5 steps to consulting your way to Product Market Fit (PMF)

I came across the term “consult your way to Product Market Fit (PMF)” in 2015 (but I can’t seem to find any reference to it since then).

I use the term to explain how a Business-to-Business (B2B) Software-as-a-Service (SaaS) startup can:

(1) identify a common problem that has specific needs;

(2) that a large number of companies suffer from; and

(3) and an affordable solution can be provided.

This puts the B2B SaaS startup in a position to productise the ‘service’ they have been delivering and create recurring revenues through the deployment of cloud-based software solutions instead of people.

In this article, I have outlined below:

  • why you should consult your way to PMF;
  • provided publicly listed B2B SaaS startups who have successfully consulted their way to PMF (at varying levels of maturity to tangibly show what the stages look like);
  • the 5 steps to consult your to PMF; and
  • my experience helping companies execute on this strategy and the benefits.

The aim is to provide a blueprint/framework for founders already building a B2B SaaS company (and are in a bit of a sticky situation) and those who have not yet started. I have helped and seen startups at various stages of their maturity successfully adopt this philosophy.

Why you should consult your way to PMF?

Problem first, technology second.

By no means am I saying that product/technology doesn’t matter. But what I am saying is that you need to study the end game before anything else (as Peter Thiel espouses in Zero to One).

Consulting your way to PMF allows your to know (as best you can) the end game at the start.

Common > Large > Affordable

You need to identify a common problem that has specific needs that a large number of companies suffer from, which an affordable solution can be provided.

By consulting your way to PMF:

Product (common problem) = you do not end up with a broken-product roadmap (because your customer’s/target’s requirements are similar and specific);

Marketing (large group) = the marketing team can produce high quality leads for sales (because they know the exact pain-points for the large underserved audience, the features that relate to those specific needs and how to communicate them); and

Sales (affordable solution) = the sales team can achieve high levels of productivity and execution (because the product is affordable and delivers huge ROI/value for customers meaning they can easily reference case study, happy clients and validate the benefits delivered through the ROI).

Product > Marketing > Sales

Product, marketing and sales need to align for the business to be successful. So starting with problem first ensures alignment across business units.

I have provided a few examples of successful B2B SaaS startups (below) that have consulted their way to PMF (at various stage, from AUD60m in ARR to being on the cusp of starting to generate ARR).

You will see from these examples how focusing on a common problem with specific needs helps product development, a large audience who suffer have specific needs helps marketing and how understanding the ROI/value the product generates for customers helps sales.

The purpose of providing these examples is to tangibly demonstrate how this aligns product, marketing and sales.

Also, I have used publicly listed examples so you can go and dig deeper if you like.

Following the examples, I outline the 5 step to consult your way to PMF.

Please bear in mind that I am not saying that if you build a product without doing this that you won’t be successful, but what I am saying is that statistically you have almost no chance of this happening. However, most people start companies in this way.

This approach actually lends itself extremely well to adopting a Product Led Growth (PLG) Go-To-Market (GTM) Strategy.

What are some publicly listed examples of B2B SaaS companies consulting their way to PMF?

I’ve provided some examples below where Founders have consulted their way to PMF by identifying a common problem with specific needs, that a large number of companies suffer from and they can afford to pay to solve it.

LiveTiles (ASX:LVT)

Kyle Redenbach and Peter Nguyen-Brown were the Co-founders of nSynergy Group, which is a global technology (IT) consulting and services business.

It is a Microsoft-centric Cloud business focusing on Office365 implementation with offices in Melbourne, Sydney, Shanghai, New York and London.

While at nSynergy, Kyle and Peter built a prototype product inside the company, which was called LiveTiles, because they saw a huge problem in the intranet space during their consulting days, so they productised their knowledge into software.

After selling their intranet/IT consulting business nSynergy Group to Rhipe Limited (ASX:RHP) for AUD25m in 2014, Kyle and Peter stripped out the LiveTiles prototype from the deal and began focusing on it solely in 2015.

LiveTiles listed on the Australian Stock Exchange under the ticker symbol LVT (ASX:LVT) in 2015.

