finding first tracks

Good morning Predictable Revenue community,

I sat down with a newsletter subscriber, I’ll call him Greg because he asked to remain anonymous, when he was in one of the hardest yet most fun parts of his startup journey. He had found his first 30 customers and was trying to decide if he should stay focused on improving the product or switch his focus to revenue. Greg runs an edtech platform, they’re 18 months into the journey, raised $1m, and kept the team small. Their best customers are middle schools that have adapted a dedicated weekly block for reteaching math.

Here’s the tl;dr:

• Greg is looking for ‘first tracks’ that will lead him to product market fit

• There are four different types of first tracks I’ve used, product usage, referrals, customer sentiment, and feedback

• You’re ready to move to revenue when you reach the Saul Goodman line (all “good” scores for each of the first track types)

Here’s the full post:

My first thought was to use the product market fit funnel as a measurement but their pipeline was just getting started and the funnel showed the obvious, they aren’t there yet. It answered Greg’s question but it didn’t help him understand what to look for, other than more deal volume. While I was thinking about our conversation, I listened to an episode of Invest Like the Best with Boyd Varty talking about the art of tracking. As I listened, I couldn’t help but think of Greg’s situation. He was pursuing something interesting, he hadn’t found the trail yet, and needed to find the signs that there might be a track here. Boyd talked about finding the first tracks that you need to string together in order to find the trail. When you’re first learning to track, you don’t know what the first tracks looks like because you don’t know the characteristics of the terrain. Eventually, you train yourself to see the path forward, developing what he calls track awareness. Something clicked for me, Greg didn’t need advice on how to follow the path, he needed something to help him find the track. He was looking for first tracks.

Finding product-market fit isn't a straightforward path. Everyone’s route to the path will look different but the first tracks, the signals that there’s something exciting just up ahead, will be similar. Here are three sets of first tracks I’ve used in the past:

Product usage
Good = everyone who’s paying for it is still using it
Great = Net-negative churn - any revenue contraction covered and more by expansion from current accounts
Bad = >20% annual churn

Referrals
Good = any number of referrals to customers that close
Great = 10% of active customers have sent at least one referral
Could Be Bad* = no referrals

*Could be bad because some industries & customer segments just aren’t conducive to referrals.

Customer Sentiment, or the “how would you feel if this product didn’t exist anymore” question
Great = Very disappointed
Good = Somewhat disappointed
Bad = Not disappointed (it isn’t really that useful)
Real Bad = N/A – I no longer use the product

All Great’s are not created equally. The Customer Sentiment “Great” is a bit soft because it is the most subjective of the three and therefore the easiest to trick yourself with. In my experience, when customers say they are happy but aren’t buying more or sending referrals, it’s a sign they aren’t happy and don’t want to share their feedback. In those situations, I had earned their lack of trust by demonstrating that all I cared about was our vision and not their pain. I needed to build trust by showing vulnerability and demonstrating that I was receptive to feedback before I could get them to open up with their real feedback.

Feedback quality is a fourth gauge you can use but it’s even more subjective than customer sentiment. When I’m building something new, I like to have weekly check-ins with all of my customers, moving to monthly when we cross over the 10 mark. I have three priorities in these meetings, to ensure everyone is able to use the product, build our relationship by providing any coaching they might need, and get feedback on what parts of our product need to be improved. The first two goals ensure that the customer is able to use and get value out of the product and the last one tells me how they’re really feeling about our product. It’s actually the timescale of the feedback that tells me the most.

Great = feedback and product ideas that could help them build this into their workflow
Good = feedback on bugs that are driving them crazy right now
Bad = no feedback or ideas for things that are not aligned with your vision/roadmap.

Feedback on bugs sounds bad but it’s a sign that they care enough about your solution that they are mad that it doesn’t work better. You definitely have work to do but your users care and that’s the most important thing. No feedback or misaligned feedback is an indication that your users either don’t care or don’t want to solve the problem in the same way you do. It might be bad or it could be a miscommunication, either way, it’s valuable to understand why. Feedback on things you could do in the future or things that they would need to integrate your product more deeply into their process are the best kinds of feedback. They show that your customer has accepted your product into their life and are thinking long-term about your relationship.

When you’re collecting feedback, don’t forget about your customer development question framework. Most importantly, “how important is this to you” and “how satisfied with how your currently solving it”, the combination of the two will help you sort and prioritize feedback. It’s also good to follow up their feedback with additional questions to help you understand the impact it will have on them. Sometimes the feedback will be for small quality of life improvements but some feedback can open up entire new markets for you that you haven’t seen.

So, what should Greg do?

Let’s get the obvious scenarios out of the way first. If everything is Great, he should focus on revenue. If everything is Bad, he should focus on improving the product. The minimum bar to switch focus from Product to Revenue reminds me of Breaking Bad’s character Saul Goodman - a riff on “it’s all good man”. While he could switch his focus at this stage, focusing on Product until he has at least one Great under his belt will make everything easier when they switch to Revenue. So, if you’re sitting on the Saul Goodman line ask yourself: Do you want to shift to Revenue now, even though it may be harder to find customers? Or can you afford to be patient and invest in finding something Great?

Any advice for Greg that I missed? If you have something for him that you’d like to share, I’d be happy to pass it along.

Collin

PS - here’s a link to the Invest Like the Best episode I mentioned above

PPS - I’m going to test out running ‘free ads’ in my PS for the next few weeks. They’re free because nobody’s paying me to do so. My goal is to highlight a subscriber from this community that might need a little boost. My initial focus is going to be on companies under $1m that might have something that could help the community. If you’re interested, send me a little about your team, product, and why you could use a boost.

PPPS - here’s the first ‘free ad’ - Speedsense is a web performance service that helps companies increase revenue by decreasing their websites load times. Check out how they helped Arc’teryx here. If you talk to Shawn, tell him Collin says hello.