00:00:51.164
, yes,

00:00:51.545 --> 00:00:57.564
It says here that I should do this, but every time I do that, I end up with a bloody forehead in a black eye . I'm not sure how many

00:00:57.685 --> 00:01:03.085
This , how many business books, how many business books have you read that you were like, dude, I figured it out. I solved it. And then you realize like, ,

00:01:04.015 --> 00:01:15.605
Every single one, right ? Like all 400 of the business books. So like, yeah, that is it. I have to pick my enemies wisely. You're right. I gotta , you know everything. I gotta blast . You have the

00:01:15.685 --> 00:01:26.924
Nugget truth, right ? But even, even like, you know, disrupted , um, the Clay coincidence one, which is like the amazing one, the disruptive one, right ? Just gotta be a disruptor, man. I just gotta come from the bottom. And then you're like, what does that really mean, ? How do I really do that?

00:01:27.245 --> 00:02:36.425
it is like, you just gotta build a hard drive that's better than the incumbents that co like, what? Wait , huh ? Right , right. It , it sometimes, regardless of what your business is or regardless of who you are , um, there's, there's an inherent native reaction that happens when you decide to be an entrepreneur. And, and oftentimes you don't decide to be an entrepreneur, you just are like, you're born an entrepreneur. And there was a guy that I used to do a lot of work with way back in the day, and he said he would teach entrepreneurship. And I would think like, that's not something you can teach you . Like, you can, you can say like, this is what it's like to be an entrepreneur and this is how you do your books and this is what, you know, this is how you do accounting and this is what you're product market , this is what you're supposed. But then at the, at the end of it all, you can't teach somebody to be an entrepreneur. They are or they aren't. And I believe that wholeheartedly. And so, like, that's the, that's the kinda lens I look at PMF from is because there's no art or science to being an entrepreneur. There's just blind faith and stupidity. And if you are both of those things, you have blind faith and you're a little dumb, you can be an entrepreneur, in my opinion.

00:02:36.534 --> 00:02:44.104
Basically what you're saying is, look, being an entrepreneur is like 90% practice, 10% theory, and I'm spending all my time on the 10%. So basically , it's like , what am I doing

00:02:44.824 --> 00:02:53.944
. So we're trying to dissect it and we're trying to get it to a point where it's like, this is the formula to being an entrepreneur. And I'm like, well , you know, I don't know if you can do that. I don't, I don't think that that

00:02:53.944 --> 00:04:37.875
Exists. I mean, that's totally legit, right? That's totally legit. And that was one of my frustrations even and I talked about, which is like, it's not really a recipe in , in any meaningful word , meaningful sense of that word. Because like you do all these things and you still nec you might not have product market fit, but I do think they are best practices, right? So just to go through them again, like the five of them. The first one is before startup mode is research mode. The second one is only the insanely focused survive. You have to be in the market to win the market. Uh, the fourth one is find value, not growth. And the fifth one is pivot harder faster, obviously. We'll, we'll go through all of them, but, so starting at , at the first one, I think this is one that I do believe, especially amongst, it's not actually just first time founders. I, I've seen it in repeat founders too, but specifically the repeat founders, that their first one was almost like quote unquote too easy. Nothing's really too easy, but sometimes things just kind of work, you know what I mean? You put something out and , and it just, you get the poll and, and, and then you end up getting an exit and you're like, wow, okay, that worked out. Let's do it again. And on your second one, you're more polished. You've certainly lot , a lot , you've learned a lot of things, but you actually didn't necessarily go through the, the painful part of finding pain points. You kind of just landed on one and you just assume if things look cleaner , more polished, it was gonna work. First time founders, especially though, like, I just find, you know, because I worked with probably a hundred pre idea , like idea stage companies through when I was an entrepreneur in residence. And that was my number one finding was just, it was, it was like they, they had an idea and they're already out, you know, trying to lean, start up that idea, trying to go through the Eric Reese motions, the MVP stuff. And I'm like, man, everything you're doing doesn't matter because fundamentally, I don't, I don't see anything like, none of your telling me tells me that you're even solving a real pain point. So that's kind of where the research piece comes from.

00:04:38.355 --> 00:04:57.475
Research is, is a, is a really interesting component to it that you need to do. Like, I don't dissuade this, but I , it , it's almost like when you get older and you've gone through the scars of building a business, that's, that's when research is done. You know, like in the next startup that I do, I'm gonna research a little bit more than the last one. And then the last one, last one.

