Starting Your Business: From Idea to Product-Market Fit

Introduction

Business and entrepreneurship, in my opinion, can be divided into 2 parts:

Pre product-market fit. I call this the “art” side of business.
Post product-market fit. I call this the “science” side of business.

Pre product-market fit is the “art” side of business. You’re unprofitable, validating your idea, testing the market, improving your solution and pivoting your business often. The phase where you’re constantly experimenting and everything is trial-and-error.

Post product-market fit is the “science” side of business. You’re profitable, have loyal customers, a proven solution, expanding your business and searching for your next growth driver. The phase where you’re making consistent progress toward a clear vision.

The former is unclear on the “what” but clear on the “how.”
The latter is clear on the “what” but unclear on the “how.”

Both phases are simple and straightforward but require consistent effort. They’re simple, but not easy.

In this guide I discuss the “how” to grow an idea to a sustainable, profitable business (aka post product-market fit) with some examples of “what” you can do.

This is the do-it-yourself (DIY) guide I wish I had when I started.

I included a self-assessment and self-coaching section to accelerate your transition from idea to sustainable, profitable business, without requiring my (or any coach’s) help.

But if you get stuck at any point and would like some assistance, I’d love to help. Helping you build your life around your passion and living a fulfilling life is what I live for.

And once you’ve found product-market fit, you can benefit from my Growing Your Business guide. This focuses on the “science” side of business and helps you identify the easiest growth path for your profitable business.

I wish you a happy, fulfilling and successful life,

Jim

Business 101

Some core principles of what “doing business” means. I wrote this as a reminder to myself. I hope you find it useful too.

The essence of a sustainable business

Get prospects or leads into your business
Convert them to paying clients
Delight them so they return

The mindset of a sustainable business

Put clients’ need ahead of your own
Offer a benefit or advantage so powerful it’ll be irrational for them to choose anyone other than you. Caveat: it must be an outcome they desire.
Eliminate as much risk for the client as possible. Make it easier to say yes than no.

Increasing the success rate of a new business

Set up the business like you don’t need the money and it’ll likely come your way
- You’re doing it out of love/obsession and in service of others
- Care about your customers more than about yourself and you’ll do well
Start simple: teach somebody something this week
- Find someone who will pay to learn something, meet him anywhere, and begin
Focus on existing customers, thrill them and they’ll tell everyone
- “How can I best help you now?”
Ideas are a multiplier of execution
Do a premortem:
- “If this company were to fail, why would it have happened?”
- “What would have to be true for this to be a huge success?”

When do you have product-market fit

My rule of thumb: 10+ recurring clients with positive cash flow.

Assessments

Business stages – what to focus on

Idea – Is this worth pursuing? What is my unfair advantage?
Validation – Talking with customers
Pre product-market fit – Iterate, iterate, iterate based on market signals. Niche down.
Post product-market fit (have paying clients, but unprofitable) – Focus on distribution and margins.
Profitable and want to scale – Improve marketing.
$1 mln annual revenue and up – Expansion of the market and business model to scale exponentially.

Simple assessment

Before thinking of improving your business, you should be able to answer these 5 questions.

My industry is…
Our client is…
We sell them…
We market by…
My biggest issue/untapped opportunity is…

Thorough assessment

I use the below checklist with my own and clients’ businesses that have reached post product-market fit. Any business before that stage should only focus on reaching product-market fit.

For those businesses that have, the below list gives a good overview of the business’ state and a “quick and dirty” way to find areas of improvement.

I use this once or twice a year for businesses in stages 4 and 5 and monthly or quarterly for businesses in stage 6. The larger the business, the more frequent you want to run through this.

