What is Ailing? Is it the Product? or Sales?

A question that keeps early stage founders awake at night

This is a recurring question for an early stage startup if it is yet to achieve product market fit, even more so if it is fast burning its capital! And most of the startups which fail to achieve PMF will take this question to its grave, unanswered!

Also, the people aspect, which is ever so present, tends to make any conversation around this topic personal, ugly and often made to look like a “who is the culprit?” debate.

However, the bottom line is, most of the startups fail before achieving PMF. And there is very little structured guidance on how to address PMF challenges. This article is an attempt to shed some light into this topic.

Btw, in this article, product function means product management + engineering + delivery. The sales function consists of product marketing + presales + sales + customer success. We may also call the above set of sales related functions as business too.

Also an important disclaimer, this particular discussion could be more relevant to early stage B2B software startups than any other form of business.

Why try to Isolate between product and sales?

Before going any further, let’s address a natural objection to this topic. One can say that “The very idea of PMF is not to decouple product and sales, so why are we trying to decouple them ”. While it is a valid observation, product and sales coupling is a depiction of a happy eventual state, a state where PMF is achieved. A state where product and sales engines fire in unison in a complimentary way. However this is not the practical reality for many startups, especially if things are not going as expected.

Even when things go wrong, startups are typically structured to keep both product and business tightly coupled. Hence we see the most common co-founder pairing. One from tech, the other from business! However what is even more common is co-founder fallouts of fledgling startups. Hence, while strong product-business coupling does make theoretical sense it hardly translates to practical operational reality

A similar objection is, “If product and sales achieve PMF as a well integrated pair, doesn’t it mean both have failed and both need to be fixed, when things go wrong?” Which we shall discuss next.

Hypothesis of Dual Failure

Both Product and Sales have failed hence both needs to be fixed

Since the combination has failed, it is probably fair to conclude that neither has excelled. There are enough examples, albeit few and far between, where one of the functions has excelled and carried the other at least during the early stage of the startup. Early stage Facebook is a good example of how excellent product development has prevailed lackluster business performance.

Similarly, startup folklore is full of stories where maverick sales teams closing deals despite fledgling products. Therefore, agreeing that neither are excelling is a good starting point in my view.

However, it is too simplistic and also unpragmatic to conclude that both are failing equally. If nothing else, this seems like a stretched assumption from a probabilistic standpoint.

The rest of the article focuses on how to dissect PMF issues in a structured way while avoiding “Who is the culprit” witch-hunts or “All of us have equally failed” kind of political alignments and bromances. Witch-hunts or political bromances will NOT help a startup zero in on things that need fixing.

Analogy of Horse Drawn Carriage Business

The first thing that needs to be recognized is that 0–1 stage company building (from origination to product market fit) is drastically different from operating an established business. Unfortunately many founders with stellar backgrounds and a disproportionate number of investors miss this point completely.

Let me explain the Horse Drawn Carriage analogy. There is a business that transports goods from village A to Village B, using horse drawn carriages. Think of horses as the sales function and carriage as the product function

The journey starts with a nicely paved road, then it becomes a hilly gravel road with several steep climbs. Finally it settles into a well lit two lane tarmac that leads to village B. The owners and operators of this carriage were very good at making this service more efficient and profitable over time. It took them several hours to complete this journey initially, but they were smart to make incremental changes over time.

As examples, they learned to whip the horses a bit harder, acquired horses that are much stronger, made the wheel rotations smoother, and even devised a way to do a carriage change for the hilly section — with a carriage that is better suited for the hilly section of the journey. Each year they set their targets higher and made improvements to achieve those targets.

All of this worked very well — until one day the horse drawn carriage got lost in the middle of the jungle! In order to find their way out, they whipped the horses harder, but still they could not find a way out. Then they got the strongest horses, but even that did not work out.They even changed the carriage, in desperation, but still they remained frighteningly lost!

Obviously, the typical Village A to Village B journey is the established business and the lost carriage in the jungle is the 0–1 stage startup. So when confronted by a product market fit question in an early stage startup do not start whipping the horses or changing the carriages. Neither will help solving the problem.

Start with Product Marketing

Product marketing is one of the most critical functions when in search of PMF. It can provide invaluable insights which does not require 16 hour work days or maverick salesmanship. So start by evaluating top of the funnel performance. If you are missing top of the funnel targets, it could be one of 3 things

1. Market is not excited by what you are doing
2. Bad messaging
3. Inadequate/non optimal marketing spends

Many startups, for understandable yet unjustifiable reasons, do not want to accept the first. Hence the only practical approach is elimination of other two reasons. Also, It is comparatively easier to iterate messaging, marketing campaigns and channels.

After iterating on 2 and 3, and if things do not improve, the startup has to face the elephant in the room, which is lack of market interest. Acknowledging and addressing that there could be a fundamental flow in the core thesis of the startup is not necessarily a bad thing. It gives it a chance to pivot, which is essentially another attempt to become successful.

If objectively evaluated, most of the fledgling startups will fall into the first category. Unfortunately though, this acknowledgement happens very rarely and usually way too late.

Make Product Responsible for Mid-Funnel

If top of the funnel is healthy (more from a conversion point of view than volume point of view- if marketing spends are limited) the startup is in a good position to find the PMF, if they do a few things in a disciplined way.

The mid funnel is typically a trial stage for many startups, hence it does make sense to consider mid funnel performance as direct product feedback. The startup has already established that the market is interested in what it’s doing. Mid funnel performance will provide tangible feedback on if the market is equally excited about how it’s doing that.

Low usage numbers coupled with low conversion numbers at the mid funnel should make product management and engineering teams critically self assess their work

Sales Own the Bottom of the Funnel — Obviously

If a startup has a healthy top funnel and a mid-funnel, it boils down to pricing and deal closure. Btw, startup pricing is rarely exuberant, hence pricing is rarely the real issue — even though it is often made to look like that.

And I will stay away from the topic of salesmanship as the topic is overtly discussed. However, even the smallest startup needs to have multiple people closing deals. This will at least reduce the possibility of a bad sales person undermining the success of the entire business

In Closing

In an early stage startup, the CEO’s primary responsibility lies in reaching PMF at the earliest possible. She needs to understand that instant PMF success is quite rare. Hence should be well prepared to face PMF issues rather than be startled by it.

It is important to stay calm — do not start whipping the horses or ordering new carriages. She must execute a series of steps in an efficient, diligent and disciplined manner to zero in on the issue and execute corrective actions.