Finding Product-Market Fit

“Everyone has a plan, until they get punched in the face.” Iron Mike Tyson.

“The race never ends. You just get to the point where you and a few select people are the only ones still running. Those not willing to put in the work dropped out of the race many miles ago. Now the only competitors left in the field are those with talent AND work ethic.”  (Source 7).

One of the biggest challenges in starting any company is going from ‘0’ to ‘1’. I don’t mean this as a huge leap in technology particularly, just the simple fact of moving from having no sales or revenues to having ‘some.’ The first 5 paying customers who aren’t friends or family is a huge accomplishment.

Moving towards some ‘critical mass’ of sales and excitement is what is commonly known as product-market fit.

It took us more than half a year to get there with AND 1. There are three main parts to this:

  1. Having a strong vision of how the company and brand will evolve around that.
  2. Finding a product or service that people will pay you money for.
  3. Finding and building a smart team around that vision and product.

I want to just mention vision here, as the research around company vision is very clear.

Baum et al. (1998) found that growth-oriented visions and strong vision communication produced significantly higher firm growth rates. Hoch et al. (1999) found that 93% of the most successful software firms had clear and ambitious visions, as compared with 25% of the least successful. The importance of having a product vision for successful product development has also been reviewed by Brown & Eisenhardt (1995).” (Source 24).

Many of the teams I meet who fail flat-out don’t believe that one of the above 3 steps are needed. They either want to build a product or service that no one will pay them for, they want to sell an item and don’t want to sell a big vision, or they don’t believe they need a team.

I recognize that there are products like Google or Facebook that start as ‘free services’ and evolve into the most valuable businesses in the world. But, those businesses are exceptions – and, in my humble opinion, far too many entrepreneurs wants to build the next version of a company that needs hundreds of millions of dollars in financing before it gets to profitability, rather than finding simple ‘beachhead’ products they can sell today that fit into bigger ‘brand visions’ for down the road.

Below is a common business truth that was first verbalized to me in film school – as the producer’s dilemma – you can only get two of the three points of this triangle in any product typically. This is equally true for entrepreneurs.

Pick2of3

Most entrepreneurs need things to be both cheap and fast, which means, by definition they can’t also always be very good – at least initially. It also means they need a steady pool of ‘talent-hours’ or ‘sweat equity’ invested by the founding team. This means, typically, more than a solo (and often more than a 2 person) founding team – and a team with diverse skills – and the time (or ‘runway’) to conduct multiple experiments.

Finally, when the product is ‘right’ and the need pressing enough, and the niche is big enough – this doesn’t matter.

If you can find problems or spaces without any solutions or with very poor existing best-solutions. This often means very niche markets. Focusing on, in the words of Paul Graham (YC co-founder), doing things that ‘don’t scale’ to start.

It’s very hard for most entrepreneurs I meet to ‘get this.’ They will look at an existing market and come up with a solution they feel is as good as, or perhaps, 30% or 40% better and refuse to believe that they won’t build a successful business.

But, having a solution that is mildly better, is a death-knell for most start-ups.   People simply won’t switch for that. You have to be 100% new and different or 10X better. Anything less is a recipe for trouble. How was AND 1 different when we were selling ‘T-shirts’ and items without any core technology?

AND 1 was built and born around both basketball and an in-your-face attitude.

That attitude came from all of us, but radiated most from Seth. He was a New York City confidence and competitor in the best sense of the word.

He was a fighter. But so was Jay and so was I. After all, as mentioned, I had once played a full half of a basketball game with a broken fifth metatarsal bone.

And we all intuitively got that nothing matters in a start-up besides finding a product that people really, really want. This means that you need to constantly be aware of the competitors products and what you perceive as the market openings, and you need to continually be innovating on both the product and / or the potential distribution channels that will make you unique, until you do.

Once you have product-market fit, you will see it in the consumer’s eyes and hear it in the excitement in their voices. When people are excited, and eager to get your product immediately, and referring others – then you have something. When they are just luke-warm or polite or worse, you have to keep working on your product, refining it – trying options, and experimenting.

It’s that simple.

