Gary Schwartz: The Series A funding round is a major milestone in the life of a B2B startup. It’s the point at which the company has demonstrated its ability to sell its product into its addressable market, and the founders and investors expect this milestone to drive the initial scale of the business, building a strong go to market team. But has the company clearly established its product market fit?

Is it ready to scale, or is the majority of ARR, annual recurring revenue, delivered by founder-led sales?

As a long time B2B SaaS go-to-market leader, I’m often approached by recruiters, investors, and principals of early stage startups to explore the possibility of becoming their first marketing leader.

In order to understand the stage they’re really in, on our first call, I ask the CEO two questions. Do you have product market fit? Have you successfully sold to customers who were not already known to the founders or the investors?

The answer to the first question is inevitably yes. To the second, after a short pause, it’s often no.

When I learned that sales are largely founder-led, I cannot assume that the company has clearly established product market fit.

My guest today is Elana Anderson, former Chief Marketing Officer of cybersecurity vendor Veracode and e-commerce vendor Demandware, among others. Elana is a product savvy strategic marketing leader who established the marketing practice at Forrester Research. There’s little that Elana hasn’t achieved in her career, and today she’s advising early stage startups, largely in the area where most fail establishing product market fit.

2:19

Gary: Elana, I am so glad you’re joining me in this podcast discussion today. Please tell our viewers a bit about yourself and what you’re up to these days.

Elana Anderson: Gary, so nice to be with you today, my friend. Thank you for including me in this podcast.

So what, who am I? I have been a CMO, a chief product officer with a number of software companies over the years. I have been acquired by IBM. I’ve been acquired by Salesforce. I’ve been acquired by private equity. So safe to say it, I’ve been around the block a few times. I’m also a former Forrester analyst. I started the marketing practice at Forrester many years ago. So again, lots of diverse experiences.

These days I am enjoying myself immensely. I’m consulting as an advisor to startups, a number of startups, and sitting on a number of advisory boards and on a couple of corporate boards, and I am just having so much fun working with different companies.

Lots of different experiences. And, hopefully I can add some value to your viewers here today.

3:28

Gary: Well, one thing you’re known for, in my experience with you, is adding value. So I’m certain you’re going to be doing that today Elana.

So James Earl Jones famously told Kevin Costner, “if you build it, they will come.” Is that your experience with the early stage companies that you’ve worked with?

Elana: Great baseball movie. I would say only if you’re extremely lucky.

Gary: It’s interesting because according to CB insights, 42% of companies fail because of poor product market fit. That’s nearly half of all startups. Why? Why does that happen and why does it persist?

4:08

Elana: Yeah, I think that’s a great statistic. And, this may be a familiar story to you and to others out there. You know, a startup may start out very opportunistic.

You take a seed of an idea; you find a customer who asks you to build ABC or 123. Then you get another customer and they ask you to build DEF, and then another customer asks you to build GHI. I’m getting confused on my alphabet here. And by the time you get all the way down to XYZ, you have a product that is bloated.

It doesn’t scale. You know, maybe I’m being a little bit overdramatic, but I think you might get the point. What I’m saying, and maybe you’ve been in that, you know, in that situation before.

When you’re a young company and you’re trying to get bookings, it’s hard to be disciplined and you really want to focus on getting every customer that you can get.

And It’s easier to say yes than to say no. And it’s hard to decide what you’re not going to do. So honestly, I think that relentless focus is one of the top three keys to success for a young startup. It’s important also, of course, to recognize when something’s not working and you need to learn from that and adapt.

But focusing, focusing, focusing and understanding what you’re going to be good at, what you’re going to do that nobody else can do better, and focusing there, and learning how to say no, is one of the most critical things that a new startup can do. 

Gary: Yeah, I can totally echo that. I’ve been in companies that tried to be everything to everybody.

And the challenge when you do that is you end up being nothing to nobody, because without that focus, you can’t excel at those things that are really the key of why you started the thing in the first place.

So what are the right steps? What’s the correct order to develop a product that’s going to defy that data from CB insights?

