Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin

Like a Glove Podcast, Episode 2: The Importance of Product-User Fit with Cy Megnin

episode 2- cy

Like A Glove, Episode 2: The Importance of Product-User Fit w/ Cy Megnin

Pat East:
Hey everybody. Welcome to Like A Glove. This is Pat East, your host, the Executive Director of the Dimension Mill. And today we have Cy Megnin, the Entrepreneur-In-Residence from Elevate Ventures. Welcome.

Cy Megnin (pictured above):
Thanks for having me.

Pat:
Maybe let’s start with telling the audience exactly what an Entrepreneur-In-Residence does, and specifically what you do for our startups at the Mill.

Cy:
I am specifically the Entrepreneur-In-Residence for a region called Velocities, which is part of a partnership with Bloomington, Indiana and Columbus, Indiana, and the venture capital firm called Elevate Ventures, which is actually where my paycheck comes from. In the other cities that I’ve lived, which are Austin, The Bay, and Seattle, there’s a lot more companies that you can invest in than there are people that are willing to write checks to those people. Here I’ve found it’s the exact opposite. So if a 10 is a perfect slam dunk investment, I run into a lot of sixes and sevens. And my job is to close that delta between seven and 10. So I meet the entrepreneur wherever they are, whether they need help with their pitch deck, they need help with the pitch itself, hooking them up with resources or my network, whatever the case may be.

Pat:
So the way I describe you to folks that don’t know what an Entrepreneur-In-Residence is, is I always say you’re a full-time mentor. You help them build their companies, you help market, help them figure out marketing. You help them sell, do customer interviews. Well, you actually won’t do the customer interviews, but you’ll teach them how to do those things so they can do them for themselves.

Cy:
Exactly. That’s a great way to put it actually.

Pat:
Yeah, and I know from our previous conversations, you’ve said that outwardly it looks like our startups need funding, but inwardly they really need product-market fit. So maybe first, can you tell us what your definition of product-market fit is, and then just talk a little bit more about the startups who think they need funding, but it’s really a product-market fit that they need to focus on.

Cy:
So product-market fit means a whole lot to different people.

Pat:
It does.

Cy:
So I think that’s probably great that you actually define it based on who’s speaking. My initial thought would be to say you find product-market fit or you know you have it when you’re no longer selling your product, people are buying your product. So they’re finding you. You’re solving a problem so big that they’re willing to find you and buy your product, not the other way around. You’re not doing this huge ad campaign or trying to push your product down their throat. They’re actively finding you.

Pat:
Great. So maybe instead of having to push everything out or having to do outbound sales, it’s more folks coming to you via referral, word of mouth, because your existing customers are telling other folks about it because it’s such a good product fit—not just that it’s such a good product—it hits all their pain points well enough that they want to tell other people about how great this thing is so that they can have that product solve their problems too.

Cy:
Exactly. You kind of have that raving fan base.

Pat:
Yeah.

Cy:
I like to ask companies, “What do you uniquely offer that customers want?” That really helps you describe exactly what it is you’re solving.

Pat:
Great. And so for our startups, a lot of them say they need funding, but after working with our startups, pretty intimately for the last six months or so, you feel like they need better product-market fit. And so what do you think that disconnect is between what the startups think they need and what you think they need?

Cy:
I think, and myself included, I was an entrepreneur for 20 years, we’re so readily available to go get funding because it solves so many problems. Instead of actually digging deep and going, “Okay, well let’s find that product-market fit first, and then basically take money or gasoline to throw on the fire.” So people are already buying it. And as an investor or an entrepreneur, I would much rather give money to a company that, if I give you X amount of dollars, I’m going to get X times 10 back out, because you’ve already figured out what sells, what doesn’t, how to sell it, who wants it. That’s a much better position for everybody to be in.

Pat:
And so once you are raising capital, definitely investors don’t want to give you money to figure stuff out, they want to give you money once you figured it out, or largely figured it out, and they want you to go faster. And so definitely getting to product-market fit is going to help make the process of fundraising a lot easier.

