Saravana Kumara is the founder and CEO of Kovai.co, a company engaged in Enterprise Software & Knowledge Management Space.
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A product-market fit is a product that solves a problem faced by customers. It is officially defined as the extent to which the product satisfies a strong market demand. You know you’re product-market-fit when a customer can extract value from it, is willing to pay for it and, in the SaaS industry, subscribes to it long-term.
I believe that the developer of the product or entrepreneur should be the one who sells it until you reach a product-market fit. And by engaging potential customers early on as an entrepreneur and throughout your product development phase, you can build something that customers want or need so that you can scale the business later.
Collect beta customers.
A critical step in creating a product-market fit is getting that first group of customers or beta customers. For this it is important for the entrepreneur to reach the first group of customers, because they know the product best and can explain which pain point it solves.
In my case, my first product was a monitoring tool for Microsoft BizTalk server, an inter-organizational system that automates business processes. I had spent 10 years bridging the product gaps as a consultant. I’ve also written over 500 articles on various pain points on the BizTalk server, regularly attended Microsoft’s annual MVP conferences, and discussed the possibility of a product to solve all problems. By this time I had fully understood the problem before trying to solve it.
Then, a year after I started building the solution, I presented the minimum viable product at the 2010 Microsoft MVP Summit and got a lot of feedback and digested it. I’ve also shown it at several other conferences to get customer feedback. After all this, once the product was ready, it was easy to get the first set of customers. I just had to write a blog about launching the finished version and I had my first client from Hong Kong.
It is so important to improve the user experience and patiently observe customer behavior and take their feedback seriously. With their feedback, you can further tailor your product to the needs of the market.
And once those customers start paying or subscribing to the product for the long term, you know you have a suitable market. Before this step, in my opinion, there is no point in hiring a sales and marketing team. Hiring an expensive vice president of sales before you have a product that customers need can leave you prone to failure.
Identify a traction channel.
Once you have successfully acquired the first group of customers, it is important to identify a traction channel to further bring the product to market. Traction is a channel that helps you identify and attract more new customers. For example, the traction channel that worked for me was my blog, MVP summits I attended annually, and small conferences I spoke all over Europe.
To identify the initial traction channel that will work for your product, you need to figure out how many customers each channel brings you and how many more customers they can bring you. For example, if you can invest $100 in that channel and get 10 customers, and later invest $1,000 and get 100 customers, you know you have a scalable marketing channel. This is a sign of the size of the product, so now would be the right time to take your first group of people on board.
I recruited my first five employees in 2011 after crossing over 30 customers. We worked from my living room. We remained a team of five until we reached 150 customers. If you know that the same traction channel or channels have the capacity to bring you 1,000 customers by investing $100,000, that’s a sign for you to scale up. In our case, we decided to expand our business after crossing the 150 client mark, with a small office in Coimbatore, a tier II city in South India, where 20 people were hired in 2013.
Think about pricing and financing.
When pricing your product, focus on the value you provide to your customer as part of your initial offer. Many entrepreneurs are hesitant to price their product low during boarding because they are afraid of getting stuck with it. I believe being locked into a price is a myth. A product that you sell for $5,000 for the first time can sell for up to $100,000 after 10 years because you’re always adding new features to it, making it worth scaling up for.
With the SaaS industry booming and venture capital financing easier to obtain, thousands of new companies are emerging worldwide. While some choose to get funded early in their journey, others choose to stay bootstrapped. But whether you want to scale with your own money or with equity investments, I believe that premature scaling is one of the biggest mistakes companies or entrepreneurs can make.
While I am fully in favor of expansion, supporting growth and scaling, it is critical for companies to take calculated risks. Without a good business plan and a strong product that clearly solves a customer’s problem, neither a loan nor an equity investment will solve your problems. You have to be extremely patient and persistent. I believe it is easy to complete 80% of a task or project, but it is the last 20% that take longer, are harder to complete and will bring you success.
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