The Product Market Fit Pyramid

Pablo 0:00 So I was talking to Andrew, the founder of Moto Insight the other week, super successful founder. He grew a company to like $20 million top line in , in ARR. He ended up selling it to Autotrader. So things ended up going really well for him. It was a long journey, took 12 years. And the interesting piece, like what we really focused on was the pivot because for the first three years he worked on a marketplace that, you know, had some traction but didn&#39;t really take off. And it was only when he shifted to more kind of SaaS B two B enterprise software play that that things really hit it. And that&#39;s where he kind of grew it to $20 million in , in revenue. This was 14 years ago. And so the , you know, a lot of the kind of innovation in the car space hadn&#39;t happened back then. And so the idea made a lot of sense. It was a car marketplace for new cars, specifically between consumers on one side and dealers on the other. And the idea is that as a consumer, instead of having to go to like dealership to dealership to dealership to find the exact car or the exact specs that you were looking for, you could just build it online. And basically the dealers would ultimately, whoever had it would kind of surface up. And so we just add a, you know, remove a lot of friction from the buying experience. And then when interest starts talking about the pivot that he makes, one of the things he says is they started asking themselves question, right? Like, is there a much bigger opportunity that we can capture? And what he says is something that many founders say when they pivot, which is vision, always stayed the same. It was about how do I make the car buying experience better, more transparent, faster, more convenient? That was always the vision, but it&#39;s how we accomplish that vision that The PMF Pyramid Pablo 1:24 evolved. You can think of this as like a product market fit pyramid, right at the bottom you have vision, then value prop, then product, and then go to market . And the way to use this pyramid is that when you start tweaking things, right, like when you, you go after and you have a certain vision, like in his case, making the car buying experience better, right? You have a , a certain value prop, which is, in his case at least originally, to uh, help people like find the right car, right? So maybe that&#39;s the value prop. The product was a marketplace that brought kind of dealer inventory online. And the go-to market was a mix on the one side of like direct consumer marketing. And on , on the other side, you know, more B two B type , not really sales but partnerships. So that&#39;s what it originally was. When that, you know, after a few years realized is that that&#39;s not really working, you starts to tweak things. And the way to think about it is you always kind of go from top to bottom, right? The first thing you wanna change is just your go-to market . &#39;cause that&#39;s kind of the easiest thing to change. Okay, I&#39;m selling maybe SMB now I&#39;m gonna go and try and shift to enterprise. I&#39;m selling through cold calling. Maybe I&#39;m gonna do email campaigns or I&#39;m gonna do it , uh, through try to do like inbound marketing, whatever it is . In this case, specifically when you think about un hale , I&#39;m gonna go from selling to direct consumer plus the B two B partnerships to create this marketplace. And I&#39;m gonna go and sell direct to dealers. Dealers are now gonna pay me. The product also had to change, but not that much. If you think about it, the product was already bringing dealers inventory online and having a way for users to build it. That really didn&#39;t change except instead of being an open marketplace with many dealers, he took that product, went to the dealer and said, you&#39;re gonna pay so that your inventory goes up on your website and people can just find your cars that much more easily, right? So this kind of Shopify experience, but just for your dealership. And then the dealers would pay &#39;em directly. So go-to-market definitely changed. Product only changed a little bit. Value prop really didn&#39;t change. Like at the end of the day, the value prop for the dealers is sell more cars. The value prop for the users is to, is to find cars more easily. And the vision certainly didn&#39;t change, right? It it was a world where the buying , the car buying experience is a lot more transparent with less friction and so on and so forth. And that&#39;s the way to think about it . Like this , the kind of product market fit pyramid, as you go out, you, you, one way or another, whether you thought about it explicitly or not, you have created this pyramid. You have a vision, you have a vol value prop, you have a product that&#39;s supposed to deliver on that value prop and you have a go to market to take that product and value prop to market. And if things aren&#39;t really working, you wanna work from top to bottom of that pyramid changing things until, you know, worst case scenario, your vision might just kind of be off. And then that&#39;s probably a full restart. But otherwise, that&#39;s the way I would think about, that&#39;s