Every start-up is looking for growth; growth is the essence of start-ups. When your start-up is growing, you can pay salaries & invoices; attract investors; plan for the future. But growing is not enough; you must grow fast enough to reach the ambitious goals you set in your business plan.
Growth at all costs
For start-up founders, growth quickly becomes the prime goal, the one to rule them all:
A new prospect in the pipeline that brings a new use-case: let’s take his money! We’ll discover later the debt that comes with it!
A prospect asks for a new feature to close the deal: let’s develop it! We’ll probably find other opportunities to pay for it!
A competitor is going to an expensive event: let’s ensure we have a booth and a speaking slot! There is certainly a lot of potential customers there!
A pipeline that is not populated enough: let’s produce more content and buy more advertising space! Then, we’ll undoubtedly get more leads!
In a nutshell, let’s burn a lot of cash!
Here comes friction
Sometimes throwing money at accelerating growth doesn’t work so well. For example, your sales team signs new customers, but your pipeline is never filled enough. As a result, your quarterly revenue becomes uncertain.
In that situation, you can either:
Ask for more money from your investors, promising more growth.
Try to understand why it is so hard to grow faster.
Because you’re growing (even if not as fast as you should), you can still convince investors to re-invest. After all, you were able to attract customers, and you just need more time to grow your sales team or wait for the market to mature. The tipping point is close, isn’t it?
But the reality is that there is too much friction in your sales process. There can be many reasons for that; we will focus on the Product-Market Fit (PMF) for now.
Hammer the market vs. nail your PMF
Because of this friction, you need more money and more time to grow. It means that you’ll try to hammer your offer into the market.
You need a lot of VC rounds to power that hammer and generate growth.
I think that a good measure of friction is the ratio between revenue and total funding amount.
In my last company, we had a competitor founded simultaneously; they raised 12x more equity than we did to generate 2x our revenue. So you could conclude we were 6x more efficient at using our capital, but you could also conclude their sales friction was higher (indeed, they faced strong headwinds when they landed on the US market).
It may work eventually if the friction is bearable. However, when the friction is too high, you are at risk of exhausting your investors and your team.
Take care of your fingers!
Wouldn’t it be easier if you could find a market with no friction?
The only way to do it is to nail your PMF.
What about ICP?
There are two kinds of PMF:
the one creating friction
the frictionless/scalable one.
As we have discussed, in the first one, you have customers, and you grow, so there is a kind of PMF, but growing fast is complicated because of friction. A common source of friction is the misalignment between your Unique Selling Proposition (USP) and your Ideal Customer Profile (ICP).
When you create a product, you try hard to define how differentiated it will be, compared to existing or competing products: your USP. Most founders I know first define the pain point they want to resolve, then the USP that will differentiate their product. Knowing who they will sell it to usually comes next.
It may take time to find the right customer for your product—their job title, revenue, where they hang, what they read, etc. When you find customers, hurray, you have hit the PMF stage!
The problem with this approach is that you never defined who you wanted to sell to when you created your USP. Consequently, your customers are not the best possible customers; they are the ones your sales team could convince.
Can you learn something from those customers? Is the process repeatable? Can your marketing team define the right messages for this diverse set of customers? Do you know if your pricing is right? The answer is probably no.
Thinking you’ve hit the PMF stage if you didn’t define your ICP first is self-delusion.
In my last company, we were selling an enterprise SaaS to large companies. After pivoting, we probably sold our product to 100+ customers, but when I thought about the customers that were matching 100% of the ideal profile for our USP, I counted only a handful! After realizing that, we were able to become more efficient.
The real PMF comes when you’ve defined your ICP and your USP and when your ICP customers need the value your USP brings to them.
You’ve hit scalable PMF when there is full alignment between your ICP (the nail) and your USP (the hammer). Your ICP customers share a common pain point that your USP is resolving.
When this happens:
Your product, marketing, and sales team are aligned
You quickly gain knowledge of those ICP customers characteristics, including how to best sell them your USP
Your sales cycle shortens
Your sales process becomes repeatable (and teachable)
Your references and logos are compelling
You can deploy globally within a short period
Hammer the nail in one stroke! Close your deals in one meeting!
A goal you can achieve if you are intense about finding the perfect USP for your ICP customers. It’s a journey, not just one brainstorm at the beginning of the start-up.
Removing friction and finding the perfect USP should be a weekly call until you reach the best possible (aka scalable) PMF.
USP - ICP Alignment
Complete alignment between USP and ICP is a prerequisite to scalable PMF. Another way to say it: your product should be a must-have, not a nice-to-have (a lot of friction there).
There are two ways to align USP and ICP:
You start by defining your ICP and then search for your USP (“sales” approach)
You start by defining your USP and then search for your ICP (“engineer” approach).
Some founders try to resolve a problem or frustration they personally faced. They are their own ICP. So they create a product with the relevant USP. In this case, the question is: are there enough people like me to create a market? Think Uber early days.
Deep tech innovators have a USP but don’t know if there is a market. Probably they will need a lot of funding to find out. Think Tesla early days.
Overlook USP-ICP alignment at your risks!
In a nutshell, not spending enough time finding perfect alignment between your USP and your ICP will generate a lot of friction in your organization and your business (and require more funding). In my opinion, it is an excellent investment to plan for a diligent assessment of where you are and how you can improve.