Vision
What the company does
Who the company serves
USP (Unique Selling Proposition) – what’s special about you that the client values?
Market size
Competitors
Present situation (last year + Year-To-Date) – read my Business KPIs and Financials guide if any of this is new to you
1. Financials
  1. Revenue
  2. Net profit
  3. Cost of goods sold
  4. Expenses
    1. Gross margin
    2. Net margin
2. KPI
  1. Number of customers
  2. LTV (Lifetime Value)
  3. Churn (or retention) rate
    1. If not, the number of new customers
  4. CAC (Customer Acquisition Cost)
  5. Referral rate
  6. Marketing
    1. Total spend
    2. Total impressions
    3. Conversion rate each step in the funnel
    4. CPM (Cost per 1000 impressions)
    5. CPA / CPC (Cost Per Action / Cost Per Click)
3. Marketing and sales
  1. Acquisition channels
    1. Which acquisition channels are used? (see Marketing/Distribution channels below)
    2. What is the strongest acquisition channel?
    3. How are leads generated?
    4. What are the lead magnets?
    5. Is there a CRM software in place? (Does it make sense to have one?)
  2. The offer (a simple scorecard to start with)
    1. Have a clear avatar? – who it’s for and who it’s not for
    2. Clear articulation of their struggles, desires and objections?
    3. Clear solution?
    4. Benefits of using the solution (educating) & illustrating their future situation (future-pacing)?
    5. Testimonials & proof?
    6. Pricing options? (Stick to 3 or fewer)
    7. Any guarantees? (risk-reversal)
    8. Clear CTA (call-to-action)?
    9. Any bonuses? Is the “value” of those bonuses clearly mentioned?
  3. Retention and engagement channels
    1. Engagement: Which channels are used to engage with clients and prospects?
    2. Retention: Which owned channels are used to communicate with existing or past clients?
    3. Referral: How many referral systems are being run?
    4. Referral: Are clients treated like extended family and asked to refer their loved ones?
4. Product, pricing and business model
  1. Value equation – dream outcome x likelihood / time delay x effort and sacrifice
    1. Which of these levers can most easily be improved?
    2. To what extent do we focus on improving [time delay] or [effort and sacrifice] over [dream outcome] or [likelihood]?
  2. Any pre-sell, post-sell, up-sell, down-sell, cross-sell options?
5. Staff
  1. How many staff in total and how many FTEs?
  2. What does each staff member do?
  3. Are automation and outsourcing being maximized?
  4. Any joint ventures?
Biggest opportunity and struggle
1. What is the biggest opportunity to pursue? (more than 1? Reduce the list to 1 opportunity. Focus.)
2. Why was this not pursued before?
3. What has changed to make its pursuit worthwhile now?
4. What would have to be true for this to be a huge success?
5. If this company were to fail, why would it have happened?
6. Are all resources dedicated to capitalizing on the biggest opportunity and addressing the biggest weakness? If not, which changes need to be made?

Pre product-market fit

Stage 1a – Ideation

In my Monetizing Your Passion guide I list many ways to come up with a viable business idea. If you’re searching for one, read that, then come back.

Before I talk with (potential) customers and validate my idea, I like to do 2 quick checks:

The solution test
The personal test

I use the solution test to understand my market, if it makes business sense to pursue this idea and be able to explain (i.e. sell) my idea.

The Solution Test

Product
1. What problem do I solve?
2. What is the desired outcome / lifestyle? (read this)
3. So what?
4. Objections?
Market
1. Who is my customer?
2. Can I write 1 or more paragraphs describing this customer? (how he/she thinks, what he/she wants, what he/she does, what life he/she wants, what he/she spend his/her time on) – This serves as a starting point; the ideal customer likely changes based on feedback
Distribution
1. Where does this customer hang out?
2. How do I best reach this customer?
3. What if I couldn’t pitch my product directly?
4. What’s the least crowded channel? (and benefit from attention arbitrage)
Offer – what is the irresistible offer?
Competition
1. What do existing solutions look like?
2. Why does my customer not use that?
3. Is this a fuzzy or transparent market? (fuzzy is better; more difficult for competition)
4. How high is the effort barrier? How much effort is required to start/replicate what I’m about to do?
5. Is this a small pond or a giant lake? How attractive is this for deep pockets? (small pond is better to start; attracts less competition)

This test can be done in an hour. At most I’d spend a day on this. Any more than that indicates to me that I understand too little of this market (i.e. it requires too much studying). I may continue to study this market in my spare time but I’ll put the idea on-hold for now.

If I’m able to answer most – if not all – of these questions to my liking, I’ll do the personal test.

Stage 1b – Why me

The personal test looks at product-founder fit. In other words: why me?

There are thousands, if not millions, of ideas to pursue. Saying yes to one means saying no to everything else (for the time being). The opportunity cost is high.

One idea may have huge market potential but this means nothing if I cannot capitalize on it because I lack the knowledge, skills, relationships or other required resources.

It’s better to pursue ideas with moderate market potential that suit you greatly than ideas with great market potential that suit you poorly. Success rate matters.

Below are questions I think everyone should ask themselves before pursuing an idea.