6:06

Elana: So you always start with a vision and a hypothesis. I like to use the word hypothesis of what is the problem you’re solving and for whom. That for whom is so critical. The next step is to get out there into the marketplace and talk to talk to people. So identifying that problem and identifying the for whom both from the perspective of what type of company you’re, you’re, you’re focusing in on and who are the key buyer and user personas with the problem that you’re focused on solving.

So it’s important to get out there, talk to people, ask the questions, validate the vision. And ideally you’re doing this before you’ve even built anything. Maybe you’ve got some drawings or some documentation or Figma prototypes or something like that. But the point is, having those conversations to validate your hypothesis and adapt it as it makes sense to do so before you’ve spent tons of money, you know, in the words of James Earl Jones, building it and hoping they’ll come.

07:11

Gary: It’s really about being customer obsessed. Right? Because nobody cares what your product does, right? They care what it does for them.

But you raised an interesting point, which is understanding who your target audience is. And I think I heard you say ICP and personas. To me, I’ve done work in that area as well. We’ve done another podcast episode talking about that and what always – the question that comes to my mind is, which comes first? Is it a chicken and egg? Is it product market fit? Then your ICP and personas? What’s the right way to think about all that, Elana? 

Elana: I don’t think that you, again, I’ll use the word hypothesis. I think you have to have an understanding of the problem you’re working to solve and who you’re trying to solve it for, you know? So I’ll repeat that.

And then you go out in search of companies and individuals within those companies who meet that hypothesis and you test it and then you and then you potentially tweak it. I find that most startups that I work with these days, they tend to think about who their buyers are, you know, who their key for, who their buyer and key user personas are.

But many of them just stop there. And so that’s where the ICP or the ideal customer profile comes in. You know, you might think your company is a fit for, your product is it fit for any company

That’s a pretty broad, you know, market place to tackle. So identifying what size company are you going after, how many employees you know, if it’s a technical product, does the number of developers that they have on staff matter?

If it’s a marketing product, what’s their marketing ad spend? So it’s figuring out these factors so that you can whittle down your audience to your target to a sort of manageable segment. Go learn about them, validate your ideas, and then adapt as it makes sense to do so.

9:16

Elana: I was at an event last week and heard a whole bunch of startup pitches, actually, and they’re being trained pretty well these days.

A lot of them were in Boston, so a lot of them were out of Harvard or MIT, and they’re all talking about who their ideal customer is. And even if it’s a horizontal product, you know, sitting in, for example, any specific industry, and because everybody thinks they’re unique startups, you know, start in a specific industry, learn what their unique pain points are, and then once you’ve sort of understood the basics, maybe it then makes sense to move to the next, vertical market.

Again, it’s a way of simplifying the problem, so that you’re not trying to be all things to everyone.

10:00

Gary: Okay, so let’s say we go through that process, right? We’ve done our customer work, we’ve tested, we’ve tweaked. We think we know our ICP. When do you start scaling that? When is the right time? Because most companies that I’ve seen have founder-led sales, and then they achieve a certain run rate and think, now we’re ready to hire that sales team and build that marketing team.

How does this fit into that to help that company ensure that it’s going to have success? 

Elana: I think once you start getting to critical mass. So, I’ll say two things. One, I think that you’re all every company of any size and scale is always doing some form of product market testing. Right? So if you’re a very large company and you’re moving into new geographies or if you’re introducing new products, there is some aspect of product market fit that you’re always continuing to do.

If you’re a brand new startup, you know, similarly, you’re establishing your product market fit for your product. So when is the right time to, you know, move on? You know, I’m going to say it depends a little bit too, because there’s a research phase. So I’m working with a startup right now. It’s in the ad tech space.

And we identified a target ICP, ideal customer profile. And we started first in the technology vertical market. And we did a whole bunch of interviews to establish, you know, to understand, where are we solving a pain? What was the value? Is there budget, you know, all these things. What was the killer feature for our desired audience?