the construct I would use as you&#39;re kind of tweaking things, pivoting on , on your journey in terms of what you should, you know, product is harder to tweak than go to market . And certainly value prop is harder to tweak. Like if you change your valid prop, everything above that pyramid has to change. So that&#39;s really the , the kind of product market fit pyramid, right? Start at the top, work your way down. The other thing I wanna touch on is, so now Andrew kind of goes through this , uh, this pivot and he starts working with dealers on this new enterprise sales kind of play. And I asked him , you know, how how that played out. And what he said is he started working with some automakers that became their design partners. Quantity of Yes vs Intensity of Yes Pablo 4:33 And then note the difference, right? So when Andrew actually goes , starts making this pivot and he starts working directly with dealers and trying to get dealers to pay them, dealers go from literally kind of saying, yeah, this is a cool marketplace and not really using it to the point that he&#39;s actually able to find some automakers that become his design partners and they help him finance the development of the product, right? Like Andrew&#39;s bootstrap. So he can&#39;t move unless he gets cash in from his customers. And it&#39;s not about quantity. Like he went to a bunch of different dealers, not all of them jumped at this opportunity, right? Like, like always you&#39;re gonna have early adopters, late adopters. You&#39;re gonna have that kind of adoption curve and it&#39;s not gonna suit everybody&#39;s needs right away. What you want is an quantity of yes, it&#39;s intensity of yes what you really need. And one of the big signs that you&#39;re onto something is if you find a select group of small customers that are really intense about what you&#39;re building and really, really believe in it to the point that they&#39;re willing to invest time as a design partner and money to actually finance the creation of your product. That&#39;s how badly they think that your product is gonna move the needle for them . That it&#39;s worth it for them to make that investment. That&#39;s like, that was like probably , probably sign number one that this new play was actually gonna work and actually produce real value first customers. Constraints Set You Free Pablo 5:43 And on that note, like the other thing that, that I , it&#39;s this is the , the piece that&#39;s important, why did he go out and find design partners? It wasn&#39;t actually so much because he knew that that was the way to get to success. It was actually &#39;cause he needed to, he , he didn&#39;t have outside findings . So he literally couldn&#39;t do anything without this. And that&#39;s one of the powers of bootstrapping. And especially these days like when frankly a lot of founders are getting forced to bootstrap because the funding environment is pretty terrible. Think of it as an edge because it is, in a way, it&#39;s an edge. Yes, it&#39;s more painful. No, you don&#39;t get to pay yourself a salary, maybe a salary at all. Certainly not the same salary that you would if you, if you were funded. You can&#39;t hire as much. Like there&#39;s just so many constraints. But in a way, constraints set you free because they force you to do the things that you really need to do. Had Andrew been funded, right? Had he raised like this four or $5 million seed round that was happening before, he didn&#39;t need to get these design partners he could&#39;ve built and then he might&#39;ve gone in a different direction &#39;cause he might&#39;ve had some other idea, put a team on it, built a product, gone out to market only to realize that that also didn&#39;t work. But because he had to get funding from his own customers, he ultimately was forced into a decision where if he wasn&#39;t gonna provide the sort of value that led customers to effectively prepay and finance the development of his product, it wasn&#39;t a thing that he was gonna build. And that&#39;s almost in B two B exactly what you want because it makes you , it forces you down the right path. It forces you down the path of am I providing real value and then therefore am I getting closer to product market fit versus I&#39;ve got all this money, I&#39;ve got all these resources, let&#39;s just build stuff that we think could be cool, could, you know, could provide value but not force ourselves to be real. And I&#39;ve seen this plenty of times and especially the last few years and even more so frankly with repeat founders because they&#39;re the ones that were able to attract money on vision. Like there are people that are really good at selling a vision, at selling a dream and therefore getting money like pretty product market fit pre idea even like at idea stage pre , uh, pre-product from investors. And there&#39;s like, there&#39;s upsides to that obviously, but there are some serious downsides and I&#39;ve seen it so many times where because there&#39;s money, people get hired, things get built things then get over polished . And yet if you go back to that pyramid, something was seriously off. Either the value prop was