The Personal Test

Relevance – Am I solving a problem I personally care about?
Circle of competence
1. Can I do/ship this within 1 month?
  1. If not, simplify, reduce scope, partner or skip?
2. Do I understand this?
3. Does this come easy to me?
Uniqueness
1. Why me?
2. What is my unfair advantage?
3. Which arbitrage opportunity is uniquely available to me?
Success
1. What does success look like?
  1. What is my “good outcome”?
  2. What is my “f*ck yeah outcome”?
2. Anti-goals: what do I not want?
3. Working backwards: how might I get there? (some simple back of the envelope math)
4. Success driver:
  1. What would have to be true for this to be a huge success?
  2. What is this idea’s most important success driver?
Premortem – If this were to fail, what could have caused this?
Fail forward
1. Does this give me more skills or relationships, relative to other options, even if it fails?
2. Does this have a greater serendipity surface area (i.e. invite more luck), relative to other options?
Risk reduction
1. Is there a potential for destruction? (if yes, skip)
2. How can I minimize my downside in case of failure?
3. Can I acquire or partner with a proven idea?
4. Who can I partner with to mitigate my risk or to cover my weaknesses?
Asymmetry
1. Does the upside vastly outweigh the downside?
2. How can I further increase my favourable asymmetry?
3. Does this asymmetry compare favourably to my other options, including doing nothing?
Leverage
1. Which asset can I leverage to 10x the value or scope?
2. Which asset can I leverage to do this in 1/10 the time?
Simplify – What would this look like if it were simple?
Momentum – What can I do/create in the next hour?

Like the solution test, this shouldn’t take more than an hour and can be done on the same day.

At the end of the day you should know if the idea is worth pursuing considering its market potential and your circumstances, and you should have done something to build momentum.

Stage 2 – Validation

In my Monetizing Your Passion guide I list many ways to validate your business idea. If you’re in need of validation techniques, check that guide, then come back here.

The simplified version: talk with (potential) customers for 1 day ~ 1 week. Everything else is a distraction. If in doubt about “how to talk with customers,” Rob Fitzpatrick wrote a great book outlining which questions to ask, why to ask them and in which order to ask them. Highly recommended.

Stage 3 – Iteration

We’ve reached the heart of the “art” side of business. We’re pursuing a worthwhile, somewhat validated idea. What’s left is finding product-market fit.

How to spend your time is very straightforward.

The 3 Iteration Pillars to product-market fit

45% innovation – build the solution
45% marketing – talk with customers
10% serendipity – document your journey publicly

Read any startup book, watch any entrepreneurship video, listen to any founder interview, join any startup programme – everything boils down to the above 3 things. (I just saved you a ton of time and/or money.)

What to do is simple, but not easy.

The more difficult question to answer is: how long should I pursue an idea? Said differently: when should I give up on an idea?

There is no right or wrong answer to this. Product-market fit comes quick to some, slow to others, and never to still others. Everything depends on your persistence and patience.

Your skill and experience play a role. Market timing plays a role. Luck plays a role. There are many factors contributing to finding product-market fit and the speed at which you can do so.

That said, a general rule-of-thumb: pursue an idea for 1~3 months.

That should give you enough time to judge if there’s any traction – if the market signals you’re getting closer.

For nearly all products or services, you can produce an MVP (minimum viable product) in anywhere from 1 hour to 1 month, talk with customers throughout and after the building process and iterate from there. Niche/double down based on customer feedback and market signals.

Note: when “talking with customers” focus on falsifying, not validating, your hypotheses. Customers are fickle and data can be misconstrued or misinterpreted. Falsification (aka the scientific method) is more robust and accelerates your progress as you don’t pursue seemingly potential but ultimately fruitless paths.

If after 1~3 months it doesn’t seem like you’re getting any closer (no committed or paid customers), it’s probably better to put this idea on-hold and move on to something else. The opportunity cost increases the longer you work on this idea.

But, again, the decision is ultimately yours. There is no right or wrong.

Remember that most ideas never find product-market fit. And even of the ones that do and become proper startup businesses…most of those fail too. Business is hard. Even something as simple as “timing” can cause failure.

Business is hard…but (can be) extremely rewarding. Financially, fulfilment, personal development, a sense of purpose for yourself and great value and contributions to society. I hope you at least consider the option.

Summary

The 3 Iteration Pillars: talk with customers, improve your solution and document your journey publicly. Until you have product-market fit, everything else is a waste of time.

When do you have product-market fit?

My rule of thumb: 10+ recurring clients with positive cash flow.

Tips to accelerate the iteration process

1 avatar, 1 product, 1 distribution channel
2 marketing channels: 1 that attracts eyeballs, 1 that engages interested
Personify your avatar: write to 1 “person”
When in doubt, focus on your bottleneck:
- Your solution works? Focus on marketing.
- Customers lined up? Focus on innovation.

Useful to know

Getting to product-market fit

My idea-to-product-market-fit process summarized (1~3 months total):

Ideate (1 day max)
Quick research and validation (1 week max)
Produce an MVP (minimum viable product)
Launch / beta test your MVP and talk to customers
- Test using tools you already know or assets you already own
- Test and falsify hypotheses
Iterate & grow

Another process I like that’s slightly different is Pieter Levels’ MAKE model:

Idea
Build
Launch
Grow
Monetize
Automate
Exit

Pieter focuses on solopreneurs, individuals or indie hackers creating software/tech products but I think his process can be applied to any kind of product or service.