00:04:58.035 --> 00:07:25.634
I mean, it's true looking just to , to play almost devil's advocate myself, like even on the show itself, we spoke with, for example, Alan from, from wapa . And there's a few things there that, that don't necessarily fit with the research piece. Probably the first one being that like, he just kind of put something out. I mean, he had this bigger idea of, you know, wapa ultimately today is , you know, they sold for like over half a billion dollars. They're , um, a marketplace for readers and writers. So anybody can create a story and anybody can read it. There's like a hundred million users today, and he kind of had high level , at least is what he told me when I spoke with him. This idea that user-generated content would be a really big deal. This is in the, like in the two thousands pre iPhone era, right? We're talking about, but he kind of saw that UGC with Facebook was out, and so you were seeing more, more of this user-generated content stuff playing out. He thought this was gonna have an impact when it came to, to storytelling and story writing . Um, but his first app was like literally from flip phone . It was flip phone era. Like it's pre-phone, there's no app store and it's flip phone era . People have to like, you know, connect to, like, they have to do a million different steps just to get their app on their phone. And all it lets 'em do is read classic stories, stories that are out of public, like out of like in public domain, like the Greg Gatsby on their phone. And, and like, there was no research, you know, realistically for that. But the way I like to reframe it is, it's kinda like, as a result of there being no real research, he told , he was in the market. Actually, one of the craziest stories of this man is he's like, I still have, I was in the market for two years before I had the first user upload a story. And the other thing he told me was that he's like, at one point he had many discussions about giving up, but I told them , I said, listen, we only spend like , I think it was something like, we spend like $5 on hosting a month and we only, and we make $2 a month on ads. So we're basically break even literally like , this is what he said to me. And he still has that check. And so my point is, the ones that don't do research, like whether it's because they've worked in the industry and so they've done implicit research for many years or explicitly because they actually go and do customer discovery and all that stuff, tend to do it almost in practice. It just takes longer. And they do it like while they're in the market. But, but I don't know of many examples where somebody's not from an industry doesn't do customer discovery and hits it on the nail like right off the bat, except like a Facebook or Snapchat or like these really exceptions of exceptions, you know?

00:07:26.264 --> 00:07:31.274
Yeah. But you know, that Facebook wasn't even his idea. So it , uh, really doesn't , uh, somebody else did the research. Funny mean ,

00:07:31.355 --> 00:07:35.394
Whenever I mention Zuck, you just , you just hate on him , you know ? And I just gotta stay away. I gotta stay away from that

00:07:35.754 --> 00:07:57.035
. No , but it , it , it's true though. You have to have a domain expertise. And, and that's where that, that the idea of hobbies comes into play. Like everybody says, like, do what you love, find something other , like , I mean, that's total crap. Don't do that. Like, that doesn't work. Uh , you're just gonna ruin the thing you love by making it work, right? Like there's a re but

00:07:57.134 --> 00:07:59.314
You mean people will buy my paintings z .

00:08:01.074 --> 00:08:01.274
That's so true .

00:08:01.675 --> 00:08:02.555
They actually, they won't. That's thing

00:08:02.584 --> 00:09:35.884
I've just got these like bootleg copies of myself playing the guitar. I'm sure somebody wants them . They don't, they trust me. They don't. What ends up happening a a lot of the time is that, is that your, your domain expertise is the thing that becomes very visible to you. Like you see it and then you , you test that market and, and it's where you, you are completely a fish outta water . A good friend of mine when I was a kid , um, like his dad made a , you know, millions of dollars selling his business and uh, and then he went bankrupt. And this stuck with me as a, as a young entrepreneur. And I would ask, why? How did you go bankrupt? Man? You lived on this great street. You had a pool, you're like, rich, rich, rich, blah , blah . I drove, Beamers had the first cell phone and I've ever seen in a car, even like the bricks. He couldn't use it 'cause it was like $10 a second. But he said, Rob , like I put a million dollars into an apartment building. I'm like , okay. Like he , he bought into an apartment building, he's like, I have no idea how to run an apartment building like that stuck with me so much. He's like, he was an expert in his field and he succeeded. And then he got, he got like, the ego gets involved and he is like, here, easy peasy. Here's a million bucks, here's a million bucks, here's a million bucks. Oh, by the way, what now I'm on food stamps, gotta sell the Beamer. And, and , and that, that happens more often than not . The ability to, to , uh, to be able to control yourself in those situations. Like , it , it is, it is imperative that you understand sometimes that you, you hit lightning, but you didn't hit it by accident. You hit it because you had that expertise.

00:09:36.803 --> 00:10:32.924
I think one of the challenges though, too, like if I , when I think about when we were talking about this earlier, is like, how do you actually do research? And then, and then, and then part of it is like, how do you fund that? I mean, like I'll tell you like, you know, as a VC, and I'm a seed stage vc, you know, there's people that come in earlier like pre-seed , but there are , there are nearly no, you know, even pre-seed stage VCs that would fund somebody who says like, I'm just doing research. Like, that's just gets unfundable . So that's the other piece that we're talking about hitting reality. And , and that's the other piece that comes to mind is like, to the extent that you, you need money to survive, which you know, most people do , uh, you gotta figure out like, how are you gonna make, how are you gonna make it work? And that's where I think things get a lot complicated because I do think a lot of founders, and maybe for the wrong reasons, but at the same time, outta necessity, they're like, well, I need to raise something. Like I need to raise half a million dollars, right? I need to raise a million bucks, whatever. Um, and frankly, the easiest way of doing that is to pretend that you know more than you do, as