Pat:
One of the things I wonder about startups is, do folks think they need to raise capital? Because what does it really solve, I mean while it does solve a lot of problems, but like is that their main problem? Or did they just not know what the next step is? Right? Did they not know enough about how to build a company that they just kind of default to, “I need to raise money because that’s what a lot of people do.” Or is there something else in there that you think kind of prevents them from taking steps to find product-market fit?

Cy:
I think you’re absolutely right that them taking money actually masks that problem, so it doesn’t actually solve it. It just, like I said, masks it. So if you have money to spend on a pay-per-click campaign, that’s awesome. I brought in 20 new users, but if 12 of them left, yeah, at the end of the month I have eight more users than I did, but I have 50% churn.

Pat:
You’ve got a big hole.

Cy:
That is not sustainable. They call that the leaky bucket, so you keep putting them back in, but more are leaving. So you really have to figure that out. But if you have the money to burn, then it takes you a lot longer to figure that out.

Pat:
Sure, of course. And so part of what we want to explore in this podcast in general, but maybe dive a little bit deeper on this first episode, is the market size and the total addressable market. And I wonder if sometimes folks don’t default to raising money because that initial addressable market that they want to go after is too big. You obviously always want to have a large market, but that beachhead market maybe is too big and the startup is trying to do too many things for too many people. And so maybe could you just talk about in general some things you’ve seen startups do that are good, in terms of addressing their initial beachhead market. Maybe you’ve seen startups go after markets that are too big initially? Have you seen folks that go after markets that are too small? What’s the right balance for folks initially?

Cy:
Sure. I’ve seen a little bit of everything on that. On the beachhead market I don’t think it’s necessarily that you’re trying to be all things to all people, although that’s horrible as well. Especially when it comes to product-market fit. I think, if you’re trying to be that many things to that many people, you’re never going to get a concise answer. You’re never going to start seeing or hearing the same things over and over. And that’s what you want to find product-market fit. So you have to first find product-user fit. So if you have a problem, well, who are the people that have that problem? And not just, “I don’t have enough money,” it’s, “I don’t have enough money because X, Y, Z.” So it has to be a very specific problem. And then find that target audience and ask those people, “What are your problems?”

Pat:
That’s a really good point. So maybe one way to think about product-market fit isn’t necessarily product-market fit, but it’s product-user fit. And so whenever you are going after your initial market, how do you decide who’s the ideal user for your product? Or do you just have to kind of randomly bump into it at some point? Or is there a way to kind of scientifically go about figuring who that user is?

Cy:
I think that depends on who you talk to. There’s a lot of investors that won’t invest in a company that sat around with a notebook and said, “Okay, let’s think about problems.” And, “Okay, here’s 20 problems we thought of. What one’s the worst one, and then let’s try to tackle that.” Typically, I’m not saying nobody will invest in that because people do it every day.

Pat:
Sure, people do that all the time.

Cy:
All the time. But what an investor would rather see is to have somebody that actually had that problem themselves or it naturally came to them. So I’m in this industry, I’m a domain expert in whatever it is, and I keep seeing this same problem. I have friends, I have colleagues, they all have the same problem. And then maybe they’re not even an entrepreneur. A lot of those people weren’t business majors at all. They happen to be in opera or plumbing or whatever. They’re a domain expert in whatever it is that they’re doing and just saw that problem and wanted to solve it.

Pat:
Got you. So really the place to start is yourself or really close friends where you understand the problem so deeply you don’t necessarily have to, at least initially, do a lot of customer interviews. Of course you should to kind of validate your idea before you go widespread to the market. But initially what I hear you saying is that you really need to understand the problem yourself well enough where you’re really acting as your own focus group. Is that right?

Cy:
Exactly.

