Todd Jackson: recommendation

Transcript context

…So the framework starts with a very simple idea that is product-market fit is not a one-size-fits-all thing, and it doesn't just happen overnight. And for B2B companies, specifically, it does tend to follow a repeatable pattern. And so we start with defining the ultimate goal. The ultimate goal is to get to extreme product-market fit. And we have a precise definition for this. Let me read it to you. So extreme product-market fit is a state of widespread demand for a product that satisfies a critical need and crucially can be delivered repeatably and efficiently to each customer. And so there's three key ideas in there: demand, satisfaction and efficiency. And I think efficiency is worth highlighting because that's what most people would leave out of their definition. You talk about like, "Oh, it's a product, people like it. That's good, that's product-market fit." But if you look, there's products out there. I was a big fan of WeWork, as a customer of WeWork. And I'm a fan of Casper and these other products. Those products managed to achieve customer satisfaction and demand, but they never got the efficiency right, and so the whole business just never worked at scale. And my partner, Brett Berson, at First Round, he gives this example of the $100 vending machine, and I really like this example, which is imagine I built a vending machine and I stuck it in the middle of San Francisco. And you walk up to this vending machine and you put a dollar in and $100 bill comes out. And that's the product. That would have insane demand. There would be a line at that vending machine. I think people would be extremely satisfied. They'd be like, "This is awesome." The retention would be very good. I'm sure they would come back tomorrow. But the whole thing is it's ridiculous. The whole metaphor is ridiculous because it's just not viable to do something like that. And yet you see a lot of startups kind of do this. They're basically with their products, giving away $2 for $1 and it gets them pretty far. But that's not real product-market fit. And so that's one of the reasons that we think efficiency and how you think about the economic model of what you're doing is very important. And then this other aspect that I like, which is we have this concept that we call the marginal customer, and the next incremental customer you're going to get for your company, for your product. And if you have product-market fit, and as you are progressing along this journey, the marginal customer should be getting easier and easier and easier to get, easier to acquire them, easier to give them good service with a good product. And that means your efficiency is increasing along the way and your product-market fit is strengthening. So you've got to have all three of those things: demand, satisfaction, efficiency. But the interesting thing is that you don't go for all three of them at once from the very beginning. strengthening. So you've got to have all three of those things: demand, satisfaction, efficiency. But the interesting thing is that you don't go for all three of them at once from the very beginning. And so product-market fit, it happens in the sequence of levels, it happens over multiple years. And for the best enterprise companies, I would say they tend to reach extreme product-market fit in roughly four to six years. There's some variance, but roughly four to six years. And so we label these four levels. We say level one product-market fit is nascent product-market fit. Level two is developing, level three is strong, and level four is extreme. And that's where you want to get. And along the way, you're trading off these three dimensions: satisfaction, demand, and efficiency because they're intertwined. You could spend a bunch of money on marketing, and that's going to increase your demand, but you're decreasing your efficiency if you do that. You can invest a bunch in efficiency and automating a whole bunch of stuff, but that actually might harm the customer experience and you're reducing satisfaction. So that's an interesting thing, I think, is you're actually making trade-offs at each level and what you should optimize for at each level is different. And so we talk about all these signs, whether you're getting stuck at a given level, how do you get unstuck and how do you progress along this path. Amazing. And we're going to go through each of these. And the idea, as a listener, what I'm thinking is you're probably in one of these buckets. What we're trying to do is help you out of that bucket and help you move further up the ladder to the next level. So just to summarize, I have my notes here. So there's essentially four levels of product-market fit, basically, the strength of product-market fit that you have: nascent, developing, strong, extreme. Yes. Okay. And then you have three dimensions within each of these levels: satisfaction, demand, and efficiency. We're going to talk about what all these mean and how you use these. Let's talk about level one, nascent product-market fit. What does that look like? What do you do when you're there if you're stuck? And what are some examples of companies that felt nascent product-market fit?…

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