off the product, the go to market , something was seriously off. And it doesn&#39;t matter how much you build around that thing, if at the end of the day you&#39;re not clearly moving the needle for your customer, the thing&#39;s not gonna work. Doesn&#39;t matter how pretty it looks when you bootstrap, you just can&#39;t go off the path so much because you have these constraints that force you to stay on path. &#39;cause you don&#39;t have money to go off path when you&#39;ve raised a bunch of money. It&#39;s actually way easier than you think to go on the wrong direction for many millions of dollars for many months with many people only to realize, oh that&#39;s not gonna work. And the thing I asked Andrew, because one of the things I was really trying to get at is When it&#39;s time to pivot, you feel it Pablo 8:29 how do you know when to pivot? It&#39;s so hard to know when to pivot. I wish it was a rule, but there just isn&#39;t. His answer is there&#39;s definitely a vibe difference that you can feel when it&#39;s working. You feel it that entire three years, like when he was building the marketplace, every single step was a grind. It felt like we were fighting battles every day , left, right and center. And the winds were just so micro. Whereas on the software side. So when you shifted to the enterprise play, the winds were way more tangible. We get, we , we land a new logo, we land a huge check felt like just momentum that built on itself. This reminds me of when I was at Gym Track . We had kind of at one point we pivoted to a new product. Long story short , uh, I won&#39;t get into the to the why of it, but the idea for this new product was it was a sensor for , uh, that would go on gym equipment to help gym operators understand usage, right? So if you think about , uh, a big, let&#39;s say like Anytime Fitness, right? So like a large gym chain, they have equipment across many, many different uh, gyms and yeah, they&#39;re franchisees and these sort of things, but at the end of the day, every piece of equipment costs like 10 to $20,000. And if you were to ask some of these , uh, operators why they buy the piece of equipment they buy, they, they don&#39;t have a good answer. It&#39;s like, oh , I just thought we needed 15 treadmills. Why, why not 12, why not 18? And all that optimization actually adds up to serious amount of money. So having been in the gym industry for a bit, that was kind of the problem I identified by the sensors that would go on the piece of equipment. We detect things and use and non-use and report that back to a dashboard the gym operators could look at and better optimize their equipment spend . Sounds like in theory, like it&#39;s a good idea. So what did we do? Well, frankly, we did the wrong thing because we went out and spoke with some, you know, serious gym operators. But what do we do? We showed them the product. We&#39;re like, Hey, here&#39;s the thing that we filled . What do you think? I&#39;m telling you, out of 20 conversations, 20 of them said, oh my God, this is amazing. This is the future. This is exactly what we need. So okay, we&#39;re super hyped up. Like this is awesome, right? Like finally we&#39;ve, we&#39;ve landed like , oh my god, I can&#39;t , I can&#39;t believe. And people were actually talking about it. Like we would hear other people and then we would talk to somebody say, oh yeah, I heard about you from this other person. &#39;cause they were talking about cool , your product was clearly it was cool, right? It was clearly innovative for the time and for the space, which is, you know, not that innovative, but that&#39;s a whole , that&#39;s a whole other thing. Anyways, the point is then we go to sell it and we&#39;re talking about something that&#39;s, we&#39;re like trying to charge like a few thousand dollars. Let&#39;s say it&#39;s like 5,000 a year for something that each treadmill is like 10 to $20,000. And then when we go to sell it, it&#39;s effectively crickets. Like we, we landed some sales, but it was so painful. Every single cell was so hard. And then when you think about the fact that this is $5,000 and a treadmill costs 20,000, something&#39;s clearly off. I remember one day actually I was in a , we were in one of one of our alpha customers where, you know, they have many clubs like let&#39;s say a hundred clubs we&#39;re just in one doing kind of the first phase. It had taken us so much work just to get into that one location. And I&#39;m talking to the purchasing officer and they&#39;re telling me about the gym and they&#39;re like, oh yeah, like actually, you know, we&#39;re gonna replace these. I just bought, I think it was like eight, eight machines, like two like presses this and that and the other. I&#39;m like, how much was that? He&#39;s like 80,000. I&#39;m like, this person just spent $80,000 on equipment on a normal day. Like it&#39;s just like that was just another buy, just 80 k cool gone. And I had to fight for months to get $5,000 from them. Something&#39;s wrong and clearly something was wrong. And this is the vibe. Part of it is like, I wish there was, again, I wish there was a rule because there , there just isn&#39;t. Some