So we did that. And now we’re started. We identified three top industries, and we’re sort of methodically going through each one, as we build out our go to market plan. So, that is one example of how you move from one to the next. 

But another one, is, as you know, as I’m actually selling my new product and I start to get critical mass, when is the right time to start to scale to adjacent, adjacent, adjacent ICP, I guess I could say?

12:14

Which might be an adjacent vertical market and so forth. And the reason I use that term, adjacency, it’s much easier to start to broaden yourself out to new customers, to broaden your ICP, to start to encompass new customers who look a lot like your existing ones, then take a complete right turn, you know, and do something totally different.

So it’s always sort of building on that core and starting to get into adjacencies rather than going, you know, completely in a different direction. And that concept again, applies whether you’re a tiny company or whether you’re a much larger company that’s growing by acquisition, and so forth. It’s always important to sort of understand what are the adjacent markets, you know, that I might enter and test those, test the waters in those markets by doing your homework, your research.

13:10

Gary: Yeah, that’s really interesting. I mean, you and I both worked together in an organization that was growing by acquisition and growing and expanding beyond the space that it had led for so many years. And that really forced a rethink of the ICP for that company. Right. Even who the buying personas were. And that was a company that was already PE backed.

So this applies not only to startups, but can apply at any stage in the company’s journey. 

Elana: Absolutely. 100%. Yep. 

Gary: How does geography fit into that? Have you ever seen thoughts about does product market fit depend on geography at all?

Elana: it can certainly. And again if you’re going to, if you’re a U.S. based company and you want to expand into European markets, in certain market segments there may be a different culture or approach to buying or messaging.

You know, it’d be the same messaging in the US doesn’t work, you know, necessarily the same in Germany, right?

So I think when I think about establishing product market fit, I think very broadly there’s the product and there’s what features am I building into the product?

There’s the message. And how am I messaging and what messaging resonates? There’s establishing that, you know, using product market fit research to establish that as well. So I think as you’re preparing to move into a new geography or a new customer segment, doing that research so that you understand how the buyers are thinking, where they see the value, where the budget sits, all of these things, is important both to building the product and to establishing the go to market.

15:01

Elana: I was working with a customer of mine recently, in the past year, and it was interesting that I was brought in to sort of assess their go to market program.

Despite the fact that this company had a well documented on paper anyway, ICP, their go to market behavior, their motion was completely different in the US and and in Europe, the marketing team had done a pretty good job doing the research that I just talked about. They saw the markets as pretty similar, at least in the geographies where they were focused.

Yet the teams on the ground doing the execution were executing in a completely opposite way from one another. One team had a sort of classic enterprise sales motion, and the other team was being very transactionally focused. So despite having the right documentation, etc. in place, it turned out that one of the go to market executives was new to the business.

And as I sort of drilled down to understand why things were happening a certain way, it turned out that really the only reason that they were executing differently was because of the background of that executive, of the two executives in charge. So what I would say, so while the marketing team and the product team had sort of done their product market research and established that ICP, it was not being driven, teams were not executing that way.

So to me, that was going up the chain and trying to understand why. And so I think another lesson learned for companies is that understanding who your customer, who your target customer is, who your target personas are, that drives your go to market motion as well as driving your product roadmap and so forth. 

And you need to have alignment on that from the top of the organization down.

And if you don’t, that can lead to execution issues that hurt the business basically, which is what was happening in this case.

17:16

Gary: I mean, it’s really interesting because what you’re in effect saying is you can’t separate the establishment of your product market fit from the establishment, understanding of your ICP and personas. They’re all like part parcel of one another.

And critical to getting you that focus and getting you to that executional success. 

Elana: I think that’s right. In order to establish product market fit, you need to know who is your customer. And that’s the ICP. And within the company, who are the key individuals or personas that you’re targeting.

17:50

Gary: Awesome. So share with me and our viewers where have you seen this most successfully done?

Elana: I think nobody’s perfect for sure, but where I’ve seen it most successfully done, again, it’s not considered a marketing initiative or a product team initiative that it’s the the, the CEO and the leadership team of the company understand what is what is the target customer, what is an ICP and who are our key personas.