LiveTiles is an intelligent workplace intranet platform for Microsoft Sharepoint, Azure and Office365. With its smart design, boost productivity in no time.

In March 2020, LiveTiles made it into the Australian Financial Review’s (AFR) Fast 100 companies list. It was ranked fifth, achieving 110 per cent growth in the prior 12 months and had Annual Recurring Revenues (ARR) of AUD55.2m.

intelliHR (ASX:IHR)

This business came out of Rob Bromage’s (Founder & CEO) consulting business building predictive models for employee attrition and retention, but businesses didn’t have any data. They were only doing a meeting once a year with their employees, so Rob had to build the data capture tools for businesses to be able to map and understand what performance actually looked like and identify what this meant for this clients, which tracked and provided analytics capabilities for his clients (businesses). Eventually this became a simple software application, which has now become IntelliHR.

IntelliHR now looks after all core people data, compliance data and manages performance and wraps it all up in an analytics solution and provides SME and Enterprise with a full suite a human capital analytics, essentially being the data scientists and HR analysts for customers.

In September 2020, IHR has AUD2.3m in Annual Recurring Revenue (ARR) and has secured a AUD25.m investment from one of the most successful successful technology entrepreneurs, Bevan Slattery.

IHR was a global business from day one, as a result of solving a common and large problem that is affordable for business to solve because it delivers such a high Return on Investment (ROI) for customers.

In August 2020, intelliHR reported AUD2.3m in ARR and a target trajectory to consecutively triple, triple, double, double and double their ARR from AUD 2m to AUD144m (2, 6, 18, 36, 72, 144).

Opyl (ASX:OPL)

This is an interesting example, because at the time of writing Opyl have not yet productised any of their business lines but they have a number of prototype SaaS products. They are currently consulting their way to PMF.

Michelle Callaghan started Social Science, a consulting business, that helps healthcare companies with social media marketing. Michelle saw an opportunity to use AI to solve problems in recruitment for clinical trials and to predict the success of clinical trials. She realised that no one was using social media data to understand health problems in people across the world to recruit them into a potential clinical trial for the health problems them suffer from. As it stands, healthcare companies recruit based on information in health record, but a majority of peoples health issues increasingly resides on social media.

In late 2019, Social Sciences was acquired by a listed company called ShareRoot and Michelle was made the CEO. The company name was changed to Opyl.

Opyl currently generates non-recurring revenue from its services, but has developed 2 AI based SaaS prototypes (1) for recruitment for clinical trials (from months to days) and (2) to predict the success of clinical trials (with a statistically significant predictability) .

It is still early days for Opyl but Michelle has found a common problem for healthcare companies with specific needs, in a large addressable market worth billions and a potential solution that has a massive RoI for healthcare companies running clinical trials for new products.

How to consult your way to finding a common problem suffered by a large number of companies that they can afford

Here are the 5 steps to consulting your way to PMF: (with a detailed breakdown of each further below)

  1. An insight that leads you in a certain direction, a trend you see or a theme that is emerging

2. Common problem where needs are similar and specific

3. Large group of similar companies

4. Affordable solution to the problem

5. Deploy Proof of Concepts (PoC)/Minimum Viable Products (MVP) or a Managed Service Offering

  1. An insight that leads you in a certain direction, a trend you see or a theme that is emerging

Before going any further, its important to remember that in order to consult your way to PMF, you need to consult (this should be obvious). You need to generate non-recurring revenue by providing a service to solve a problem.

By definition this means you need to a have directional insight, see a trend or theme where there are big problems now, or are going to be very soon. This could be the the increasing costs involved in retaining and promoting talent in companies (intelliHR), growth of intranets in large companies and how to manage them, (LiveTiles) or improving recruiting and success rates for pharmaceutical/healthcare clinical trials (Opyl).

2. Common problem where needs are similar and specific

When I say common, I don’t mean general. I mean a specific problem that if there was a solution it would have common features and functionality (take intelliHR’s retention and performance problem where all companies suffer from this and solve it in a similar way). Also, a problem that is common can, and is likely to, be niche.