cells are gonna be hard , some cells are gonna be easy, but you just kind of at some point start to see the signs like, wait a second, if they&#39;re spending Tens of thousands of dollars on a whim on this other thing and that same organization is making it so hard to spend a few thousand dollars on my thing, clearly I&#39;m not solving a top priority problem for them. And really I wasn&#39;t, if you look back, like if you think about gym specifically, all they care about is how do I open more locations? How do I keep more members? Like those are the two things and how do I get more members, right? Those are the things that they, they&#39;re thinking about all the time. And anything you can do to drive that, great, anything else is noise. And that&#39;s what we found out. But we found out the hard way could we have found this out the easy way? Of course we could had having done the right amount of research at the outset, instead of showing the product, we probably would&#39;ve gone these insights in the first place and realized that, you know, equipment spend management just isn&#39;t that big of a deal. So Andrew had this idea because of a problem he had himself, right? Like he bought a car, he was like, wow , this , this really sucks. What if there was a better way? And The right way to talk to customers Pablo 12:41 he actually did some research. He said to me, we spend ton of time talking to customers. It&#39;s a no surprise. You pick 10 random people in the parking lot, you asked them , Hey, do you like the car buying experience? Nine out of 10 will probably have some story about how they didn&#39;t like the experience. It&#39;s just one of those cliches when we talk to car dealers, naturally the first reaction is, Hey, anything that helps me sell more cars is a good idea. On the surface we thought we deeply understood the space. That&#39;s interesting right there because, and this is so common , that&#39;s why I&#39;m like picking on it. Talking to customers be has become such a cliche that I really believe that just about any founder is doing it. Like they&#39;re talking to customers. The question is not so much are you talking to customers, the question is, what are you talking to them about? And so if you, if you actually look at what Andrew did, you can spot the issue. First of all, when he goes, let&#39;s say to consumers, what does he say? He says, do you like the car buying experience? That&#39;s a bit of a setup , right? I mean obviously it&#39;s not that good of an experience. So a lot of people are gonna say, no, all you&#39;re getting though are, are kind of fake results, right? So what might you ask instead? Well remember what you&#39;re trying to discover are top of mind prompts . So you might ask them like, Hey, when&#39;s the last time you thought about buying a car? What have you done towards buying a car? Where do you go when you , when you&#39;re looking to buy a car? Like these kind of top line questions, top level questions that are trying to answer the question. When you get down to it and you say, did you like buying a car? And they&#39;re like, no, okay, you&#39;ve already kind of preset them for something. What you&#39;re trying to do is find out where they&#39;re at today. Because one of the problems, like, so back to the original question, why didn&#39;t this marketplace work even though customers hated the old buying experience and even those marketplace could have been, you know, a , a more less friction full experience, like a better experience. Well the reason is it&#39;s not a top of mind thing . People buy cars every like five to seven years and you know, even if they discover the car , the you have to get &#39;em at the right time. Even if you get &#39;em at the right time and they discover the marketplace today, they have no one to refer to because they don&#39;t know anybody that&#39;s also looking for a car at this point. Because people only look for cars every five to seven years. And when in five to seven years they need a car again, they might have forgotten your marketplace. So that was a huge issue. On the flip side, when he&#39;s talking to dealers, it&#39;s a similar thing. Like if you&#39;re like, Hey, here&#39;s my idea, it&#39;s gonna help you sell more cars. What do you think? Of course dealers are gonna tell you that. Yeah, why not? Like <laugh> , it&#39;s a great idea. Sure, it&#39;s gonna help me sell More stuff. I love it. And by the way, that&#39;s the another problem is that when you go out and you talk to customers, if what you&#39;re doing is selling &#39;em , like, here&#39;s what I&#39;m thinking. Here&#39;s my idea. What do you think? Just put yourself in their shoes, right? Like, are you gonna tell somebody that you think their idea is bad? Probably not. What you want do is please people. So in all likelihood, psychologically you&#39;re gonna tell &#39;em , oh yeah, that&#39;s a great idea. I mean, what&#39;s the harm to you ? You have no skin in the game, so you might as well kind of be a nice person and that&#39;s what you&#39;re gonna get. And that doesn&#39;t help anybody. And so when you go to dealers, the questions have to be a lot higher level. Like