Prioritizing Product-Market Fit: Insights from a16z Podcast 

This conversation includes: Jyoti Bansal (@jyotibansalsf): founding CEO of AppDynamics (which was acquired by Cisco for $3.7B the night before it was to IPO) Peter Levine: General partner at Andreessen Horowitz Satish Talluri (@satishtalluri): Investment Partner at Andreessen Horowitz Sonal Chokshi (@smc90): Host of the a16z Podcast

When building a business, the first problem you face is finding product-market fit After that, focus on scaling

Phase 1 of product-market fit is figuring out where your target market is located Tip: Start broad then segment the market Interview different businesses (of all sizes) to get feedback and discover potential customers A good question to ask: Which company has the most pain?

Phase 2 is figuring out the correct sales strategy It’s not just product-market fit that you need, it’s product-market-sales fit! This involves answering the question – “Do we have the right sales strategy (subscription, freemium, one-time purchase, etc) for our product? “

An important point: If you have less than $1 million in ARR (annual recurring revenue) focus on product-market fit If you’re in the $1-10 million range, focus on finding the optimal sales strategy For $10-75 million in APR, focus on scaling your sales organization For $75+ million, focus on releasing product numbers 2, 3, and so on AND developing a sales team for each

And remember – You have to be 10x better if you’re developing a product for a market that already exists

Engineers should be visiting the front lines of the sales team to understand: Who exactly is buying the product? How much are they willing to pay? What features do they most need?

Engineers should also be helping sales teams understand the product

There are two main ways to sell software: Top-down & Bottom-up Top-down: Selling a big license to higher-ups in the company so that several teams can use your software Bottom-up: Selling your software to the end-users (single employees) and then selling licenses once more teams need your product

When selling software, expect to use 10-15% of the purchase price towards services aimed to help the client with adoption and education of the product Although this cuts into your margins, what good is your software if it’s just sitting on the shelf and the client isn’t using it? Also, the more you help your client use your software and provide them with value, the more likely they are to renew their subscription

First, build a product that solves a pain point Then, listen to both customer complaints and customer successes to figure out what’s working with your product and what isn’t – update your product accordingly

Once that’s solved, sales should focus on getting you more customers Next, work on expanding your product and building other features your customers may need

Three questions to ask yourself: 1) What do you need to win more revenue today? 2) What do you need to do to keep customers happy? 3) What do you need to win more revenue 2+ years from now?

Two-thirds of the engineering team should focus on your core product while the remaining third should focus on building new features

When you release a new product, create a new sales team Different products have different markets and require different sales strategies

There are 3 Phases in the sales learning curve: Phase 1 is understanding the first 25 customers In this phase, the product managers sell the product much like the founders sold their very first product Phase 2 is selling to 25-100 customers For phases 2/3, you can start using your existing salesforce Phase 3 is selling to 100+ customers

Salespeople love getting recognition for doing great work – Especially if it comes from upper management or even the CEO

There are two ways to grow your company: Building or Buying Both have their challenges Building a new product may be cheaper but takes more time Buying a smaller company is more expensive but moves the timeline much faster Large companies usually use a combination of these two growth methods

When trying to determine a price for a product, ask yourself: how much value does it provide? You should be able to describe your pricing in half a sentence – don’t make it super complicated The sales team should be able to easily memorize the pricing tiers

Always price higher than you think customers will pay – you can always give customers discounts! As long as there’s value, customers will be happy to spend money Just think – “If our product is really superior, why would we not charge a higher price?”