00:10:32.924 --> 00:11:10.764
You said, you can research your way out of an idea. I don't even know what it is, a small percentage of great storytellers that may have something without the research that may lead to something completely disruptive that that is , it will , will take over the market or nobody's looking in that direction. And I think that there's like a , a small sliver of people that fit into that category where it's like, this idea has some merit, this person has merit, his partner has merit, and somewhere in that mix, something is good is gonna happen here. And if not, I believe I'll back the, i'll back the founders, I'll back the, the the partners,

00:11:10.955 --> 00:12:12.845
Your choices, none of them are great. Like one is you just pretend, right? And you do and , and you write . Because as much as it's hard to, to raise on idea stage, especially as a first time founder, you know, that's what like a lot of accelerators and like incubators are, therefore , and it's , so every now and then it does happen. Or like some, some angels depending, but, and you have to be hyper confident. You have to tell like a wonderful story. You gotta like spend a lot of time, which we did at Gym Track and , and it didn't necessarily lead us to, to the promised Land, right? I think the other one, and and this doesn't apply to like successful founders, I think successful founders, like, they just, they have credibility. So it's a lot easier to, to raise. Like you could maybe even be honest and just still raise money, whatever . But for, for , uh, for first time founders. I think the other thing is like Gary v talked about this, and I don't know if I should be taking advice from Ravi or not, but , that's a separate story. Uh, he's like, dude, just don't quit your job. You know what I mean? Like, you think you need to go all in on this, like you don't, like, you really don't like, just do it on the side. Like take off like all the Netflix hours, all the partying hours. Like take those away. Don't take your 9 0 5 away and find a way to just do this stuff on the side until you actually feel like there's something real

00:12:13.303 --> 00:12:43.845
Tim Ferriss, same thing. Like he , he , he , he doesn't preach the four hour work week . He preaches basically four hours of research a week, is what he's talking about. And even Dan Martel talks about that. He's like, stop watching the hockey game. Don't spend your Sundays watching football test an idea. Like he thinks that that that sports, watching sports is the scourge of entrepreneurship is that it basically zaps your life. So take those 19 hours a week that you watch football and throw them into an idea, right? And that's, you don't have to quit your job to do that. So

00:12:43.845 --> 00:12:46.965
We got number one. Okay, fine, figure it out. I mean, the second one is this kinda ,

00:12:47.565 --> 00:12:47.565
Yeah ,

00:12:47.803 --> 00:12:51.044
, , right? Salt , like basically done, stamped,

00:12:51.115 --> 00:12:51.404
Done,

00:12:51.404 --> 00:13:07.085
Dude, done , I mean . And you gotta go out and do it. Actually, it's funny, the other day somebody hit me up and said, look, I'm trying to do this research thing. I'm , I'm , I'm like struggling because I, you know, like, okay, I bought into it like I'm gonna do research, know what I'm gonna do it . Like how do I even do it, right? Like what do , where

00:13:07.164 --> 00:13:07.644
Do I start the library ?

00:13:08.445 --> 00:13:46.644
Like I'm trying to message these people and uh, and nobody answers. There is no one size fits all . I can tell you like one, one small tip. Like if you are more, if you are younger, first time founder, like, you know, playing the student card and like this idea of like, look, I'm a student working on something and you know, I just need your expertise. Like, that'll typically open a lot more doors than it should. The other thing though is their signal and everything. My point being like, if you're trying to message who you believe is your ICP and you're talking to a lot of them and you get like no answers, just know that when you go to sell to them, it's gonna be the same thing if not worse. And so, like that alone is a signal of like how easy or hard it's gonna be to penetrate into that, into that audience.

00:13:47.105 --> 00:15:37.764
You have to offer value. So can I tell a story here ? Just, it's a really quick one because I was running a , a local company here , uh, in Ottawa and we did , uh, it administration from Blackberry. So really early mobile stuff, like early two thousands, very, very early. Blackberry was the dominant , uh, device. And it was a two-way pager at that point, no big screens, anything like that. And uh, and uh , like you have a thousand questions in this emerging industry and there are way smarter people than me. So what did I do? I thought like, there's gotta be a better way for me to, to get through this hurdle of starting this business and growing this business. So I would go out to all these CEOs and I would hit them up as a fellow CEO and I got zero responses, like the same thing. Like they have no time, no interest whatsoever. And then I thought, well , there's this thing, these things called podcasts that are just emerging at that time, 2006, 2007. And I thought, okay, well this is what I'm gonna do. I'm just going to , uh, start a podcast and interview them and ask them to be interviewed . Like , 'cause everybody wants their ego fed and this is what I did . So I just started interviewing , I said , listen , I run a podcast . Everybody said yes . So I did thousands of these interviews and that was my quantitative qualitative research right then and there. Like , and I , they were long form , early days, long form . Uh, and, and the outcome was that, that I had thousands of interviews and tens of thousands of hours of knowledge accumulated from the experts in the field. Like we're talking about people that I would never have been able to reach before. And I , I don't think you can do this anymore 'cause everybody does a podcast. But that's a perfect example of finding a way around the gate to get the information that you need. And then I would publish these just outta curiosity to anybody who would listen. I wouldn't edit them, I wouldn't do anything. And then those were downloaded two , 3 million times a month as a result because the information was relevant at the time. So there are ways to do this, but you just have to be a little bit of inventive to , uh, a little bit inventive to find out

