I recently re-connected with an up-and-coming venture capital Associate who thanked me for introducing her to the masterworks of Steve Blank and Eric Ries. I told her to check out Sean Ellis’ blog, and mentioned that I’ve learned just as much from Sean.

Later that night, she sent me a note: “Sean Ellis is awesome. Thanks so much.” Let me tell you why Sean is awesome.

First, Sean lead marketing from launch to IPO filing at LogMeIn and Uproar. He later worked with Xobni (Khosla Ventures, First Round Capital), Dropbox (Sequoia Capital), Eventbrite (Sequoia Capital), Grockit (Benchmark Capital), Flexilis (Khosla Ventures), eduFire (Battery Ventures)…  the list goes on. So all of his theory is backed by a wealth of experience across a broad range of startups.

Second, his startup pyramid changed my life and increased my bench press by 75 lbs. This is the best model I’ve seen on how to build a startup. Read it.

Finally, he shares a lot of his knowledge for free on his blog. Here are extracts from a few of his posts. Make sure you click through and read all of them in full. I read his blog from front-to-back when I first discovered it (start with the newer stuff).

When Should a Startup Start Charging?

“I’ve recently changed my long held belief that all startups should charge immediately upon the release of a new product.  I now believe that non-enterprise targeted startups should only charge once you have achieved product/market fit.  As explained in this earlier post, I define product/market fit as at least 40% of your active users saying they would be “very disappointed” if they could no longer use your product…

“For startups targeting enterprises, it actually does make sense to charge before reaching product/market fit.  This is the best way to help the enterprise figure out how to get value from your product (somebody on the inside will be motivated to work with you to unlock value since they’ve already spent the budget).  If you haven’t charged anything, your attempts to engage the customer and find value are likely to be perceived as an aggressive sales annoyance rather than genuinely helpful…

“Startups often delay implementing a business model claiming “we’re focused on growth right now.” But once you’ve achieved product/market fit, most startups will grow faster with a business model (I wrote a post on this earlier).  A business model gives you rational constraints within which you can execute very aggressively – otherwise you are held back by fear that you may be wasting money on paid marketing programs.”

The Startup Pyramid:

“Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it…

“I’ve tried to make the concept less abstract by offering a specific metric for determining product/market fit. I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product. Admittedly this threshold is a bit arbitrary, but I defined it after comparing results across nearly 50 startups. Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%. Of course progressing beyond “early traction” requires that these users represent a large enough target market to build an interesting business…

“If you haven’t reached product/market fit yet it is critical to keep your burn low and focus all resources on improving the percentage of users that say they would be very disappointed without your product. Avoid bringing in VPs of Marketing and Sales to try to solve the problem. They will only add to your burn and likely won’t be any better than you at solving the problem. Instead, you (the founders) should engage existing and target users to learn how to make your product a “must have.” Sometimes it is as simple as highlighting a more compelling attribute of your product – but often it requires significant product revisions or possibly even hitting the restart button on your vision.”

To Pay Or Not To Pay To Acquire Users?

“I recently heard a VC say that startups “should spend the least amount of money possible on marketing.”  This is a healthier attitude than the opposite prescription of undisciplined land grab, but a better approach is pure ROI marketing.  Marketing opportunities that offer a fast payback with additional profit margin are a key component for reaching your startup’s full market potential…

“If your growth is accelerating, you will attract competition.  And this competition will likely be savvy enough to replicate the customer acquisition and monetization approaches that you worked hard to invent.  So it is important to make it as difficult as possible for them to get traction.  I know some of you are saying “but your recent post told us to ignore the competition.”  My point was not to ignore the competition forever, simply to ignore them while you are figuring out a repeatable, positive ROI way to acquire customers. Competition (especially those that are spending irrationally) will distract you from this critical task.

“But once you have optimized the first user experience and introduced a business model that generates sufficient revenue to fund user acquisition, it’s time to focus your marketing efforts to aggressively build new customer acquisition channels and scaling existing channels – both free and paid.”

I am a fan. And so can you.

Topics Customer Development · Resources

10 comments · Show

  • Teemu Kurppa

    Great stuff, thanks for bringing Sean to my radar.

    As we are on the topic, are there other interesting thinkers writing about achieving product/market fit (under different terminology perhaps) besides Andreesen, Blank, Ries and Graham that I’ve missed?

  • Kyle

    Hmm, it might be just me, but Sean’s start-up pyramid appears to be missing something, I like to call it: “HAVING A GOOD PRODUCT”.

  • Nivi

    That’s the first level of the pyramid. Read his post on the pyramid.

  • Mike Biostat

    How can you quantify product/market fit? For example, how do you know when your product or service has a product/market fit of 40%?

  • Nivi

    Ask your users how disappointed they would be if they could no longer use the product. Read Sean Ellis’ post on the startup pyramid and he explains how.

  • Kyle

    I did read it. “If you haven’t reached product/market fit yet it is critical to keep your burn low and focus all resources on improving the percentage of users that say they would be very disappointed without your product.”

    This is in no way addresses my point. The idea of ‘Fit’ insists that some manner of tweaking or molding could produce a viable product. This is very often not the case, most product ideas are not viable in the market for reasons beyond ‘fit’, they are just not good products (think cuil vs google), or products that cannot compete, or products for which the market is not large enough etc. The majority of the time the game is already lost (or with the possibility of a win) before this pyramid is even relevant.

    • Nivi

      The pyramid gives you metrics to measure fit at the first stage, i.e. “having a good product”. For suggestions on how to iterate your way to fit, I recommend Eric Ries’ blog; for example, see his post on pivoting.

  • David Langer

    Nivi, have you come across anyone who you think comes close to ‘sultan’ status in the UK (or anywhere in Europe)?

    Also, Sean’s pyramid changed the way I think about marketing too. But can you explain how it added 75lbs to your bench? :)