We didn’t get it right, right out of the gate – almost no one does. We raised fifty thousand dollars from Seth and Jay’s family and friends, and then Seth’s business plan failed. Period. We had a sunk ‘cost’ of money and time spent (6 months of long hours), we had a huge database of basketball names (all manually entered), but no brand wanted to be in our coupon booklet – and we had no real capacity to raise more outside money.

It would have been an easy time to quit or to keep fighting with our original idea until we were forced to quit. But, we weren’t the quitting types – yet we were also smart or lucky enough to pivot.

Belief in a product isn’t enough. People telling you your product or idea isn’t enough either. People have to be excited enough to write checks. Businesses need revenues.

One other ‘element’ that Seth and Jay had that I didn’t, was exposure to entrepreneurs from a very early age.   Seth’s parents ran their own law firm and Jay’s parents each ran their own businesses – they knew it was hard, but rewarding and very, very doable – they knew that people could launch and start companies.

This is 100% in line with the research findings showing that having a parent who is an entrepreneur increases the probability that you will become one.

We also had ‘Grit.’ For a full discussion of this, see the work of Angela Duckworth – but grit is basically just the tendency to persist towards a goal. Grit can be heightened by social networks and knowing others – particularly family – who have struggled, but endured.

And that is why it didn’t matter that the Basketball Marketing Company was initially going nowhere. It didn’t matter that we had put in 6 months and nearly all of the $50k friends and family had trusted us with – spent it building out a database of basketball players around the country — more than 10,000 names and addresses we had manually entered into a computer.

And it didn’t matter that we knew that ballplayers would buy this coupon booklet concept (or thought we knew). Because there was one major problem — no major companies wanted to advertise or put their coupons into our book – at least not fast enough to stop us from running out of cash and time.

Seth was also heavily in debt on both his credit cards and student loans. And that was motivation.

It was motivation that we had attended trade shows and made hundreds of calls, but couldn’t get any core market penetration. And it was motivation that the only person who said yes had been fired.

The facts were clear.

We were going to run out of money if we kept pursuing the original plan. Plain and simple. We had to pivot. And so we asked ourselves what assets we had, what assets could get us to revenues as quickly and cheaply as possible.

We had the name, AND 1. That name was great. Everyone loved it. AND 1 was a playground term for when your opponent fouled you, but you still got the basket. But it had evolved into a way of ‘talking trash’, both celebrating your own skill — and calling out your opponent’s manhood.

It was short and memorable and imbued with an attitude. That was an asset.

And we also had the idea of selling our own clothing in the back of that coupon booklet.

So, we decided to create T-shirts for basketball. Why? Every ballplayer needed a T-shirt and they were cheap and easy to make. We could get to something that we could sell cost effectively and then see if we could make a go.

If we could sell this, we could still eventually expand into everything else a ballplayer needed – shorts, shoes, etc.

After all, we knew basketball. Seth, like me — was very much in love with the game. And he and his childhood best friend Jay (now our third co-founder) had met as kids and played on the same high school basketball team.

A word about Jay.

Jay was very smart. He was the most strategic of us all at that point (having gone to Stanford, then worked at McKinsey, as well as in the non-profit space). And he and Seth were best friends. Seth needed him, because he was simply much more polished professionally than I was, and more able to be a true co-founder and shoulder the responsibilities that entailed this early on.

I was really smart. But I lacked basic professional business and presentation skills, I lacked any real work experience or exposure to professional environments, and I lacked confidence off the basketball court. In the working word, as a 21 year old, I suffered from painful personal shyness.

Over time, I would take pitch classes and work to close my skill gaps, and would grow into one of AND 1’s major business drivers, but at 21, I was not ready yet.

And so we pivoted. Out of desperation. And we created a basketball superhero — a faceless, raceless embodiment of the ultimate playground player. Or that’s what we said.

‘The Player’ – Drawn by a comic book illustrator for Marvel named Steven Sistilli

ThePlayer

Years later, I surveyed people about what race the above drawing was – and he was almost universally seen as African-American.

So, we had our first logo, and we decided to sell T-shirts.

But we still needed a product that people wanted. So, we all went back to try and decide what to sell. We hired a local artist who came up with copies of our leading competitor (Above the Rim). But the reaction was mediocre – the product simply wasn’t different or unique enough.