Pat:
Got you. And so once you are kind of your own focus group and you understand a problem well enough, is the next step to do a bunch of customer interviews, or what’s the next step after that? To figure out product-market fit?

Cy:
Sure. Launch early and often. I think there’s a lot of people that say, “Okay, well, I’m going to have a product launch. So I have this company and I’m building it, and six months later I’m going to have this launch and it’s a one-time thing.” That’s the wrong attitude to have. Launch all the time. You fix a problem in your software, launch again. It doesn’t have to be a big party. This isn’t the ’90s… if anybody listening to this program remembers the ’90s. You’d spend $100,000 on a launch party back then. Now it’s no, you launch it and you get it in the press, and you fix it. So you’re constantly iterating on it and relaunching.

Pat:
And so talk about that a little bit more. What do you mean by launch over and over again? Is it truly you’re relaunching the introduction, that you’re relaunching the company, and kind of treating it as a brand new product that’s entering the market every time? Or is it just more of a mindset that you’re fixing problems but you’re really not launching the company in terms of a PR blitz or a launch party?

Cy:
Mm-hmm [affirmative]. So it’s probably a bit of a misnomer to call it a launch, but yes, absolutely. You’re essentially putting a new product in the market every single time because you fixed something or you’re going after a different segment of the market. Or to your point earlier, your beachhead was too big to start with. Well let’s take a sub-segment of that beachhead and go after those people. That’s a relaunch. You’re repositioning the way you’re positioning your product.

Pat:
That’s a really good point. And so you are essentially launching the company again, launching your product again, but you’re not launching it to the same people. Because if you are doing your customer interviews and you figured out, “Hey, I’m either solving the wrong problem. Or it’s the right problem, but for the wrong people,” you’re really relaunching the product to a brand new audience at that point. Right?

Cy:
Mm-hmm [affirmative]. Exactly.

Pat:
Got you.

Cy:
Or maybe even a different medium. The first time you launched on Hacker News, and maybe let’s try Product Hunt this time, or pay-per-click campaign or whatever medium you’re using to get your name out there. Maybe that’s what was your problem. You’re essentially just trying a bunch of different things until you find one that works. You have a recipe to start with. And here it is exactly, I followed it to the T, but you know what? Maybe I need to add more sugar, or I added too much of this, or the temperature was different. So whatever little variable you’re trying, eventually you’re going to bump into, as you said, what works.

Pat:
That’s a great way to think about building a startup as almost a recipe, right? So if you’re making tea, you obviously have water, the tea itself, maybe sugar, honey, lemon, but you’ve got all different types of honey. You’ve got all different types of tea, right? You can steep it for a long time, you can steep it for not very long. And so every little nuance matters. And I really like that analogy in terms of applying that to startups. That’s a good one.

Cy:
Yeah.

Pat:
So tell me, where have you seen some really great examples of product-market fit in the startup world in general or maybe with some Bloomington companies?

Cy:
Sure. I think all successful companies eventually find what that product-market fit is. I mean if you don’t, you die. So you kind of have to.

Pat:
You have to figure it out.

Cy:
At least somewhat. I think companies like Slack really found great product-market fit. They started as a gaming company called Glitch, and it was a horrible game. It was based on Flash so it was bound to die. But everybody absolutely loved the messaging within the game. So you know what, hey, if people are hacking your product to use it for something else, you should probably pay attention to that and go after that as a market.

Pat:
I’m not completely familiar with the story about Slack and how they started. Do you know how they actually made the pivot, going from more of a gaming company Flash interface to more of the version that we see today that’s an online chat, has bots and does all kinds of rote tasks for you? Do you know how that transition happened?

Cy:
The game literally died in like 2012, I think. And shortly after they relaunched as Slack itself with an amazing team, so that obviously helps, but that was the part that everybody liked. I mean there was no shortage of messaging apps. You know HipChat, who actually, Slack bought HipChat.

Pat:
Slack bought, yep.