00:15:38.674 --> 00:18:42.884
The next one, only insanely focused . Survive . I mean, that one yeah, is a little, you know, hard to argue against, I think because it's a little bit like kind of obvious. I mean, everybody talks, but I , I will say this, everybody talks about focus, everybody preaches focus. And I'll tell you like very few founders are truly insanely focused because the way I like to think about it is another thing I, I realized running Gym Track was like, you, you, like, no matter what, this is different than being a vc, frankly. Like I always , I always laugh at VCs that are like, oh man, I'm so busy. I'm like, dude, whatcha you so busy with? Like, all you gotta do is invest in like, you know, a startup a month at most. Like you're probably doing like three year , like just, that's it, like the rest is just, but as a founder, you actually have that many things to do. And so if you put 'em in a list, like you got 50 things, you got a hundred things. And what inevitably happens is you're like, you get into this like, you know, checklist mode where you're like, okay, I got 50 things to do. Like, let's cross 'em off. And guess what Rise is quickly. When you're in that mode where Rise is top of the list is the things that can get done, like making a logo that can get done, like filing a trademark that can get done, designing a website that can get done, you know, what can't get done, find product market fit, you know, it's hard to do, like sell sell your product, right? Like, and those are the things that find your first kind of fall off. And so what I started thinking about is, okay, you know what, like it's easy enough for me to say here are the most important things and , and prioritize them . But I want , I want something that's like kind of more intense than that for me. It's just ones and zeros. Like a thing is either must do critical, it's a one or it's not, and it's a zero. And and there are , there are a few things on your list today where you're like, if I don't get these done this quarter, this year, whatever, I will not survive. And there are other things that you're like, even if I didn't get them done, I'll still be fine, I'll still survive an exam . Like, here's an example of this to me, it was just so funny. Uh, the founder of Form AI is a series B stage startup in , uh, in Toronto, the founder Nabil . And he told me, he's like, you know, when we started like you , you incorporate and usually like a numbered corporation, and then most founders will spend like a good amount of time trying to come up with a name. He's like, I was so focused on just like pleasing customers. Like I had one customer that I was trying to kind of, I had a relationship with them before. And so we were really just building the product and trying to deploy it that we just didn't name the company and, and . And they asked me like, I , this doesn't have a name. It got to the point we hired a few employees on no company name, and then my CTO was like, dude, like I need a company name because it's getting to the point where I can't hire because people are like, man, I'm not working for like a no , you guys don't even have a name. What's wrong with you? Right? So he is like, fine. So we named it, right? But that's the level of insane focus. It's almost like he didn't do that thing until it , it became an actual blocker, right? Versus okay, presents itself. So you get it done at the expense of something else because there's always trade offs and there's always so many things to do. And that I tell that story because, and that's why I use the word insane. It's like, that's actually insane to not, you know, take the time to name your own company. But it's that, that level of focus that I think just gets things done.

00:18:43.755 --> 00:18:57.525
There's no, I don't think there's a better example of that. Like , uh, the first thing I've done with every one of my companies is name 'em dude , logo, business card, slogan, like every like, and then I'm like, okay, what do we do ? Like , okay , I

