It’s a fact of life that startups are messy and things rarely go to plan. I’ve sat in countless board and founder meetings - often B2B SaaS businesses - where we have lamented a business growing slower than we’d like. That dreaded missed forecast, missed not just for one or two months but for an extended period of time.
Most people react to these challenges by focusing on the sales team, often questioning whether we have the right people for the job. Rather than jumping to this conclusion, I think we should start with the problem and the product.
After talking to some of our founders about this the other day, we’ve come up with a four step framework to identify why your product may not be selling well:
- The problem is not a problem.
- The problem is a problem, but your product doesn’t solve it in a valuable way.
- The problem is a problem and your product solves it, but your pricing and terms are not right.
- The problem, product and terms are all good, but you don’t have the right people to sell it.
As you can see, the focus on the sales team comes right at the end.
You might notice I haven’t used the term “product market fit”. I have a love-hate relationship with this term. It’s an easy way to describe all the above, but it’s used too flippantly in most cases It’s not a case of “having” product market fit or not - product market fit is a spectrum. More on this later.
Reason 1: The problem is not a problem
This is the most serious issue. If you’re not solving a real problem for customers, you are doomed from the beginning.
Indicators of this issue could be that customers are happy to chat in the first instance but are proving difficult to engage after that. Excuses are often that they are too busy, working on other projects or pushing work on this out to the future.
It may be that you run demos and even pilots, but the customers just don’t convert and are difficult to engage afterwards.
Usually your customers have not ended up buying from a competitor, but are choosing to continue doing it the old way, with spreadsheets and word documents. (An aside - lots of founders love telling us how they have no competitors. This is fine but it’s also a red flag to dig deeper on the problem.)
If you think you might suffer from this issue it’s not the end of the world. Some of the best businesses have unearthed amazing problems by first trying something adjacent. They realise people don’t really care about it, but on the journey find the thing that customers really do care about.
Reason 2: The problem is a problem, but your product doesn’t solve it in a valuable way
This is the most common cause I come across. The classic indicator is that customers engage enthusiastically, sign up to demos and pilots fairly quickly and easily (the old “we met for the first time, they loved it and agreed at the end of the meeting”), but you really struggle to convert those demos and pilots into longer term contracts or larger scale roll outs.
The hard thing about this issue is that the customers rarely tell you, “it’s just that we didn’t really love your product.” You often get reasons for not buying such as, we don’t have the budget, we’re too busy so are pushing out to next year, we need buy-in from other people. Or, they just go quiet on you.
A common furphy is to tell you it is too expensive, when really it’s just that they don’t love it enough to go to bat for you. An indicator of this is that they don’t put any real effort into getting you to lower the price.
The solution to this problem is easy to say but hard to do: build a better product. Key is to be able to iterate quickly. Engage with customers early and frequently.
You should of course always ask for feedback, but the best insights come from how they actually use your product. Instrument your product to capture engagement metrics from the beginning, choose the metrics that show users are getting real value from the product, and be careful they are not just vanity metrics. Learn what users are doing and go into your feedback sessions with that knowledge, so you can ask direct and specific questions.
Reason 3: The problem is a problem and your product solves it, but your pricing and terms are not right.
This issue is probably an easier one to diagnose, as customers are usually happy to tell you it’s too expensive if they really love it. They will negotiate hard, but continue to talk to you through the process. They’ll be interactive and friendly, and will often be comparing you to competitors.
This is an easier problem to solve. Of course you might have problems with your margins, but that is another issue to tackle.
To be honest, I rarely see this problem in Australia. Most Aussie startups charge too little for their product. I spend more time telling founders they should not be afraid to increase their prices.
Reason 4: The problem, product and terms are all good, but you don’t have the right people to sell it.
It’s only after thinking hard about the prior three reasons that we should start lamenting the lack of skill in your sales team. It’s easier to blame the sales team than to confront the harder truths above.
I’ve seen many founders blame their sales team, swapping out people, starting again, when the problem is not the sales people but the problem and the product.
Some Final Thoughts
Back to the spectrum of product market fit. In our portfolio, Canva, SafetyCulture and CultureAmp clearly “have” product market fit, having sold hundreds of millions of dollars of revenue over the years.
Almost everyone else has some degree of product market fit. At the Seed stage we are searching for early indicators of product market fit; we are often more excited by engagement metrics than revenue. At the Series A stage, with $1-2M of ARR, we are still searching for (more) evidence of product market fit.
Startups are all about iteration in the real world. Success is about driving laps of the iteration track. The more laps you do, the more you learn about the problem space, the product and your customers. This is why we love bottom up sales models and short sales cycles. They let the team do many loops of the track to find something that really has product market fit.
If you’re struggling with missed sales targets, or trying to work out where the real problems lie, I hope this framework helps you dig deeper into what’s going on - you can find more sales insights from some leaders in our community in our Giants Weekly content series. As always, I would love your thoughts, particularly if you’ve navigated these challenges in your startup.