Founder Lesson
There isn't a topic that interests me more than product-market fit. In the 2007 - 2010 timeframe I went from a lifestyle business (where I could fool myself that it was high-growth) to a high-growth startup (where you didn't have to wonder if it had product-market fit) and that transition completely changed the way I think about startups...you'll know it when you have it.

As a result of this experience, I'm always on the lookout for similar founder epiphanies and the founder on this podcast went through an identical experience.

Here's how he describes his lesson...

• He believes that founders tend to have an "internal dishonesty"...they see how the world could be better with a product and want it so badly because it's all they do day and night. So they interpret all signals as positive. Plus they can force some things.

• He calls this "deducing the product"...when you explain the product (before it's built) investors and potential customers will understand the need and nod in agreement that they would use it. The product idea totally makes sense to a smart, reasonable person.

• The problem is that this "everyone nods in agreement" isn't at all what it feels like to have product-market fit. This reasonable agreement is very different from a real customer saying "I want to buy that product now."

• The founder on this podcast called this "inductive reasoning"...using trends or fact pattern to generalize to a product that you can test.

• Because founders are typically smart and logical, it's easy for them to confuse the two.

(more on deductive versus inductive reasoning here and here)

By way of background, this founder raised $600k in Y Combinator and pretty quickly realized that they didn't have product-market fit. Everyone said they'd use their product - because it made logical/deductive sense - but no one did. Then they launched their second version and it took 18 months to realize it didn't have product-market fit either.

Imagine spending two years and $500k on two product versions that no ones uses.

They had one more shot with $100k left in the bank.

Over that 18 months they had built an internal tool (like Slack had). They used it as a growth hack for their product. The team wanted it, but the CEO/founder didn't and he did everything to kill it.

So the team quickly built a landing page and put it on Hacker News. They got an overwhelming response and began to build Segment.

Now this founder advises...

Be careful of the people who are responding to your deductive reasoning. Be on the lookout for what people say when they are truly ready to buy something. You need to turn up your filter to an 11-out-of-10 to be able to hear for this.

When I meet with founders I try to explain this concept by drawing this on a whiteboard...

It's my way of saying that I typically see startups in three buckets (from the bottom of the picture to the top)...

The bottom third - These are (bad) ideas that we all have that typically don't last a good night of sleep. We all have these ideas all the time. We are in love for a minute with them and then quickly dismiss them.

The middle third - These are ideas that last many nights of sleep and stick around in your head. You tell them to your friends and family and they nod in agreement. They are reasonable ways to tackle problems that appear to exist. This is when many people quit their job to work on an idea. The vast majority of people don't realize how far away this phase is from something that customers truly love.

The top third - The ideas that get me excited are at the top. These are potentially good ideas (from the middle third) where the founder has identified the human action that has to happen for this business to exist. In other words, we can all step back from this idea and fixate on one behavior to test. If we put an MVP product in customer hands, the founder thinks that humans will act in this way and the founder has a clever product/brand mechanism to insure that people will act this way.

A friend commented on this concept with a very cool framework here.

In other words, I get excited about how the founder uses inductive reasoning to tackle the main friction in this business...the reason why it doesn't already exist in the world. Most of the time the founder can walk me through a clear/exciting narrative of the problem and why their solution will work.

I wouldn't ever quit my job to work 24/7 on an idea until it got over this hurdle. And once an idea does get over this hurdle, it's tough to not work on that idea because it's like I have a secret that no on else has.

Sidenote: If you enjoyed this post, you might like this one as well.

Sidenote: Here's a great Seth Godin blog post on this topic.

Get Right to the Lesson
I’d recommend listening to the entire thing, but to get right to the point go to minute 15:43 of this podcast.

Thanks to these folks for helping us all learn faster
Peter Reinhardt (@reinpk), co-founder & CEO of Segment (@segment)
33voices (@33voices)
Jenna Abdou (@jennaabdou)
Moe Abdou (@moeabdou)
Sherry Abdou (@Sherry_Abdou)

Please let me and others know what you think about this topic
Email me privately at dave@switchyards.com or let's discuss publicly at @davempayne.