00:18:57.724 --> 00:22:46.325
Named every company, man , I remember we told, we talked with Lee about the one that was like, it was supposed to be a skip the dishes, like start delivering.ca , man, we even had a website. We had it all. We had it all. And then Gym track , man, oh, we went back so many times on Gym Track . But you know, it's like everybody knows what that does. Gym track , we track gyms. That's it simple. So we actually, it was so, it was so descriptive we couldn't get a trademark. Honestly , the only thing that I, that I think like if we're playing, you know, devil's advocate you on all these trying to , because reality's so messy, right? And that , that's really what we're trying to do here is like, there are examples where it was, it was like, I forget who it was that told me, it was like, you know , do you have to be focused? And yet you also have to be like, open to opportunity because it's true that like, well , I find that right ? Like , wait, wait , how do you square that story ? Right ? Wait , stop, stop that . , I think you're just saying words like , I'm just saying words. They don't, but, but, but , but wait, bear with me, right? Like , uh, , um, 'cause here's the thing, like on the one hand, if you're not, like, you are such a small team, you have so many things to do. If you're not focused, you're actually not, you're just not gonna get the important things on . But the other side is like, it's true that the best founders are opportunistic because you really don't know what's gonna happen and you can't predict all this stuff. You can't strategize your way to success. And so you do have to have enough of an ear on the ground to see when things are worth paying attention to, especially when you're pre-product market fit. Like you have a thesis that this is the thing you need to do because this is the thing that's gonna get me to product market fit. And it turns out there's actually a bigger opportunity over here and you didn't listen to it. And that's a tough balance. Like , um, there , there's a few, there's a , there's, you know, a few examples. I think maybe Bolt , like that's one of the better ones. Mark, mark , uh, bull , right ? They're doing like a hundred million dollars today. And what they do today is like, not at all , uh, what they used to do, right? Today, they actually are effectively like a , a warehouse for some really big name companies, big brand name companies like Ikea or, you know, enterprise , uh, enterprise customers. But they started off by storing students things over the summer, right? And like, how do you go from there to, to there? And , and it's because Mark was like constantly willing to listen to indications that , uh, that there could be a bigger opportunity. The other, the owner , actually, here's an , here's a really interesting one. Uh , Rodolph , who's the founder of Potluck, they're doing over eight figures in AR today. They, they pivoted like, you know, five different times, but at one point they were selling research. What they're doing is localized research and they were selling it to malls. And so the idea was like, you're a mall and you wanna know, like you wanna effectively survey the people that visit the mall. And so they have this like infrastructure that uses Facebook and Instagram and these different, different platforms to understand like who might have visited the mall and just survey them. And this is before covid, they're doing this, they're actually gaining real traction. They're getting pretty close to eight figures in a RR on the side. They start getting hit up by like actual research agencies like, like Gardner , these sort of, these sort of players that just want generic research and for whatever reason, and this is the , the difference, like focus would tell you just do malls , like forget this other stuff, right? Opportunity tells you like you're doing malls, it's going well, but here's something that you should at least maybe listen to, right? And so he did listen to it and he serviced them in a small way. Covid happens. Malls shut down , his business literally goes to zero. He luckily has this other thing on the side with the gardeners of the world. And it turns out everybody needs surveys now because nobody knows what the hell's going on. The best founders, I will say are insanely focused on what they need to get done. And at the same time, they somehow are opportunistic enough to not have full blinders on to see where opportunities might lead them because the future's just, it's not predictable.

00:22:47.204 --> 00:23:32.924
The , the big focus for me is that you can be focused on the moon and you can be off by, you know, a half a degree in your trajectory and miss the moon and never come back to earth, right? Like it's just small things that deviate and they move you a little bit off and then you're never gonna be recovering. That original idea is gone, now you're heading to Mars, you're dead. Like , and that's, that's the challenge with, with focus is that if you don't take it seriously and if you don't believe in the idea, that's the other thing here is that if, if your idea, you don't have the deep belief in the idea or of the business, your focus will wane. If you're not interested in the idea or you have an expertise in the idea, your focus will wane. And that, that leads to destruction in my mind.

00:23:33.144 --> 00:24:59.825
You have to be in the market to win the market, right? And uh, I I , I posted online about , um, this idea that you have to do research, you have to start with niche markets. And somebody was like, you know , what about open ai ? Like open AI from the get go was like, you know , no , right? Like, I'm gonna raise like a billion dollars and I'm just gonna do it. And that is legit. Like you have exceptions. You know, the idea is the vast majority of billion dollar companies start off with niche markets, which is why for me as a vc, like Tim is just not all that important. Honestly. Like I I do look at , um, back in the envelope really quickly, could this in theory become big? And that's like as far as I go at seed, right? Like later on it takes on more importance because you just never know how markets are truly gonna evolve. However, you do have examples of companies that just went big from day one, right? You got your Teslas, you got your Amazons, you got your open ai . Like these are top down founders who decided like electric big, like I'm doing electric cars or like e-commerce big, like I'm doing e-commerce store for everything, right? That was like from day one. But I guess like my thing is, you know, we said something else like for every, for every uh , thousand startups, you get one unicorn for every thousand unicorns, you get one Amazon, right? So like, I still stand by. I think you have to start generally speaking with niche markets and you have to let the market pull you over time versus trying to kind of strategize your way to success. PowerPoint, your way to success,

00:25:00.243 --> 00:25:22.065
The niche is, is the most important thing that you can do. Figuring out in the market who your customers are and will they pay for your pay for what you're offering, what your , what your , what your services or what your software is or whatever it might be. I think that that is the most important question that you need to have answered. Uh , everything else is all crap. You , uh, af before and after that. Like, you have to have that answer.

