First Round Capital’s Post

Sneak peek of our new framework here!

Product Market Fit is arguably the single most important topic in startups, and to my knowledge, this is maybe the most thorough+insightful piece of writing published on the topic since Steve Blank almost 20 years ago. Most importantly, really getting crisp on: -what the levels of product market fit are -what the signs are at each level -what to focus on to move from one level to the next If you’re in the early stages of building a b2b startup, you have some nascent signs of pull…check this out

"But your method isn't scientific at all...!" No, it's not. I work with B2B SaaS startups, which means we're pretty much always low on data. We hardly ever A/B test, and user behavior data comprises a couple of 1000 users at best. Most of my decisions (which are reversible, btw!) are based on the qualitative insights from 5-20 people. Scientific? No. But you develop a feel for what's worthy of exploring. Come at me for this one, but I feel like 𝘤𝘳𝘦𝘢𝘵𝘪𝘷𝘪𝘵𝘺 and 𝘨𝘶𝘵-𝘧𝘦𝘦𝘭𝘪𝘯𝘨 are two sides of the same coin. If science would lead us to the only right answer in a straight line, we'd all be building the exact same product (which would inadvertently make it the wrong answer...)

Finding product-market fit is a wild journey that every venture company goes on. This is a great read, with examples that may feel like they were taken straight out of some of your meetings!

During our initial VC pitches, we only had 2 companies in our competitor slide. We had no TAM slide. We still don’t have one (I think TAM is a useless early stage metric). What we knew is that our competitors were massive companies, about 3 decades old on an average, doing 2-3B ARR. They were built on data as a moat as opposed to software. They were not AI first and relied on old infrastructure. They were not developer friendly or enterprise grade in terms of ease of use and integration. The vision of NextBillion.ai was to just address these points and win market share. Rest of it was all noise. So the obvious investor questions were - TAM is small so what do you guys think? Why are only 2 companies in your space? - What is your moat? Both can make their offerings free tomorrow and you’ll be out of business. According to me these are the two of the most asked yet irrelevant questions In the early stages. Before PMF, neither do you have a moat nor do you have a sense of TAM. Most founders don’t even know if their vision has feet. But what you as a early stage company have is execution speed, ability to launch quick, fail quick and rebuild quick. You also have a deep understanding of one small area or issue enterprises have from your own experience. Moats form over years of hard work and brand building but what you have initially is the ear of your early customers and the ability to iterate rapidly. In our own case, we wanted to chip away at just 1% of this share. Which is still a substantial 20m ARR. How many companies can even get there? So the next time investors ask you about defensibility and moats before 10M ARR, point them to your problem statement, incremental innovation, gap in the market and your ability to take this vision to reality instead of showing research reports and graphs of the size of market. You have to first figure out a way to chip away at 1-5% of a large market. Piece by piece, rather than try and eat a whole elephant at once. Just remember, there is no tech, big tech cannot build in-house. During my Google days, we had a go/ideas page that literally had every idea engineers had built and dogfooded right from 10 minute delivery, Uber to Robinhood. But not everything can be a company on it's own. #founders #saas #ai #funding

The most interesting part of Lenny Rachitsky's recent interview with Todd Jackson of First Round Capital was the tension over whether founders will "feel it" when they've hit product market fit. For decades, VCs have been saying that founders will just know it when they have PMF, but Lenny introduced example after example of successful founders who worried that their latest customer was the last customer very late into their founder journey. Even the founders of Retool and Databricks felt this. They landed on the boring conclusion that maybe the best founders are just paranoid they never have PMF. Here's a more interesting explanation for this change in founder intuition: After decades of venture capital, software is getting commoditized, and founders have to work harder to gain new customers than they previously did. There's lots of talk about how #LLMs will raise the bar for UX in software, but increasing software competition will be the bigger bar-raiser long-term. Here's a concrete prediction on how the bar will get raised: users will become increasingly intolerant of impersonal/spammy product marketing attempts. Ending a post like this one by pointing out that ATLAS helps companies collect product data for personalized onboarding email marketing campaigns won't be tolerated 😉

Software MVPs have become so easy to build that pace of execution is the top differentiator. Many products at 5m ARR are 2-week builds around capable AI models, which got that far through phenomenal hustle. Tech differentiators on landing pages and pitch decks are mostly prose over substance, because even if you trained something from scratch, it only wins you a few months. Investors and customers can't always tell the difference, and customers certainly won't notice it in the 0-1 adoption journey. So your seed round has come down to how legit the engineers were prior to the startup, or how insanely the GTM hustles. After that comes the chasm. Historically spanning 5m to 10m, now it's probably at 8m-18m after inflation and a bigger software market of trigger-happy buyers. Crossing it boils down to the primitives you used in your software build and whether it actually works far better than the other ankle biters. If it's only 20% better, the deal cycles lengthen, hustle slows, and the magic is gone. Around June next year we'll learned who crossed it and what their actual differentiators were. Source OpenView's benchmarks from this week.