It doesn’t differ from the process I explained above much but makes for an interesting read and alternative to what I’ve written.

Client acquisition made simple

The simplest way to get (more) clients is through partnerships and joint ventures.

Ask yourself: who has the trust of my market?

If you offer a non-competitive product or service, your solution offers the other party a new income stream and way to add value to their clients – without any additional effort from their side.

Many are open to the idea of joint ventures or partnerships. I tend to give 50~100% of the first purchase revenue to the party I partner with. If it’s a subscription (i.e. recurring revenue) I usually give anywhere from 1~3 months worth of revenue upfront. This depends on my margins and the customers’ LTV (lifetime value), of course.

That said, exploring partnerships makes sense when you’ve proven your idea works. Otherwise, the risk (of losing trust) can be high for the other party and, subsequently, for you. Reputation damage is real. Focus on validating your concept before taking it system- or nation-wide.

Remember: proven concept > conjecture and speculation.

Finding partners

Everyone who’s already selling something to your avatar.
Everyone who’s already got access to or the trust of your avatar.
Anyone who used to work there (in the case of B2B).
Search on LinkedIn for anyone who services the same avatar.

Marketing and distribution channels

All marketing and distribution channels can be broken down into the below categories.

When starting out, pick the one that best suits you and your circumstances. When expanding, pick the next best option. Focus on becoming great in that channel before adding another one. Each channel can work.

Referrals
Partners and affiliates
Outbound (identifying your Dream 100 clients is useful for this channel)
1. Direct mail with a simple offer (to qualify the prospect and make use of commitment bias)
2. Telemarketing
3. Door-to-door
Attention
1. Paid media (ads) -> focus on arbitrage opportunities
2. Earned media (socials, 3rd party media) -> focus on attention arbitrage
3. Market education: trade shows, speaking engagements, education-based marketing
Engagement
1. Owned media (email, SMS, podcast, written material) -> used to engage, retain and convert clients. Use another channel to “acquire” clients.

Monetization and business models

All business models can be boiled down to the below categories.

When starting out, pick the one that best suits you and your circumstances.

When expanding, you have the option to offer a different product/service using the same business model or to offer the same product/service with a different business model.

(Note: A different product/service with a different business model is an option too, but only makes sense for larger businesses with expertise and excess resources.)

Service

Any service business makes 2 choices:

Fulfilment
1. DIY (Do-It-Yourself – teaching)
2. DWY (Done-With-You – coaching or consulting)
3. DFY (Done-For-You – agencies)
Size
1. 1-to-1
2. Group or mastermind (1-to-many)
3. Community (many-to-many, participation of clients)
4. Subscription (recurring, longer-term 1-to-1)

Product

A product business has 3 types of products to sell:

Physical
Digital

Software (SaaS, website, plugin or extension)
Product (ebook, checklist, etc)
Course

Media and content

Barter, middleman and triangulation

In this case you sell/offer others’ products or services or trade your time/expertise for someone else’s. This business model is great for those just starting out as it does not require any capital.

Self-coaching

Regular

Pick a frequency you can stick with.

Daily
- What went well?
- What didn’t go well?
- What and how can I improve tomorrow?
Weekly
- Energy & Effectiveness Matrix
  - What gives me/drains my energy?
  - What improved/did not improve my life, business or outcomes?
- Bottleneck removal
  - What can I easily eliminate?
  - What can I automate?
  - What can I delegate or outsource?
Monthly
- What resonated most? Double down on that.

Want a more advanced system (with step-by-step explanation and how I use it)? Then you’ll enjoy my (premium) The Self-Improvement System.

When stuck

Reaffirm your vision and desired outcome
Celebrate your biggest win
Energy & Effectiveness Matrix
Bottleneck removal
- What can I easily eliminate?
- What can I automate?
- What can I delegate or outsource?
New ideas: “what am I willing to stop doing in order to do this?”
- If none, move idea to “to-avoid” list. Focus accelerates progress.
KPIs. (Read my Business KPIs and Financials guide to identify the best KPIs for your business.)

Breakthrough by learning from others

Who has done what I’m trying to do? What can I replicate/improve? How did they face adversity? Can I get closer to them? Proximity accelerates growth.
What convinced me to buy [insert product]? Figure out what compelled you.

The next step: where to go from here

If you enjoyed this guide, then you’ll probably love my weekly newsletter. It’s totally free and I share easy, practical steps to accelerate your personal growth and build a life around your passion.

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I don’t have it all figured out but I learn, self-experiment and do my best to walk the slow march toward greatness with you.

Jim Bouman