Product/market fit in complex markets: an experience from cleantech "Product people - Product managers, product designers, UX designers, UX researchers, Business analysts, developers, makers & entrepreneurs September 09 2016 True Product Development, Product Management Role, Product Planning, Product Roadmap, Mind the Product Mind the Product Ltd 1664 Product Management 6.656

Product/market fit in complex markets: an experience from cleantech

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Getting to product/market fit is “the only thing that matters” to start-ups, according to Netscape co-founder and venture capitalist Marc Andreessen. The principle is that a product should “fit” the needs of a market for the company to scale and be successful.

But how can this be achieved if some signs point towards your firm already having product/market fit, while some point the other way? I want to focus on the time prior to achieving product/market fit, drawing on my own experience in the cleantech space – a fragmented, complex and immature market. I hope my insights are useful to anyone in a complex market or managing a product that has historically been driven by individual customer requests rather than market needs.

When trying to reach product/market fit, many companies focus on the product by adding new features as quickly as possible to satisfy growing customer needs. Features may be built for a given customer or based on a limited understanding of the market. Moreover, incoming customer requests may outpace what the firm has the capacity to build. It can be tempting to push and try to serve as many customers as possible, across a large share of the addressable market. But this may make it more difficult to achieve it product/market fit.

What’s your initial market?

I think a better approach is to grow market share where the firm has fit or can get it quickly. Achieving product/market fit in an initial market can serve as a base to expand into more market segments (and eventually the total addressable market) in the future. Generally speaking, cleantech firms focus on an oversized addressable market, as PayPal founder Peter Thiel pointed out on a James Altucher Show podcast in 2014. Thiel said that many firms in cleantech view the broad market as their initial target, but do not have a product that suits the various needs of such a large, complex space.

Thiel advises start-ups to think of the market as concentric circles, each representing a bigger share on the way to the total addressable market. Focus all efforts on the first circle and win there, then expand into the next segment and then the next while growing the scope of the product to serve each segment. Facebook, for example, started serving students at Harvard before growing to other universities and then opening up to everyone. Along the way, it added new capabilities to the product to satisfy these new market segments.

Companies that don’t focus on an initial market will have a variety of challenges. First, many of the product features may resonate only with specific clients: a collection of features that fit specific personas, not a market. The problem may get worse if these early clients request features that serve their needs, but aren’t aligned with the market. These problems may appear as long sales cycles due to gaps between market needs and product capabilities, marketing resources spent developing a value proposition that tries to direct customers away from the gaps, and customer support resources that over-manage users who are underwhelmed with the product. A recent Chasm Group post noted that one deadly sin is “target customer mix-up” – when the early adopter customer is fundamentally different from the mainstream customer. I would  argue this is especially true in complex, fragmented markets.

 

 

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The total addressable market, broken into concentric circles representing various segments.  

Build out a taxonomy

If your firm is in such a situation, what should you do? From a product point of view, the first step is to build out a taxonomy of the key personas or jobs-to-be-done in the market. Before looking at what the product can do today or what it could do in the future, survey the users in the market, their tasks, and where they have unmet needs. If initial customers, rather than the market have historically directed your firm, this will be an illuminating exercise. Through interviews, research and observing target users, you can collect enough information to place the personas and/or jobs into an initial market, a series of market extensions, or the total addressable market. Within a given persona, or a job-to-be-done, there will be complex and simple use cases, and it is important to track all of them. In cleantech, for example, there are a range of user needs around tracking energy performance in buildings and identifying anomalies. Some are basic and conducted by all building and energy managers (and these fit into the initial market) while others are only conducted by specific industries or building types (and these fit in a market extension). More generally, some users will be completely served by a solution that addresses only what is in your initial market, and these should be your primary initial focus.

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Jobs, organised by market segmentation into a taxonomy.

Once this taxonomy is complete, it can be compared to your existing product. Try to determine how complete your offering is within the initial market and identify gaps that may be keeping some customers and prospects from fully embracing it. If the product is not complete in the initial market, does it solve some of the most painful problems, or do users have other concerns that outweigh the value that your product provides? Additionally, does the product solve problems broadly, or just a few of the simplest possible use cases? Some of these questions can be difficult to answer, especially in complex, fragmented markets. But you may find that your product is just a few features away from providing significant value to the initial market.

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Once the taxonomy has been created, comparing it to current product capabilities will identify product gaps and help determine if product/market fit has been achieved. This product is performing some jobs across a broad market, but is not focused enough to have product/market fit.

An experience in cleantech

I first went through this exercise about five years ago, when I was managing a niche building energy management software product that supported a small set of consulting clients. The goal was to grow this product into a robust software-as-a-service application for a wider market of commercial building operators. The product was first developed for the consultants to automate some tasks and was provided to end users as the business grew. Many features had been developed to support specific clients instead of typical users in the market. For example, one client had a unique data collection process that started before there were other options to acquire this information. Every few months, users could manually enter energy data records and the main office could track the process. This client liked the process and requested product enhancements to improve it. But, across the market, other clients now realised that they could instead capture this data directly from a utility or through a third party, and did not value software that would help manage this same internal collection process. This legacy client was an edge case and my taxonomy made this very clear. Prior to having the taxonomy, the prevailing wisdom was that “there must be other clients who do it this way”. The taxonomy showed that automated data collection fitted into our initial market, because all potential users of this software first needed an efficient way to capture the energy performance data of their buildings.

The taxonomy also showed that the target addressable market – enterprises with energy management needs in building portfolios – was too broad for the feature set. The current offering solved some problems for some users in some parts of the market without having a true focus. There are so many different kinds of buildings and strategies to manage energy and it would take years to support them all. Had we tried, sales cycles during this time would have been tough and new clients being on-boarded would have identified the gaps. Without the taxonomy, it had been hard to identify these gaps: many of the existing clients were satisfied, but their needs were not shared by other users in the market. In short, product/market fit had not been achieved.

Refocusing the product

So we reduced our focus to multi-site building operators with well-instrumented facilities and a staff of energy professionals. The product was refocused on a few specific jobs that these building energy professionals would consistently view as pain points. With the taxonomy, I also knew that additional segments of the market would require many of the features being built for the initial target. For example, building managers that did not have large technical teams also needed to collect data electronically and store it in a single place. But, in addition to the needs of our initial market, they also needed more insight about what to do because they lacked a team to synthesize the information.

By focusing on a smaller initial market, we wanted to gain more market share and provide better solutions for this core set of users. Once the sales and marketing wheels started turning within this smaller initial market, future product development could expand our focus.

One influence for this plan was Geoff Moore’s Crossing the Chasm. His beachhead strategy, in which a firm focuses on a subset of the total addressable market on the way to reaching early majority clients, is quite appropriate. By looking at a limited market, and building a complete product offering, firms can build that beachhead. Our focused development efforts enabled us to build this beachhead, and this solidified an initial market and served as a base to grow into additional market segments.

Focusing first on the market, and building a product plan around its characteristics can be a great strategy for firms seeking to grow in complex and fragmented markets. Moving from feature/persona fit amongst an initial set of customers to a solution that has product/market fit requires a detailed understanding of the various segments within the total addressable market.