LESSON: If a start-ups product isn’t different and unique enough, it will never overcome the huge hurdles being a start-up and unknown company presents.

And then I came up with the idea for trash-talking T’s.

Trash-talking was an intimate part of the playground game. It was an art form of macho verbal jousting and I loved it. I was also highly creative and willing to work – and believed that big ideas often start small – in this case – really, really small.

TrashT

I felt in my bones that I had something. So, I brought in the first set of 28 slogans on a roll or paper towels from Wawa (a local convenience store). My first idea was to come up with a collection of multi-slogan T’s. This was not a scalable or sustainable ‘product vision’ yet, but we were close.

OriginalTrashTSlogans

This would eventually grow into a real set of slogan T’s that we could sell.

The next step was to get the samples printed and to try and sell them.

Jay and Seth had sold soft drinks in Yankee Stadium growing up, and Seth had also sold shoes at Barney’s in college. All they needed was a product.   We were also, without knowing it, nearing the ‘optimal’ team size for launching a venture. Teams with two founders often face a lot more internal conflict. In three founder (and above) teams, there is always a ‘tie-breaking’ vote. The dynamics of the team change significantly. The resources and combined abilities of the team also grow significantly.

As the founding teams get larger than this, it generally gets harder to a) coordinate actions and b) have sufficient growth and opportunities early on to give every one clear areas they can own. So, disharmony can result. We had found this number accidentally, but it worked.  (Source 23).

So, based only on ‘gut feel’, knowing that we didn’t have enough with two, we ended up with something close to an optimal team size for this pre-product market fit.

I could create winning products. Seth and Jay both knew how to hustle and sell – both product and a vision, and they drilled me. I took sales and speech training with a top professor. I was video recorded and critiqued.   We rehearsed together and then gave each other, no-holds barred feedback.

And my two partners taught me how to keep asking people until someone said yes, and demanded I did the same. We went on local sales calls and ‘debriefed’ after each one. The feedback was immediate and harsh. We all got better.

And so, we began to sell more cities.

We all went to the local library and photo-copied phone books from different cities. Then we made calls, set appointments, loaded our samples into the backs of our cars, and drove to cities with map guides on our laps.

I remember driving through downtown Boston, going the wrong way down a one-way street trying to read a map and get to an appointment I was 10 minutes late for.   And I remember eating tuna and ramen noodles daily. That was our diet, purchased from the Save-a-lot.

We got told no, again and again, but we stuck with it. And we stuck together. When the head of one of the largest retailers in the world (Champs) sent us a note telling us that we would never be in their stores, we put it on the wall so we could remind her one day.

And when we got turned down by the largest stores in the world – Footlocker, Footaction, Finish Line – we filed those rejections, too. They hurt, but they were also motivation.

Eventually, we got some orders. Small orders. And we stored the inventory in the basement of a local friend’s house. A house in which Seth, Jay and Jay’s fiancé (now wife) were renting rooms in upstairs. I was living on the floor of some college basketball players from Upenn for $100 / month. I only owned some clothes, the suit Seth had bought me for a trade show and a mattress and pillow. That’s it.

We got some more orders. But they were small, too, and often from accounts with poor credit, who frequently didn’t pay.

But we kept knocking on doors. If things had continued like this, we likely would not have made it.

But then, 6 or so months after that pivot and a year after launch, we got into World Footlocker. World Footlocker was a division of the Kinney Corp – the owner of the largest premium athletic retail stores in the business. We got in largely because their buyer was only buying for 30 or 40 stores and had to have many more products in his stores and, therefore, was under much less pressure to get each buy decision ‘right.’

AND1POSTER-WORLDFOOTLOCKER

First AND 1 print ad, and poster from World Footlocker. We had the attitude and the player – and we sold that.

So, he was in a position where he could afford to like us and work on developing our ‘raw’ idea together.

LESSON: It often only takes one yes, and there is a very thin line between ‘persistence’ and ‘stupidity’ and that line is often only clear in hindsight. Look for people who are in positions where they can afford to say yes, but who – when they say yes – can still have a real business impact. So, for example, if you have to sell an enterprise product, look for a ‘small division’ inside the larger company.

