What Comes First, The Customer Or The Product?

A common reason startups fail is lack of product-market fit. But, what comes first, the product or the customer?⁠

1.31.22
Article by
Egan Montgomery

The deck is stacked against new companies, with 90 percent of startups destined to fail. Why? The number one reason cited by founders post-mortem is a lack of product-market fit. If product-market fit is the number one killer of new startups, then it seems startup founders should prioritize finding product-market fit above all else.

Speed to product-market fit matters. While 90 percent of startups may fail in the long run, a staggering 30 percent of startups fail by the end of only the second year according to the  Business Employment Dynamics report by the Bureau of Labor. The clock is ticking, and unfortunately, most startups do not move fast enough. 

A common reason startups fail to achieve product-market fit before funding dries up is evident in the relationship between product development and go-to-market. Commonly a founder will come up with an idea for a business, then spend months building a product, then go to market in an attempt to acquire customers.

In this case, the pressure to be “right” (i.e. build something the market wants on the first try) is high, and the cost of being wrong is higher. Failure to build something that the market wants likely causes re-work, technical debt, opportunity cost, and negatively impacts team morale. Fortunately, there is a better way.

A Shift in Mindset: Think Customer First

Imagine a founder shows up on their very first day of work. Rather than prioritizing the development of a product, what if they first prioritize acquiring a customer? In this case, the selling motion is admittedly non-traditional. Rather than schlepping a slick demo and a cadre of customer case studies, a founder sells a vision and a ticket to jump on board. The value is not immediate alleviation of an acute business problem but instead a chance to help shape the future of their industry. 

Building with a small group of passionate customers will radically increase speed to product-market fit. But product-market fit is not the only notable benefit of a customer first, then product mindset. Founders who embrace this idea will iterate more quickly and accurately on messaging, customer acquisition, sales effectiveness, hiring, and the list goes on. 

The ultimate advantage of starting with the customer is a compression of time. All things are happening in parallel rather than a series of long development cycles followed by bouts of attempted customer acquisition. Instead of guessing, founders have the answers to the proverbial test, shared by a small group of highly qualified and energized customers.

How to Sell Without a Product

As Director of Go-to-Market at High Alpha, I have consulted with more than 30 software companies, many from the very beginning of their life. So, believe me when I say that I know acquiring customers without a product to sell is easier said than done. It’s hard. Really hard. But there are a number of strategies that will help. 

Legendary technology builder and investor Paul Graham recently said on Twitter, “When you first start a startup, you don't need to get the word out. You need to get the word *in*. You do not, in the very beginning, need the whole world to know about it. What you need is to find the initial group of early adopters, which you can probably find among your peers.” Paul’s observation is consistent with what we see. More often than not, the initial customer group will come from the founder’s network. And the value is created in clever ways, through scarcity, influence, and community.

Activating Founding Customers

Some founders are successful in selling pre-product customers but fail to activate these customers in a useful way. Once the hard work of selling is complete, it is important to lean into this group as a strategic asset. Servicing them and delivering value as you would with a normal customer is important, but it is not enough. If sold under proper expectations, founding customers should not only understand they have an outsized role in growing the business, but they will be excited about it. 

Transparency is key. Few things about the product or go-to-market motion should be off-limits to put in front of a founding customer. I have seen founders elicit feedback using messy notes written on a napkin, work-in-progress pricing spreadsheets, or even by inviting a founding customer to an internal roadmapping meeting. Do not worry about looking polished or presenting only finalized options. In fact, the less polished, the better. That way, these customers will feel like they are genuinely helping to shape the business.

Think Customer First

Recruiting a select group of founding customers before building a product is one of the most effective ways to accelerate product-market fit. Bear in mind that it is important to focus on paying customers, not just a group of advisors. Advisors can be useful for a number of different reasons, but there is nothing more valuable than a customer with financial skin in the game and a renewal on the line. Though hard, it is possible to acquire customers without a product, but only when it is prioritized. Think customer first to build faster and smarter. 

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