Stumbling into Product-Market Fit: Lessons from a Startup CEO

Before I even left my last “real job” at Intercom, I already had my very first customer.

At the time, I was still fresh to Silicon Valley and immersed in the ups and downs of startup culture. My value add was Facebook ads consulting, and I was crushing the game.

I’d been talking to my Facebook account manager for a year about the advances that my marketing teams were making, and they were impressed. Facebook was interested in harnessing my ideas, telling me to contact them when I was tired of the “startup life.”

Tired? I was just getting started.

This is the story of how I went launched my AI marketing startup, Lightning AI. In just two years, we went from 3 to 100+ customers, recovered from failure, and stumbled into a perfect product-market fit.

Just a few years ago, I was consumed with startup culture and chasing dreams that were way too big for any corporate job.

After leaving Intercom and turning down a job at Facebook, I got something even better. My Facebook contact started referring clients to me because they knew I had tapped into strategies that worked.

That’s how I got my first two clients right off the bat: stationary bike trendsetter Peloton and a home security company.

Right from the start, I was hooked on entrepreneurship and was ready to scale.

I wanted more customers and a real client acquisition strategy so that I didn’t need to rely on referrals, and I wound up with three clients in two months by using the skills I already had.

If there’s one skill you need to cultivate as an entrepreneur, it’s sales. And I had zero sales skills when I started.

In fact, most aspiring entrepreneurs don’t have sales skills either. Sales ability is not why we start businesses.

Entrepreneurs start businesses because we are natural innovators who create products or systems that are too brilliant to keep secret.

However, I had applied to tons of jobs before. Applying for jobs was something I was good at it, so I leveraged it in a new way.

By applying for full-time roles and then pitching them my consulting service, I found a loophole that worked for me. It’s how I landed my third customer is two months, and they were a big one: Drift.

The importance of product-market fit and my first epic CEO fail

We were running Google AdWords campaigns for Drift for a few months before we convinced them to test Facebook ads for a B2B SaaS company. I had a hunch this would work from my experience advertising to startups at Intercom — and I was right. We had a lower payback period for Facebook ads than Google AdWords branded search.

Powered with our case study and proof that Facebook ads can work for a B2B company, we started working with more. I went to SaaStr in San Francisco and talked to the top sponsors about advertising on Facebook.

My co-founder quit his “day job.”

We got 10 customers and $20k MRR.

I believed Jason Lemkin that this meant we would be successful.

If our 1,000th customer would be just like our 10th, then our customer profile was marketing managers at B2B SaaS companies selling to marketers who had raised at least $2M.

And then something happened.

The Facebook ads for B2B SaaS companies weren’t working. We were generating leads — TONS of leads — but the feedback from our customers was that the leads were terrible quality. They weren’t converting at the same rate, and when they did convert, their deal size was lower.

Bad news all over.

So much churn.

I had three customers fire us — on my birthday.

It was half our revenue. Our seed investment deal fell through. I did not handle it well. Cue long nights, cuddling with my dog, and plenty of red wine.

Breathe.

It took me another three months to realize that it wasn’t my product and it wasn’t me — it was our product-market fit. I had gone all-in on a group that didn’t work out.

If founders are good at one thing, it’s picking ourselves up and trying again

So many decisions at startups are based on intuition. But intuition alone doesn’t work.

What separates “successful” founders from others is realizing when you’re doubling down on a bad bet — and changing that bet as soon as possible.

Looking back, I’m so grateful to my investors because they helped me see that everything in a new business is an experiment. Each potential group of buyers, each product change, each time we make adjustments — these are all tests in the market.

It was time to put down the wine and get back to business.

To revive the business, I got back to doing what I do best: analyzing the data. Our first three customers were still our best success stories, so what did they have in common?

By analyzing our success stories, we figured it out — our business was designed for lifetime value predictions in subscription-based businesses. We needed to find companies that had recurring revenue, could TRACK the recurring revenue from button clicks on their website and who were looking to grow as fast as possible.

After that, it was a whirlwind. More tests. More failures. More churn. More red wine.

We got an engineering team. Joined an accelerator. Found investors who were ready to believe in me because of our journey.

We regrouped and rebuilt.

And we completely changed our product to meet customer needs, going back to a managed service powered by artificial intelligence.

Scaling from startup clients to enterprises and beyond

Once we changed our product, we started to have a ton of success by serving subscription startups. We got traction in this market initially just by leveraging my existing network: friends and colleagues, acquaintances, and LinkedIn connections.

It only took a few companies to say yes for things to take off. Because of our product-market fit, we could serve this business insanely well — and they would refer us like crazy.

Although these businesses are often working with small budgets, we committed to these clients because the service worked. We could get them incredible results, and the referrals kept pouring in. These small businesses will probably always be a core group of customers for us.

Over time, I also got better at sales. By the time we were ready to scale, I was armed with a tried-and-true pitch, sales deck, and a 1-sheet.

The important thing to note is that we leveraged our success with smaller customers to find systems and sales processes that would allow us to scale — and land big clients: enterprises.

By moving up-market, we moved into true enterprise sales. We went to conference after conference, we hosted “executive” dinners, we took our prospects on a helicopter ride to the Grand Canyon. We gave our first mobile app customer an “extended free trial” while they ran tests with us, four other AI companies and pinned us against their internal (read: human) marketing teams.

Then, one of our SDRs cold-called a director of marketing — and he had already heard about us.

I knew we had market fit in the industry before the contracts even came in. The startup was finally a success.

Takeaways for consultants, entrepreneurs and future founders

I know that there’s still a ton more growth in my future — personally and professionally. But I can say that I’ve learned a few hard lessons to share with future founders.

1. Your network is one of your most valuable assets.

I wouldn’t be where I am today without the help of those around me. No matter what your business is, there are likely tons of people in your network who could be the introduction or client that launches your business. Never undervalue the people you already know.

2. It is possible to transition from consulting into true entrepreneurship.

I’ve often heard a myth that consulting one-on-one isn’t scalable. Or at least, that you can’t scale a consulting practice into a full-fledged business with employees and hundreds of customers.

Consulting is a great way to test your ideas and services early — without the overhead or starting a business. By monetizing your expertise, you can start generating revenue and learning from early mistakes before you ever hire someone or invest a single dollar in advertising.

3. Look at the data and get ready to (yes) PIVOT!

One of the smartest things I did throughout this whole process was learning from failure and changing our product based on what we learned.

In other words, we looked at the data and made a pivot. Why did certain strategies or client relationships fail? What about our product wasn’t working? And why were some of our client relationships so good?

If I hadn’t been humble and smart enough to change our product based on those learnings, we wouldn’t be successful.

4. Finally… find your product-market fit.

You could have an amazing product or service. But if you’re not offering it (and tweaking it) for the groups of people who can benefit from it most, you don’t have a successful business.

There are so many different types of people and businesses out there. Given the sheer amount of options, there’s a good chance that someone, somewhere needs your product. You just need to find them.

Hey there, I’m Colette Nataf — CEO of Lightning AI

About halfway through my PhD. studies, I caught founders fever and made a beeline for Silicon Valley. I’ve been here ever since.

My startup, Lightning AI is now serving 300+ clients and rapidly growing (but at a very scalable and strategic rate). 😉

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