At Work-Bench, we like to get into the nitty-gritty tactics that fuel startup success. That's why we created our ongoing (virtual) Work-Bench Enterprise Masterclass Series. 🗓 𝐌𝐚𝐫𝐤 𝐲𝐨𝐮𝐫 𝐜𝐚𝐥𝐞𝐧𝐝𝐚𝐫 𝐟𝐨𝐫 𝐉𝐮𝐧𝐞 18𝐭𝐡! 𝐎𝐮𝐫 𝐧𝐞𝐱𝐭 𝐭𝐨𝐩𝐢𝐜 𝐢𝐬 "𝐇𝐨𝐰 𝐭𝐨 𝐏𝐫𝐢𝐜𝐞 𝐘𝐨𝐮𝐫 𝐏𝐫𝐨𝐝𝐮𝐜𝐭 𝐚𝐭 𝐒𝐞𝐞𝐝 (𝐢𝐧𝐜𝐥𝐮𝐝𝐢𝐧𝐠 𝐚𝐥𝐥 𝐭𝐡𝐞 𝐩𝐫𝐨𝐯𝐞𝐧 𝐡𝐚𝐜𝐤𝐬 𝐭𝐨 𝐠𝐞𝐭 𝐢𝐭 𝐫𝐢𝐠𝐡𝐭)." 🤑 Rob Bailey, repeat founder and GTM advisor in the AI space and previous COO & GTM at Kustomer (acquired by Facebook for $1B), will tell all when it comes to how Seed founders should price their product. While it can often feel like guesswork, Rob’s proven framework transforms it into a strategic, data-driven process. He’ll break down real-world pricing examples and share invaluable lessons learned. Don’t miss this chance to sharpen your pricing strategy and gain a competitive edge. Sign up now! 👇 https://lnkd.in/e8h_VnFW

Big news: We’re opening up applications for the next cohort of PMF Method, in a brand-new format. It’s the same high-impact content and support for super early founders building B2B sales-led companies, now delivered in a 4-day intensive retreat. When we launched PMF Method this spring, we saw tons of demand, with thousands of applications for just a handful of spots. We put together an *incredible* cohort (with early founders coming from companies like Stripe, Retool, Twitter & Vanta), which just recently wrapped up. While the depth and intensity of the 14-week program was great, in the application process we heard from many founders who were eager to accelerate their progress but couldn't commit to a months-long experience — or make the temporary move out to San Francisco. With 𝗣𝗠𝗙 𝗠𝗲𝘁𝗵𝗼𝗱 𝗥𝗲𝘁𝗿𝗲𝗮𝘁, we've turned what iconic enterprise founders did in their first six months of company building into a condensed series of tactical sessions for taking a straighter path to PMF, on topics like "𝘏𝘰𝘸 𝘥𝘰 𝘐 𝘬𝘯𝘰𝘸 𝘪𝘧 𝘐'𝘮 𝘵𝘢𝘳𝘨𝘦𝘵𝘪𝘯𝘨 𝘵𝘩𝘦 𝘳𝘪𝘨𝘩𝘵 𝘣𝘶𝘺𝘦𝘳?" and "𝘐𝘴 𝘵𝘩𝘪𝘴 𝘢𝘤𝘵𝘶𝘢𝘭𝘭𝘺 𝘢 𝘨𝘰𝘰𝘥 𝘮𝘢𝘳𝘬𝘦𝘵 𝘵𝘰 𝘣𝘦 𝘣𝘶𝘪𝘭𝘥𝘪𝘯𝘨 𝘪𝘯?” — the questions founders desperately need to work out the answers to in the early days. It's the perfect fit for founders who want to accelerate their progress — but 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗴𝗲𝘁 𝗯𝗮𝗰𝗸 𝘁𝗼 𝗯𝘂𝗶𝗹𝗱𝗶𝗻𝗴 𝗔𝗦𝗔𝗣. What I’m maybe most excited about is that 𝘄𝗲'𝗿𝗲 𝗼𝗽𝗲𝗻𝗶𝗻𝗴 𝗶𝘁 𝘂𝗽 𝘁𝗼 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀 𝗳𝗿𝗼𝗺 𝗮𝗹𝗹 𝗮𝗿𝗼𝘂𝗻𝗱 𝘁𝗵𝗲 𝘄𝗼𝗿𝗹𝗱 — as long as you've raised <$2M and can make it to Sonoma for the retreat, you’re in the running. 𝗛𝗲𝗿𝗲 𝗮𝗿𝗲 𝗮 𝗳𝗲𝘄 𝗸𝗲𝘆 𝗱𝗮𝘁𝗲𝘀 𝗮𝗻𝗱 𝗱𝗲𝘁𝗮𝗶𝗹𝘀 👇 - The Fall 2024 PMF Method Retreat runs 10/27 - 10/30. - Application deadline is 11:59 PDT Sept. 23rd. - Any early founder working on a new B2B SaaS company is welcome to apply, whether you’ve been working on an early idea for the past year, or you’re still at your day job, a few months away from leaving to start your company.  - PMF Method is 100% free. It costs you $0 and we own 0% of your company. - If you’re in, you’ll know by October 6th. Check out the links below for more details. Can’t wait to read the applications!

One of the biggest mistakes I made during my startup journey was that I underestimated the market size 😅 . And this is a similar mistake other successful founders made (even #Google), and they later surprise with the market size and the pain strength. During my trip in #LA, I met key customers in media, tech industry and academics. And a significant part of them immediately brought up their credit card and registered. Founders understand how hard this behavior is. And they introduced others, even their competitors 😎 If people love a product, they propose other use cases and make an intro. Right, I underestimated the market, it is a good news 🚀 #ModelEvaluation #Market #Founders