In this case, this single buyer turned our lives around. (thanks Ron Teicher). He took us under his wing and helped us turn a really good concept into a legitimate product line. Specifically, he suggested we take the first ‘5 slogan’ trash-talking T-shirt we had created and make it into 5 T-shirts with single slogans.

LESSON: It takes a village to raise a start-up. Be willing to ask questions of people and really listen and learn from their answers.

He pointed out correctly, that we would not be able to come up with hundreds of 5 slogan T’s – and that people would buy 1 slogan T’s if the slogan was good enough. He educated us into the fact that this was a scalable model for a product — and that simpler and more repeatable is nearly always better. He pushed us to find a ‘repeatable template’ for the product.

LESSON: Remember that all, or nearly all early products are too complicated. I have seen this repeated in dozens of start-ups and in several dozen product categories.

How did we finance this production? Seth and Jay convinced a large, local screen printer (thanks Ampro) that we had a very big future, and that it was worth their while to believe in us, and that in exchange for that belief – we would be loyal to them.

LESSON (Repeated): Be honest. Build trust. Sell your vision. You can’t make it as a founder without a lot of help. If you do make it, give back.

The business owners at Ampro agreed to print and finance whatever we could sell to major accounts, in exchange for us buying both our blanks and printing from them – and paying them a reasonable financing fee. That meant that they would buy and hold the blanks for us and print them to order and handle fulfillment to the customers.   In other words, we had a scalable model that didn’t require huge external financings.

LESSON: Every tech entrepreneur in the world now seems to think that multiple funding rounds is the way to go. But profits, not funding are the goal. Find a way to scale the business without raising infinite amounts of capital. Businesses that rely on perpetual fundraising can only survive so long as the economic cycle is correct (we learned this lesson again later, the hard way). So, get to profitability and a scalable cash-flow model as soon as possible.

Our first order was delivered to World Footlocker, and it did well. Really, really well.

And Footlocker shared a computer system with World Footlocker and, to a degree, used them as a new product discovery lab. We were in that lab and doing well, and Footlocker owned 1,200 or so stores in the US, and gave us a 72,000 unit T-shirt order for 3 styles for three months out.

That was more than $600,000 in revenues, and we were a real, cash flow positive business.   Looking back, we were smart and persistent, but we were also very lucky to get this break.

And those shirts sold in every mall in America. Really, really sold. And the fact that footlocker had taken us to over 1,000 stores meant they had also, in effect, given us ‘billboards’ in every store, town and city in America. Kids were walking around wearing our signs and logo as de-facto brand ads.

That meant that retailers from all over the country were now calling us. We had found ‘product-market fit’, and twelve months from our first pivot and ‘near death’, we had sold over $1.6 million dollars.

LESSON: If people aren’t excited, really excited, by your productlook for something that excites them. Start-ups can’t achieve escape velocity with ‘average’ or ‘nice-to-have’ products. You have to see people’s eyes light up – otherwise, you will never get over the hurdle or being a company that’s small and they have never heard of.

To get to $1.6 MM, we needed more help.   I was, at that point in my life, a great source of good ideas and boundless energy – but also a fairly lousy Chief Operating Officer (COO).

We needed someone much more mature in this role to scale. And Seth and Jay and I were hustlers, but not polished sales people or managers.

Luckily, over this period, our next 3 partners came onboard. One of them, Bart Houlahan turned down Harvard Business School (after a multi-year stint in private equity) to come work with us. He had been Jay’s fraternity brother at Stanford, and they had reconnected at a wedding from a mutual friend. The other, Ray Moseley, had been a friend of Seth’s at Wharton. They both fit culturally, and were both rockstars in their roles.

LESSON: Attract great people, put them in roles that utilize their core key strength, give them large ownership and watch what happens.

The last remaining partner was Guy Harkless, a work-friend of Seth’s from his Capital Hill days. He would eventually lead several of our international efforts.

LESSON: Maintain and cultivate your social networks. But don’t do it for purely mercenary means. Have real friendships and maintain them, and these people will come back to you in life – you’ll have a chance to work together and combine personal with career. It won’t always be easy – but it’s vital to start-up success.

We had breath and a spark and excitement about our brand. We had a replicable product and sales model for getting to $6 MM to $10MM in annual sales with only T’s. And we had the core founding team.

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