00:25:22.233 --> 00:27:12.605
Don't kid yourself into thinking that the way to expand is to expand tam . It's not for a long time. At some point, hey, you're doing a hundred million a RR and you wanna do 200 fine. Like, that's just not my, that's not where I place . So I don't know. But you're going from one to 2 million a RI can guarantee you the right way to do it is not by, you know, going, opening up a new market, opening up a new city, opening up a new vertical. It's by doubling down and tripling down unless you actually don't have product market fit , in which case you're kind of more in this exploratory phase. That's the first point . The other one that I'll mention , Rob, is I got an email actually just today this founder's like, you know, I'm doing this thing that you said, like I did all the research, I'm going after a niche market and you know, we actually have success in this niche market. But now when I go pitch VCs, they're like, you're too small , your market is too small, your opportunity too small, they won't fund me. You know? And I thought I was thinking about this all day, I was thinking about it and I'm like, here's my answer. My answer is I'm not, none of these are ways to get VC money. . Like you want to go get VC money? It was, there was something I heard, oh , I don't remember when, but it was really, really interesting, which was, so many things in life can be gained . Like if you wanna do well in school, you can gain that system. Yeah. If you wanna fundraise, you can game that system. I game that system. Yeah , right? I game school and I game fundraising because you really can build a story and a deck and a presentation, all these other things to make you better at fundraising and to actually get dollars in the door . You can't gain product market fit. You either actually get it or you don't. And that's what makes it so hard. And so all these things, if you focus on a niche market, it may turn out that your market's too small. It may turn out you're not fundable or that VCs won't see the opportunity, but at least you get product market fit. The flip side is you focus on fundraising, you gain the system, you get VC dollars, but if you don't get the product market fit, it's all for Naugh, right? So, so that's kind of my, my take on that , on that, that answer. Well ,

00:27:12.605 --> 00:27:59.724
You know, I , it's, it summarize like I was thinking about it . Product market fit is hard to find. It's very hard to find , uh, like you really have to, there's a lot of maneuvering , uh, to determine true product market fit. But it's really easy to give up on finding, like, you can get really lazy with product market fit where you say like, oh, I got it , I got a good enough and , and I've been in businesses where , uh, like I come into the business and that business is in seven or eight markets and flailing like different cities and uh, and haven't found product market fit. And it's all over the place. And, and the only logical thing to do is, is pull back to one city to figure it out before you expand with the , with the proper playbook. But, but it's really easy to , to trick yourself into thinking that you've got

00:27:59.724 --> 00:31:43.884
It. So let me jump to to the next one, find value, not growth. The idea of being here, I think in the early days, because here's the thing, like every founder wants to grow. Like that's just, that's the whole point, right? You wanna get, you wanna get big, you wanna get to a hundred million a r and beyond. But interestingly, what I found is, like in the early days, obsessing overgrowth, and I mean specifically before product market fit, thinking about growth and obsessing over it and making it like a KPI is meaningless, right? Like financial forecasts before PMF are meaningless. Um, and there's a few errors that come out of that. I'll give you two very concrete examples that I've dealt with really recently. The first one is take a company that's growing that's got like 30 K or so in MRR , right? Kind of still getting traction obviously, but still not true product market fit. What a company like this that's focused on growth is gonna do is they're gonna look at how much they've been growing over the last few months. And what they realize is a growing 10% month over month. And so they think 10% month over month, if you extrapolate, that means you're tripling, right? Which means you start focusing on how you're gonna go from 300 k to a million in a RR 330 KMRR, let's say to a hundred k in MRR in a year. The reality is a lot of these companies are not growing at a rate, they're actually growing linearly. So what this company's actually doing is it's growing $3,000 per month, but for them 3000 on 30 k, it looks like 10% MRR because you're not focused on actually delivering value in a true product market fit . You miss this and you start to extrapolate it out. And I've seen this play out to the point that companies like this will go on to raise meaningful dollars because they could tell this story and now they're sitting on this huge prep stack because they've raised all this money, they never delivered meaningful value, they never actually delivered true product market fit. They were never growing compound. Which by the way, that I would say is a great sign of product market fit if you're actually compounding at whatever rate, but probably, you know, you're doubling, that's a sign that you actually have product market fit because the market's actually pulling you when you're growing linearly. That's a sign that, that maybe your market's small but more likely that you're pushing exactly. And that you don't have that sort of market pull. And, and trying to understand that is really important, but it gets solved if you're not even focused on growth. If you're focused on value in those early days. That's the first thing. And then the second thing, actually, I just had this because you know, we're end of the year, people are forecasting next year, and I had this one company who's at like a million in a RR and they were trying to forecast next year, and they're like, you know, the forecast to hit like 3 million in a RR and then, you know, you forecast all your leads and you forecast all these things. And, and when we looked and I , I, you know, said, look , look , let's look at 2023. Let's actually analyze the business. We realize there's actually no engines. Like there is nothing proven, there's nothing you can dial up. I said to him, did you for example try to dial up inbound leads this year and see if that worked ? No, I haven't. I just, I've gone, what? I've gone, okay, so you actually, in order to hit three x, you need to three x your inbound leads, but you have not tested anything that actually does that. You therefore have no way of knowing whether you can do that, which means it's all effectively garbage, right? The other one was on outbound sales . This often happens, it's like, you know , you've gone there with the , the one or two people that you have, have you hired someone and trained them? Well, I did it once this year. Okay, so your sales leader is still selling and they had to hire and onboard one person, but now you gotta do it four times over. Do you have an idea of what it actually takes to onboard? Do you have an idea of what success rate you're gonna, you don't. So my point is, when you focus on growth before you have true value, you're making things up because you haven't figured out any of the engines that actually drive growth, that make growth a meaningful KPI after product market fit