Cy:
There was iMessage, there was Yahoo Messenger, there was AOL Messenger, like it’s been around forever. But what people really liked about it in the game was exactly that, it’s that you had the bots, you had the ability to talk to people in certain channels, add people to it, and not put people in different ones, and kind of have permissions around it. And when people started using a business tool in a gaming setting, that’s something you should probably pay attention to.

Pat:
And so in this example, I mean it’s really illustrative for kind of how we can think about our own businesses. If your product is that you intend for your users to use it one way, but your users are using it in another, you should maybe not resist that, is what I’m hearing. And maybe at least in the case of Slack, you need to double down on that and say, “Hey, this is something our users are really asking for. Who cares if we came up with a game? That’s something we wanted to do. But if they don’t want to do that, then truly who cares?” Not your customers, right? And so figuring out how to double down on the stuff that works is obviously really important. But in this case they created a brand new company.

Cy:
Yeah, exactly. As a matter of fact, it doesn’t even have to be within the same company. If you think about the history of streaming music, it was the same thing. They were essentially trying to find product-market fit with Napster or any of the peer-to-peer networking. When digital music came out, it was all free. It took Spotify to really say, “Okay, well let’s find product-market fit not only for our consumers, but also the legality behind it. And how do we make this a sustainable business, not just something that somebody wants—and is somebody willing to pay for that.” And they did it.

Pat:
And so Napster really kind of broke the business model for music back in the ’90s, other ’90s reference. LimeWire, if anybody remembers that one.

Cy:
Kazaa.

Pat:
Kazaa, oh my gosh. Yeah. That came out. And now we have the current versions of Pandora and Spotify, and that’s led to really a big revolution in music. So in that case it wasn’t just a product saying, “Okay we have really great product-market fit.” It was a product saying, “Hey, the market’s kind of completely broken in how people consume music.” And so Napster obviously started that revolution in music and helped change it completely.

Cy:
Mm-hmm [affirmative].

Pat:
On the opposite end of the spectrum, obviously if companies have great product-market fit, and really all successful companies need to get there otherwise they’re going to die. Maybe let’s talk about what are some of the signs that you have bad product-market fit. Obviously you’re going to kind of have some lagging indicators of, “Oh, we don’t have any revenue,” or, “We have lots of really horrible churn.” But maybe what are some things that startups or founders can figure out ahead of those things? Some leading indicators that might tell us we have bad product-market fit?

Cy:
Yeah, absolutely. I appreciate you not asking for specific examples of crappy companies, because I would’ve had to use my own. But knowing you don’t have product-market fit, it’s one of those things you feel, but there are specific things you can look for. So if the sales cycle is taking too long, if people aren’t finding you by word of mouth, if you don’t have repeat sales or they come back once, if you have a lot of churn. Those types of things will tell you that you don’t have product-market fit.

Pat:
Got you. Okay. So there are some leading indicators in there. I really like: the sales cycle is too long. How do you know that the sales cycle is too long, and it’s not just this is how long it’s going to take. It’s not necessarily long or short. It just is what it is. How do you know if your sales cycle is too long?

Cy:
I think you do know. I mean there’s certain arenas where there’s just a long sales cycle. Maybe you are selling to a school system, and they only come up for a budget once a year. You probably have an 18 month sales cycle because you have to be in there before they even get to the budget, let alone before they pay you. So you’ll know if it’s an industry thing that is making it a long sales cycle, or maybe you’re just talking to the wrong person. Maybe you’re going in and you’re talking to purchasing, but it’s an IT product. And then you have to talk to the security team and the IT team and all of these different things in a corporate person. So maybe you’re just talking to the wrong purchasing person. You really start to figure that out. Like if you’re going in trying to do it one way, but then even after you sell that person, you have to go talk to five more people, that’s kind of an indicator that your sales cycle is too long.

