The startup landscape is often dominated by an obsession about growth. Many founders believe that rapid expansion is the key to success. However, in the early stages of a startup, and notably at the seed stage, there is a strong argument for founders avoiding an excessive focus on growth. At Outbound, we believe that seed stage founders should find product-market fit (PMF) before growth becomes the driver and focus. Find the customers and refine the product now, grow later. Exponential growth requires a solid foundation. A start-up’s foundation is built and fortified through the process of finding PMF.
Challenging the Seed Stage Growth-First Mentality
Everyone talks about growth. In the startup world, growth often signifies expansion and advancement of a company’s go-to-market (GTM) strategy in reaching new customers. But what are you expanding upon if you have not yet found PMF? Who are your early adopters, and what do they want from your product? At Outbound, we believe that making it a priority to find PMF before focusing on growth contributes to sustainability, increases creativity and mitigates blindspots, and establishes a more solid foundation for future progress. There are numerous arguments to explore why our focus on PMF, instead of an early and overly zealous focus on scale, may be the best strategy.
- Product Focus: Seed stage startups are usually in the early days of designing and building their product. When founders are not overly focused on growth, they can dedicate more time and resources to refining their product, and creating a product that genuinely solves a problem for their early adopter customers. By emphasizing the development of a product that truly solves their customers’ problems, founders can ensure that they have a robust and differentiated offering that can withstand competition in the long run.
- Customer-Centric Approach: In the quest for growth, startups can lose sight of their customers’ needs. Taking a customer-centric approach requires understanding the pain points, preferences, and behaviors of their target audience. By actively listening to customer feedback and engaging in meaningful conversations, startups can build, refine, and tailor their product to meet customer needs. Building a loyal customer base through a customer-centric approach is more valuable than rapid but shallow growth.
- Market Differentiation: Seed stage startups often operate in competitive markets. By resisting the pressure to focus on rapid growth, founders can invest time in market differentiation. This means identifying unique selling points, understanding competitors’ strategies, and finding a niche within the market. By focusing on differentiation, startups can carve out their own space, build a strong brand identity, and attract loyal customers. A well-defined market position is a solid foundation for sustainable growth in the future.
- Building a Strong Foundation: Seed stage is an opportune time to build a strong foundation for the startup. This includes establishing robust operational processes, recruiting the right talent, and fostering a healthy company culture. By emphasizing these foundational elements, founders can create an environment that nurtures innovation, collaboration, and adaptability. A strong foundation sets the stage for long-term success, creating a launchpad for effective scale-up when the time is right.
- Mitigating Risks: Rapid growth can expose startups to a myriad of risks, including financial instability, operational inefficiencies, creating a toxic culture, and an inability to meet customer expectations. By adopting a more measured approach, founders can mitigate these risks and ensure a smoother journey toward sustainable growth. This includes building strong relationships with suppliers, focusing on profitability, and developing scalable processes. Prioritizing risk management sets the stage for a more resilient and successful startup.
What to Focus on Instead of Growth: Experiments to Find PMF
While growth is undoubtedly essential for startups, seed stage founders must resist the temptation to prioritize growth at the expense of everything else. Finding PMF requires patience, rigor, and intentionality. At Outbound, we believe this process begins with defining and measuring customer value, and continues with completing a series of experiments to find, delight, and align customers with your product.
We recommend running four consecutive experiments to find PMF: the market experiment, the product experiment, the GTM experiment, and the pricing experiment.
- The Market Experiment: The objective of the market experiment is to find a strong early adopter customer base. Testing different elements of the market and analyzing customer behaviors will allow founders to gain insights into potential early adopter segments and customer preferences. We recommend that founders initially cast a wide net of potential early adopters and gather feedback in order to hone in on the early adopters that are most committed to your product. At the conclusion of the market experiment, you should have identified the early adopter customer base that receives the most value from your product or platform. Rushing into scaling before validating the market can lead to wasted resources, missed opportunities, and a flawed business model.
- The Product Experiment: The objective of the product experiment is to delight your early adopter customers with a product that meets their needs. This involves continuous development and iteration to ensure that the offering effectively solves the early adopters’ problem. Founders need to invest time in gathering user feedback, conducting usability testing, and analyzing product data outputs to identify areas for improvement. At the conclusion of the product experiment, you should be able to demonstrate that the customer value of your product or platform has increased and is continuing to rise. Rushing to focus on growth too early can distract founders from fully understanding their customers’ needs and sufficiently iterating on their offering.
- The Go-to-Market (GTM) Experiment: The objective of the GTM experiment is to efficiently find customers in the market for your product or platform. This step involves testing different approaches to optimize the effectiveness of reaching and acquiring customers. Design small-scale experiments that can validate specific assumptions related to marketing, messaging, or sales. Founders are bound to iterate and refine their GTM approach based on the small-scale experiments conducted that did not yield desired results. At the conclusion of the GTM experiment, you should be able to demonstrate that customer value has remained steady and you are continuing to meet and exceed the needs of your customers. Rushing into growth before finishing the GTM experiment can result in a suboptimal GTM strategy with inaccurate assumptions, incomplete analysis, missed opportunities, and brand damage.
- The Pricing Experiment: The objective of the pricing experiment is to optimize revenue from your customers, while maintaining the same high level of customer value. Experimenting with pricing involves testing different pricing models, tiers, and strategies to find the optimal approach that maximizes both revenue and customer satisfaction. Experimentation should be done in a controlled and measured manner that balances value perception, customer willingness to pay, and business profitability. At the conclusion of the pricing experiment, you should have found, or be close to finding, PMF as you have a product or platform that meets the needs of your customers at a price point they are willing to pay. Rushing to focus on growth before conducting the pricing experiment can result in a pricing strategy that does not maximize revenue given the value of the product.
While growth is often touted as the ultimate measure of success for startups, seed stage founders should question this conventional wisdom. By prioritizing the PMF experiments listed above, startups are creating a solid foundation for long-term success. Founders should adopt a balanced approach that emphasizes quality, customer satisfaction, and differentiation. By doing so, seed stage startups can position themselves for sustainable growth in the future, avoiding the pitfalls of premature scaling.