A framework for finding product-market fit | Todd Jackson (First Round Capital)

22:40What a great example. What a great example. So Vanta was founded in 2016 by Christina Cassiopo and she had come from Dropbox and we got to work at Dropbox together, which was awesome. She was the PM of Dropbox paper at that time. And so Vanta, it's a company that does compliance automation, continuous monitoring. And most startups think of Vanta as how you get us to. But they didn't do that at first, right? And I remember in 2018, like Christina and I went on a walk around South, the South Park neighborhood in San Francisco. And she, this is the first time I heard the idea of Vanta. And she had actually in 2016, 2017, like tried a few other ideas.

23:19You know, she had this like smart speaker that would record meetings and it would send meeting summaries over Slack. B2B Alexa is what she called it, I remember. B2B Alexa and she had this other idea, something about drop shipping but she didn't know anything about drop shipping. And she has just sort of been in this mode of like, you know, we're building stuff and then we're seeing if anybody wants it. And then she realized that wasn't working and she changed what she was doing. And she started talking to potential customers and she was very interested in the idea of security and why a lot of startups didn't like, you know, use any security products.

23:48And she was talking to like security engineers and you know, CISOs and just CTOs at startups. And she would ask them like, what is the thing you hate most about your job as it relates to security? And over and over and over, they would say, I hate filling out the security questionnaires. I hate doing the compliance audits. It's like so much grungy manual work. I'm in there filling out spreadsheets and taking screenshots of my AWS account and the whole thing like just kind of doesn't make sense. And she had actually felt this herself, right? When she was on Dropbox paper and the experience of getting a SOC2 was onerous, right?

24:26And the reason that she needed to get is because we wanted to sell, you know, start selling Dropbox paper into enterprise. And so she said to me, you know, there's this pain out there, I think I can solve it. And I think there might be a revenue unlock. And I was like, what do you mean by that? And she was like, well, I've got these first few customers, you know, or like sort of design partner, pseudo customers. It's segment and front and Figma. And this is 2017 -18. So these companies were like smaller at the time, right? Not like the sort of the big companies they are now. And she was like, yeah, they're trying to sell into like, you know, Fortune 500 companies.

25:01One of them is actually trying to land like a Fortune 10 right now. And they said the thing that's holding them back is they don't have compliance certification. They don't have SOC2. And I told them, hey, like what if I do that for you? And they were like, oh, you can just do that? And she was like, yeah. And she did it and they landed the deal. And it was like one of the clearest examples to me of a product that satisfies a promise. But this product is going to unlock revenue for you. You are going to be able to land this enterprise deal. And so I think they just did a phenomenal job of that.

25:34And that's the kind of thing that you have to, that's what you're looking for when you're at level one. A problem that really matters to like three to five customers. That specific example, I think she delivered like a dock, like a spreadsheet. There was no product. She just manually fill that a spreadsheet and give it to them. Completely manual. Like she was the one behind the email address, you know, like sort of posting us the AI, but doing it herself. And that's, I think that's revealing of like, it's okay to be inefficient at level one, as long as you are delivering incredible satisfaction.

26:03Yeah, I think I was just going to say that. This is an ultimate example of efficiency. It's not important, which I love is what you're pointing out at the step. I know you're going to share another example, but just to summarize what this stage feels like from earlier when you talked about essentially of less than 10 people, you're trying to find three to five customers. I think that's so important. Like you're not trying to find tens or hundreds. You're just like three to five people and that customer element, I imagine, is you're implying they're paying you money. Yes. They're paying you money and you're delivering a product that solves a problem for them.

26:33And the product could be potentially a spreadsheet or like super wizard of Oz at this point even. Yeah, that's okay at this level. Like I know Ram actually had barely a product when they started selling initially. They had like someone just updating things behind the scenes of these dashboard. And then you talked about the problem needs to be important and urgent, which connects to people paying attention to a startup that they don't trust or know anything about because the problem is that important and urgent. And he also mentioned as to satisfy a promise. You're giving them real soft socks, soft two for you and then you actually accomplish that.