00:31:44.285 --> 00:31:48.365
Way to crush that guy's spirit 100%. He's down in the dumps. Now he is like, well , he's , he's

00:31:48.484 --> 00:32:32.964
At , but I , I said, look, I said, look, forecasting works, do this. Figure out if you just keep growing at your rate, at your rate of not rate of growth at you added a million a hour last year, let's assume you add one more million this year and just figure out what your runway is because that's gonna help you sleep at night to understand what your runway is. It's really important as a founder, what I'm not so interested in is you trying to predict 12 months out what revenue's gonna be. Who cares? Let's just do it quarter by quarter . What do we need to test this quarter to see if it improves inbound leads to see if it improves conversion, to see if it imp improves outbound, whatever. And if it works, great, we double down and if it doesn't, it doesn't, the next quarter we try it something new versus trying to say, this is where I'm gonna be a year from now. Like, public companies have trouble with this. Like for sure if you're at a millennia or you have not ,

00:32:32.964 --> 00:33:35.164
Like it's a very, it's , it's a refreshing approach simply, but, but it , it's , it's a very founder approach, right? Because you know the , you know, the , uh, the trap that you get into by trying to project one year. Now, what if somebody asked you for three year revenue growth? Like, it's just, you can't, nobody, like I I , nobody predicted this mobile world that we're in, right? So like, there was the web and then everybody had their predictions on the web and nobody really saw this handheld device that Blackberry came out with or that the iPhone came out with. Like nobody saw that coming down the road like, or the implications of that. And so you're smack dab in there, it's 2007 Steve Jobs is up there releasing the iPhone, and, and you've got this plan, a three year plan. You can't be held accountable from that day forward because the world changed on that day. Same thing is happening today with ai and like , you just can't do that. We did this revenue without any of that. Now imagine if we had it. Like that's the thinking, right? Is that okay? I just need , I have four salespeople and it's done.

00:33:35.634 --> 00:34:12.744
It's funny, it's funny, Rob, you know, here's, here's an example actually , concrete example, bootstrap business crew , a 2 million a RR and, and it was like, and we're bootstrapped and we're profitable and we're nine people and I've been doing all the sales. So imagine what happens when I hire , uh, a bunch of salespeople, which honestly legit a year later. So they started 2 million a RRA year later, you know how much a r they had 2 million, man. 'cause what happens when this founder doesn't sell is you don't sell . That's what happened. And I , and I say that because there's a lesson there, which is like, you, you can't assume things without testing them .

00:34:13.164 --> 00:35:10.025
It is a, it's a hard thing and especially because as a founder, you are probably the best salesperson. Hands down. You will not hire somebody in this stage of a company that can sell better. If you have the passion and you understand the business that you're in, you believe it, you, you breathe it, you bleed it, and the person you bring in will give up sooner, will say the wrong words, faster will not succeed like a founder succeeds. And even in the current business that I'm in is that we know that, that our CEO is the greatest salesperson that we have, like among other skills. But what you , what you end up forgetting is that as you're trying to scale, they become, they, they distance themselves from that skill and, and you are making it up like so now it's like four to one. I need four salespeople to do what one guy did before. And then when he comes back into the sales role, like stuff happens overnight. Like it's unbelievable. And you can't get that.

00:35:10.175 --> 00:35:36.304
It's almost like, you know, they tell you, they tell you shouldn't be working in the business, you should be working on the business. And I'm like, no, you should be working in the business as long as humanly possible. You should do whatever's the hardest thing to do that you're best at. That's probably a thing you should be doing for as long as you can until it's truly breaking versus trying to kind of get ahead of it and infrastructure your way and and org chart your way into something that looks like a beautiful company on paper, right?

00:35:36.744 --> 00:36:38.644
Like , I'm gonna do it for the first 100 times. I'm gonna do it where it's unscalable. There's a lot of , uh, mechanical tur, it's, it's human. Like I'm sending the emails. So like if you get an email from me, it is coming from me, written from me at that moment and I'm doing the unscalable thing and I'm gonna test a whole bunch of different things as I go along. And then I'm gonna realize what does work because I'm gonna see a natural pull. I'm gonna see a lift because of the effort and it's just gonna tumble. And then I'm gonna say, okay, let's put that into a strategy, a playbook. We'll productize that and then I can hand it off when I feel very comfortable with the fact that I'm seeing that lift. Not because I'm pushing, but because I'm getting pulled and, and I need to know that. It's just when you learn how to water ski for the first time, like it's not hard to stand up on water skis. It's just not, but you can't pull, you have to be pulled , you have to go with the boat and most people pull right away and then they sink. So what you need to be able to do is you need to be able to get up, stand up , and then the whole thing has to pull you. And that's when you know that it's okay to maybe pull back a little bit and, and bring somebody else in to do that.

