By Paul Fifield, Chief Revenue Officer, UNiDAYS
Product Market Fit
Before you even think about expanding anywhere you have to be sure you have product/market fit. Literally this is THE most important foundational aspect of your business to get right. Or everything will be a disaster. You will maybe raise money, build a sales team and invest in marketing but all that effort will come to nothing. Zip. Nada. Years of wasted time.
So how do you know when you have it? Well this is also hard (what isn’t in this game!) but I have a fairly simple way of testing it that I think works. And here’s the thing, you have to strict about this. Your business is emotionally almost like your own child, so you need to be as objective as possible and be prepared to hear the truth, as painful as it may be to hear.
The test is this. Imagine you said to your customers - hey we’ve got some bad news. We’re gonna shut the company next week. It's been a long slog, we’re all tired and we’re going to work on something else. The lights are literally going out. What would their reaction be? If they would be a little inconvenienced, it’s annoying but they respect your decision, you have not got product market fit. If however they would run for the hills screaming, beg you to reconsider and feel like it could materially damage their own careers and their business then you probably have product market fit.
I’m sure this is not foolproof, but the mental exercise should be revealing. It may be that you could actually ask the hypothetical question to some friendly clients to actually test it out.
If you use this method, or scour the internet for other ways of determining fit, you must have a high level confidence that your product is really solving a big problem and it creating real value.
Forecasting and Not Running out of Cash
So making the assumption you have product market fit, the next big task is creating a forecast. Let me focus on entering the US market, something I’ve done twice.
You will do the following. Either alone or with a few trusted people like the head of sales, you will build a spreadsheet with a revenue line. You may well start to think the following:
The market is massive
There are hundreds or even thousands of companies that could buy our product
Or millions and millions of users
It's going to be wild
We can grow there and become massive!
You may be right, but I can promise you one thing, it will take way way longer than you ever thought. Remember it probably took quite a long time to get decent traction here in the UK, your home market.
There is some basic logic you can apply here. Let’s say you are an enterprise software solution. You have a 6 month sales cycle. You open up in a WeWork in NY and get cracking. First you need to hire two sales people. In one of the most competitive talent markets in the world. So its takes 3 months before you have your two crack sales people. Then it takes 2-3 months before they are fully ramped on your fairly complex product. Then it's a 9 month sales cycle because you discover with no referenceable US clients, it's taking longer to build trust and, in amongst all this you realise the pricing needs to change. And the first deals you get are only trials so you cant get a year's payment up front….. So that’s 15 months until your first deal. And not even much cash to show for it.
As an aside, I would strongly recommend that you start selling into the US from the UK first. On an ESTA you can be in the US for up to three months and you have a fair amount of leeway on coming in and out. Get those referenceable clients, test the market and start to build an understanding of how the market may differ from the UK.
So in summary...
don't fall into the trap of forecasting a big number too soon because the market is massive and all you read about is huge numbers other one-in-a-million companies are achieving, then build a cost base around that. You will be at extreme danger of running out of cash and join a very large pile of UK companies that failed trying to expand into the US with unrealistic expectations. Be conservative, there is no shame in that. Amazing companies started this way.
Do your first pass. Then halve it. Investors will do the same in their heads anyway so do it for them! I get it's a hard balance to strike - you have to excite the investor with your sales projections but you need to find that right balance.
As a final note, when you are up and running, monitor your sales metrics like a hawk. And if any sales cycle or close ratio assumptions are going awry in any meaningful way, act early, act boldly and act fast.
Paul Fifield, Chief Revenue Officer, UNiDAYS, is speaking at Global Expansion Summit 2017.