And then that company really lives and breathes that way. Back when I was at Forrester, we went through a process where we shifted our focus to specific roles, and that role-based focus was driven by the executive team and pushed down through every single research team. So we lived and breathed the personas that our research was focused on.

So maybe that’s a cop out when I say an analyst firm was doing the best at eating its dog food. But, I think that was a good example. But the point is, it’s really driven from the top of the organization and embraced by all functions of the company.

Gary: I think that’s a key point, because I think you’re right.

Whether it’s culture, whether it’s process, whether it’s how the company breathes that all is driven top down. And to me, it’s that alignment amongst the investors, the CEO, the executive team. That’s what’s crucial. And driving that through to the entire company. So to, you know, using your words, everybody’s eating from the same dog food bowl?

All right Elana, thank you. At this point in the episode, I get to put you on the spot, and I ask my guests for three key takeaways. 

So what are three best practices that our viewers should take away from today’s discussion? 

20:09

Elana: Well, hopefully, I’m going to summarize what I’ve already shared. 

Number one, I’d say focus, focus, focus define a very clear problem that you’re focused on solving. Who you’re solving it for, both in terms of the type of company as well as the key buyer and user personas. And then go test that test, test, test. It’s so important not to just sell to anyone. We may feel good to land that initial sale, but down the line, recognize that it’s not easy to fire customers, down the road, when it’s clear that it’s not possible to meet diverse needs of a very diverse customer base. 

So that’s one. 

Two, test, learn and adapt. So focus doesn’t mean that you can’t change. The point is, do it purposefully and adapt based on what you learned. If the killer problem that you’re focused on solving doesn’t resonate, but you hear you learn something a little different moment and that’s where you adapt.

if you’re not hitting, if your products are not hitting at the size of the company, you know, you thought you were targeting, try to understand why that is and maybe you adapt. Maybe you give up a little market. Maybe you go down market. That’s test, learn, adapt. 

And then number three, maybe more tactical, but emphasize learning versus selling.

If your objective is to establish your product market fit and really do the learning that I’m talking about, then turn down the sales meter for a bit. I spent the day yesterday actually with the startup CEO, and he admitted that he had DocuSign and disease. So getting the signature, in other words, and my coaching to him because we are at, his company is at a stage where they’re trying to understand product market fit.

So you don’t have to get the next meeting with everybody. You know, if in talking to this prospect and trying to learn whether your product is a fit for them, the value that you get from that is the learning, more so than getting them to sign the contract with you. So I think that was an interesting lesson for a startup CEO.

So those are my three things. 

22:20

Gary: That’s really interesting. And one that kind of really hit me is when you talked about making sure that you have that focus and you’re talking about it’s not a it’s not great to fire customers and it’s not easy. And it’s even more than that. Right. 

Because if you have to fire a customer because you shouldn’t have signed them in the first place because they weren’t in your focus area, well, then a few years down the line, you got to replace the ARR.

It causes more problems than just the problem with that particular customer. It can hamper growth for the business. If you have too many of those, it creates big, big problems. 

Elana: Yeah, that was the first example I gave of building ABC then you know, etc. etc. every customer has their own perception of the value that you’re delivering to them.

That’s dangerous because it’s hard to serve and it’s hard to serve all of those different customers effectively if they each think that they’re getting a different, unique value from you.

23:33

Gary: Unless you have infinite development resources

Elana: Which nobody does. 

Gary: Wow, that is awesome. I gotta say, Elana, thank you so much. I learn something new every time I talk to you. So, today is no different.

I just want to say thanks to all the viewers for staying with us on today’s podcast and want to remind you to be sure to like, comment, share this episode of what great looks like here and on your social media and be sure to hit the subscribe button to the podcast on the YouTube channel.

Set your notifications so you’ll stay up to date with future episodes. And with that, Elana Anderson. Thank you again so much. And until the next episode, everybody. 

Elana: Thank you.