00:36:39.065 --> 00:37:56.684
So the last one, just to wrap this up, which is the, the pivot one, right? Pivot harder, faster. I'm, you know, honestly like I'm a very impatient dude, , and uh , you know , oftentimes the question with this one is like, okay, like when do I know if I should pivot, right? Like, I've been doing this thing, it's kind of working, it's kind of not my kind of hot take. is , uh, just pivot like , you know what I mean? Like, it just do it, it rips bandaid off. I, and I'm sure there's like, it's kind of wrong. Like I'm sure there are examples of when like when, you know , you shouldn't have, I'm not saying give up, do something completely different, but like change something material. You know, like if , if you've been doing it for an amount of months and like, it's almost like by the time you're asking yourself the question, because you start off with so much excitement, right? And you're kind of like, you're in it and you're like, things are gonna work and whatever, and you get some signals that things are working. And so you , you're probably gonna , if anything, it's, it's the same similar to an employee, right? Like by the time that you're like, I don't know if this person's really working out, maybe, maybe we should part ways, you probably should 80% plus of the time in startup world, like bigger company's different, but in startup world, just because there's a reason why you've gone there. And I'm not saying the employee's not good, I'm saying there's a fit issue, right? Um, similar with, with this product market fifties , like, you know, once you're seriously thinking about, I dunno , maybe I should pivot 80% of the time you probably should. And 80% of the time you probably don't. I

00:37:56.784 --> 00:39:21.565
I'm mixed on this because like , I I also believe that it's really easy to give up, right? Like the real thing, the challenge that I have with, with today is that platforms make it really easy to test something or to start a business. And then if it's too much work or if it's too much effort to find, to answer these questions, people just give up and they go to the next one and they go to the next one and they go to the next one. And it , and you can see that quite a bit in , in , uh, bit in some, some entrepreneurs where they've started a whole bunch of businesses. I talk to 'em all the time. Uh , it's just the nature of our business as well as like, oh , you know, I , um, I had to put my business on hold because like, it's easy to give up. It's very easy to give up. So there's gotta be a little bit of tenacity around, around the business idea. And, and that's where if you've done your research and the idea and you've been in market and you've talked to those people that are doing it, then, then the pivot shouldn't be a dramatic pivot or a give up. Um, and so, but you definitely have to be open to it. I, I just , uh, I I worry that some great ideas that take a lot of hard work get into the idea or get into the mind of a weak entrepreneur and they don't have the tenacity or the strength or the desire or whatever. It's the calluses to see that idea through and they're like, nah , I'm not interested. And then they go off and it doesn't get invented.

00:39:22.164 --> 00:39:26.724
We did Nike, right? Not too long ago. Like how long did, did Phil Knight fight the good fight of , uh, and he should

00:39:26.965 --> 00:39:35.965
Have given up every month, every year, right? Like that's, but there is a balance though, because I've seen some really stupid ideas and I mean , I mean this like really bad ideas,

00:39:36.445 --> 00:39:48.324
But again, like going back to this, like Phil Knight actually was doubling really small numbers, but he actually was doubling, you know, his sales every year. So anyways, that's the , uh, those are the five steps kind of that elaborated, let's say,

00:39:48.585 --> 00:40:06.965
As you said earlier on though , Pablo, none of this will, like following these five won't get you funded. Like you, you still have to have that, that ability to turn it into a business like this is something that just following these five steps doesn't mean that, that ultimately somebody's gonna write you a check. You , you still have to build a business.

00:40:07.224 --> 00:40:34.804
That's it, that's the key man. Well, like , and I , you know, there's separate skills, like finding true product market fit is a separate skill from , uh, from fundraising, right? There's one that there are people that can do one, people that can do the other people that can do both, but, but none of this is, is for fundraising. But even, I think, I do think doing all these things does two things. One, I think it increases your odds of finding product market fit, and I think it shortens the amount of time that you're gonna take on something that's probably not gonna get the product market fit.

00:40:35.025 --> 00:40:45.284
And it might just lead to a lifestyle business, which could be fine. Like , there's nothing wrong with that. That's the thing. 99.9% of all businesses are lifestyle businesses. Well ,

00:40:45.405 --> 00:40:58.085
I'll tell you this, man, everybody, like, everybody's jealous of the founder who raised 10 million until they see the founder that has a 10 million a year business and they own a hundred percent of it . And then they're like, whoa, that would've been nice.

00:40:58.394 --> 00:41:36.445
Yeah. And it's just spitting cash. Like it is a , I just found out a good friend of mine from high school , uh, owns a banana company and it is like a 10 year journey on selling organic and fair trade bananas. And , uh, and it's, it's a giant business, a hundred percent owned by her. Like I would rather have a giant business , uh, uh, like a small business, a hundred percent owned, that's spitting cash than a giant business funding hundreds of millions of dollars in debt. Um, and I make a, I make a salary and I, and I don't sleep. Oh wait, that's what I'm doing, except for the salary . Oh, wait, who's the sucker? Now,

00:41:38.065 --> 00:42:33.005
If you listen 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.