what is your day like when you get in? What do you do? How do you sell cars? What channels matter? What channels don&#39;t, how many cars do you sell ? Like all of these much higher? Like what websites do you use? Which ones work? Which ones don&#39;t? Just to actually understand the reality of a car dealer and okay, how many cars do you move per month? How many cars would I need to move? Help you move per month for it to be a meaningful thing to you? Like these are the kind of questions that are actually gonna help you understand what the car dealer&#39;s situation is like, what their day-to-day is like, what they value, what they don&#39;t value. You can ask them like even what is the number one problem that you have on a daily basis? What are the most important problems that you face? And let them tell you what their problems are. Instead of saying to them, Hey, is selling a car problem? Like, is this a problem? Is this thing that I&#39;m solving a problem to you? Most people are gonna be biased and they&#39;re gonna tell you, yeah, it is. Yeah, sure it&#39;s a problem , but you&#39;re not finding out nearly enough. You&#39;re trying to figure out what is their number one or number two problem . What are they thinking about all the time? What could you solve that would have a huge impact for them ? Huge. ROI . That&#39;s what you&#39;re after. And and you get that by asking the right questions upfront . So it&#39;s not just, are you talking to customers? Is are you talking to them about the right things? Are you doing it the right way? The nuances is really the key that sets apart research, true research and effectively fake research, which is, you know, gonna help you speed through discovery phase, checks some boxes, and ultimately if you know closer a product market fit on that same tangent, by the way, as because we&#39;re on a topic of marketplaces, it&#39;s actually quite common. I would argue that marketplaces that sound like they make sense actually don&#39;t work out at all. This one being a case in point, right? Like a marketplace for new cars sounded like it made sense three years later, you know, just wasn&#39;t really spinning. And then you compare it to marketplace that really did work. Like let&#39;s say Uber or Airbnb or even eBay. And I think one of the di one of the key things that you have to think about if you&#39;re building a marketplace is you need to, and I&#39;m sure there&#39;s exceptions to this, I can&#39;t think of any, but I&#39;m sure there are exceptions to everything. But I think The key to marketplaces Pablo 17:13 as a rule, you need to be critical, critical to at least one side of the marketplace. So you take Uber, for example, if Uber stops working tomorrow, I&#39;m okay. I mean, I&#39;ll take a taxi, it sucks, but whatever. But the Uber drivers are out of a job, whether they&#39;re part-time workers or full-time workers, they&#39;re out of a job that&#39;s critical. You think about Airbnb, and again, today, Airbnb&#39;s morphed and, and there&#39;s a lot of other places that you can kind of rent your place, but when Airbnb started and we&#39;re talking about zero product market fits , that&#39;s what we care about. When Airbnb started, the only way for you to earn income off your property was through Airbnb. If Airbnb shut down, you lose your entire stream Of income. Again for a user, you would just maybe go to a hotel, go to a hostel, whatever, you have other options. But for the owner of that Airbnb, Airbnb was absolutely critical. eBay, same thing when it came out. The only way for you to sell whatever you were selling was through eBay. It was absolutely critical for the sellers. And so, and usually I would arm , I&#39;m sorry , at least these three examples, it&#39;s critical on the supply side. So if you&#39;re building out a marketplace, like take now, un haggle, right? Which was the, the first version of Motor Insight , the the new car marketplace, was it critical to either side dealers? No. &#39;cause dealers, they&#39;re still selling cars, whether on haggle works or doesn&#39;t, they have other channels, they&#39;re already selling cars. Is it critical to the users? No, because they&#39;re already buying cars. And so that creates a lot more friction, makes it way harder for the marketplace to get off the ground. You&#39;ve gotta, I think one of the things you really need to think about is, is your marketplace critical to at least one of the two sides, even if it&#39;s a niche, you know, initial segment because the problem is it&#39;s chicken and egg, right? And so you need one of the two sides to feel like it&#39;s so critical that they need to be there, even though the other side is maybe not really there yet, right? Until things get off. Once a marketplace gets off the ground, it tends to take care of itself. But at the beginning, when you&#39;re going from zero to one, zero to product market fit, if you&#39;re not critical to at least one of the two sides, it&#39;s gonna be really hard to kind of balance the two sides of the marketplace to keep them together for long enough to really kind of create the fire. 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