Pat:
Sure. So maybe one way to think about it is not necessarily a long sales cycle, but longer than the industry average for the sales cycle. Because in the example you gave, right, if it takes me a year to get into a school because they have annual budgets and school starts and you’re not planning at that point, yeah, a year seems like a reasonable amount of time. But if I’m selling to a small business, maybe a year is way too long.

Cy:
Yeah.

Pat:
Yeah.

Cy:
Or if you’re talking to somebody and they don’t necessarily understand the value of your product, and you find yourself over and over and over selling them instead of them buying, that’s also an indicator. You’re either talking to the wrong person, they don’t understand your problem, or they don’t have that problem, all indicators of bad product-market fit.

Pat:
And you brought up this again, which I think we’re going to see some recurring themes as we keep talking about product-market fit. You talked about, “Hey, maybe you’re talking to the wrong person,” which kind of indicates that maybe you do have bad product-market fit because you thought your audience was person A but it’s really person B. And so if you have to keep going, if the sales cycle is long because you keep going after the wrong person, and it’s just taking a long time to talk to all those people and find the right person, maybe that is a leading indicator of bad product-market fit.

Cy:
Or user fit. One of our past companies, it was Prep Flash, and we automatically created flashcards using NLP and AI. Initially we were selling to students. Well, that’s a crappy market because they don’t have any money. They probably don’t even want it. So we were just selling to the wrong people. You either need to sell to the teacher or the parent, one or the other, but not the student.

Pat:
Mm-hmm [affirmative]. Great. Let’s maybe have one more question and we’ll wrap up the interview. In your mind, what’s the single biggest thing folks can do to get better product-market fit? There’s not necessarily going to be a magic bullet that folks have, but if you could tell in general the audience, what’s the one big thing they should do? What do you think that thing is?

Cy:
Absolutely 100% talk to your customers. Whoever you figure out that customer is, talk to them and listen to their problems. Not their solutions, but their problems. You’re going to start hearing over and over and over, “I run into this with purchasing. Or I do this, or I do that. Or if I could just solve this one thing.” That’s what you really need to listen to. The Steve Jobs quote about Henry Ford where he said, “If Henry Ford would’ve listened to market research, then he would’ve given them faster horses, not a car.” That’s exactly what you need. So who cares what they want, give them whatever they need to fix their problem.

Pat:
Right. And the best way to do that, to figure out what they actually need, is to listen to them. But they’re not product managers, they’re not developing products. And so as a customer, they don’t necessarily know what they need. If somebody doesn’t know that a car can exist, of course they’re going to say, “I need a faster horse.” And so really you need to interview them, and interpret, translate what your customer’s saying. And then figure out how that applies to your product.

Cy:
Yeah, exactly. Nobody buys a half inch drill bit, they want a half inch hole in their wall.

Pat:
Yeah, you’ve got it. You got it. All right. That does it for the first episode of Like A Glove. I appreciate you being on Cy.

Cy:
Absolutely.

Pat:
Thank you for coming on, being our first guest. If folks want to try to reach you, what’s the best way to get in touch with you?

Cy:
Probably through the Velocities website or Elevate Ventures website, or if you’re at the Mill in Bloomington, or the Chamber of Commerce in Columbus, Indiana.

Pat:
Alright, that sounds great. And an email address? Maybe they can reach you out?

Cy
Yeah, but it’s super hard to spell so we’ll do it anyway. It’s C Megnin, M-E-G-N-I-N, @elevateventures.com.

Pat:
Alright. Thanks again Cy, we appreciate it.

Cy:
Thank you.

Links:

email Cy Megnin: cmegnin[at]elevateventures.com

Velocities
Elevate Ventures
Chamber of Commerce in Columbus, Indiana

Like A Glove is a production of the Mill, a coworking and business incubator space in Bloomington, Indiana. Our mission is to launch and accelerate high potential companies, and our vision is to become the center of coworking and entrepreneurship in Indiana. You can learn more about the Mill at dimensionmill.org. Thanks for listening and be sure to check back every other Monday for new episodes.

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