The problem is that if you build a product without knowing what the common needs are within that specific problem, then you will be guided by a few clients to begin with who will direct your product toward their narrow needs. For example, if LiveTiles had only spoken to a small number of companies who have a custom built intranet (do not use Microsoft Sharepoint) or companies with small numbers of staff, they would likely not have captured enough data points to validate how big the problem is.

Unfortunately, despite your best efforts, you cannot know what the common, but specific problem is at the time, unless you intimately know the problems in that specific area of the business (say you have worked in enterprise marketing teams and suffered first hand from them, or as I am suggesting you get paid to find these problems!).

3. Large group of similar companies

However, imagine if you had insight into dozens or a hundred different enterprises/companies.

You would know what needs are common across the problem area.

Then, if you’d seen quite a few of these companies you could see exactly what the biggest common problems are, and see if they would like to outsource or insource this to you to solve for them. Literally, what happened with intelliHR and its Founder Rob Bromage.

At this point, companies are paying you to solve a problem for them using your employees or you doing it yourself.

Let’s say you have 50 clients across 20 industries/sectors. You notice that the there is more demand (higher volume of marketing activity) from 15 out of the 20 industries/sectors (e.g. asset intensive businesses) and their workflows are almost exactly the same.

This gives you insight that you can act on.

4. Affordable solution to the problem

Next you can ask your clients about what you’re seeing and how they have tried to solve it in the past? How inefficient is this and how costly is this (including what they are paying you)?

At this stage, you know what the common problem is, what the needs are across large sample size, competitor solutions and the Return on Investment (RoI) for a potential SaaS solution, which means you know roughly how much companies would save using your product so you can price accordingly. Further, you know what, if any, soft RoI metrics these companies consider important (e.g. customer satisfaction, risk reduction etc).

Also, you have been paid this whole time to find problems for your potential future SaaS clients that you can sell into straight away and use as the foundation of your marketing (e.g. case studies, references, testimonials etc) and Go-To-Market (GTM) strategy. These things are invaluable, and often are the reason why a startup fails to get traction. This way you already have them before you’ve even started!

5. So, you think you have found a common and large problem, where an affordable product can be delivered?

Well, at this point you can do one of 2 things, namely:

  1. Proof of Concept (PoC) or Minimum Viable Product (MVP) – you can develop a prototype and test it as a solution with your clients alongside your consulting services, and then iterate toward a production ready solution and then moving them onto a subscription model; or
  2. Managed Service Offering – develop a prototype internally and use that to service your clients, tinkering away before presenting to your clients as a much more affordable solution and then moving them onto a subscription model.

From this point you can either generate recurring revenues from successful PoCs/MVPs or transition to a pure (or close to 100%) recurring revenue licence fee model from the Managed Service Offering.

Also, you now have tangible results that form the foundation to expand from either bootstrapping (using existing recurring and non-recurring revenues) or via capital raise (I can almost guarantee no smart investor would turn you away).

PS – If you have done this then I’d love to hear from you!

How have I helped companies implement a consult your way to PMF approach successfully?

By implementing the approach outlined above, which I have given publicly listed examples, the companies I have helped build and advise have been able to move confidently in the right direction fast.

Consulting your way to PMF allows you to move in a direction with conviction because the company can build a Go-To-Market (GTM) strategy that aligns across product, market and sales.

They are able to do this because they have built the foundation of the company, which is based on the customer and their problem not the technology.

This means the value created for the client maps directly back to the company’s North Star (e.g. increased retention and performance rates for employees at companies using intelliHR).

As a result, the company has a culture of problem (customer) first, technology (product) second ingrained into its NDA.

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About Me

Blogging about all things B2B SaaS, focusing on ASX and Australian companies

Sharing my thoughts, experiences and processes to help entrepreneurs, operators and investors better understand B2B SaaS companies in the Australia ecosystem

I’ll be breaking down how to use operational metrics, unit economics and qualitative factors to start, build and invest in B2B SaaS companies.

Having invested in both public and private companies, as well as helping build 4 B2B SaaS startups, I’m curious about all things B2B SaaS and enjoy sharing these insights with similar minded people.

These insights include how to use public information to get an inside edge on other investors, and for operators and entrepreneurs, how to improve and increase the success of your venture.