27:02That's right. Is there anything else as maybe as a benchmark that tells you you're at this step of product market, Jit? Yeah, so like I said, you're kind of pre -seed less than 10 people. Probably your demand source at this stage is mostly people you know. It's like friends and family, it's your network, maybe it's VCs. You haven't probably done a lot of like, you know, cold outreach at this point. And it's hard to find customers, right? Like you're trying to get to three to five. It probably takes you 20 warm intros to get one, right? Something along those lines. So maybe to get to three to five, it's like at least 50 conversations.

27:36That's very normal at this stage because you're just trying to find the right problem and find customers who have it. You're probably in the like zero dollars to 500KAR like somewhere in that zone. I would say that you're at level one. And then there are metrics to track efficiency, right? Things like burn multiple, gross margin, NRR, all of these things. They're all of them are just like not applicable at this stage. It's too early and you shouldn't be worrying about that stuff. And so you want to be feeling this sense of progress, right? That there are customers who need what you're building and the thing you're building works.

28:09And so conversely, the signs that we see a lot of founders get stuck and it is a very common level to get stuck, right? And so if you're sort of hanging out here for six months, nine months, 12 months, and there's yellow flags that are appearing, you're starting to feel stuck. And so the yellow flags are something like, you know, let's say your product disappeared overnight. Your customers wouldn't be super disappointed. Let's say you have a handful of happy customers. You like, let's say you've got four or five customers, but the most important feature is actually different for each one of them, right?

28:39That starts to look a little bit more like a consulting business than a product business. Or it just feels incredibly hard to find kind of the marginal customer, the next new customer. Or you're just, you know, your usage is low. Like the project is in their hands, but the usage is low. It's not growing that much. It lasts for six months. And this I think, like, there's a really good example, Jack Altman, who's the founder of Lattice. He founded Lattice in 2015. We've talked to him a bunch, you know, on the first round past the product market fit, and other other things. So for those who don't know, you know, Lattice is a people management platform.

29:10But it didn't start that way. And most people don't know about this. Lattice actually started as an OKR tool, right? Back in 2015, didn't it? Yeah. And so Jack had just sort of seen this at other companies. He's like, OK, companies are doing OKRs, but they're not very good at it. And it causes a lot of arguments among the executive team. And the employees are like non -compliant. They think the whole thing's kind of dumb. So I can fix that, right, with software. And so the original version of Lattice was for managing OKRs. And he was able to sell it. And so his buyer was the head of HR, right?

29:44And they said, OK, yeah, we'll give this a shot. And he had a couple companies using it. And they would use it for like one quarter. And then the next quarter would come around. And they were like, I didn't go that well last time. I don't know. The employees don't seem to like it. I don't know. And then the quarter after that, they were like, no, we're not buying this. We're not using this, right? And so Jack pulled off the pivot to people management. And the way that he did it was he actually kept the persona, right? And so this gets into the ideas of the four piece. And I'll talk about this a little bit more.

30:20The four piece is our version of the four piece. You've got the persona, the problem, the promise, and the product. And all four of these things kind of have to line up, right? Your product has to deliver a promise that solves the problem of your persona. And so Jack actually kept the persona. He was like, I've gotten to know these heads of HR really well over the last six to nine months. I like text with them. I go out to coffee with them. I'm like friends with them. And I know them really well. This okay, our thing just doesn't seem to be a big deal for them. But they've got other problems that I could look at solving.

30:53And the interesting thing was that timing. It was kind of like mid 2010s. Performance management had like start to come back in favor. There was it, it was like this pendulum. Like there was a period of time where performance management was like really important. And then all these companies were like, we're not doing this anymore. And then the pendulum kind of swung back and around 2015, 2016 was that time. And so Jack literally showed them Figma mockups. Like there was no product, right? But he's like, what if I could solve performance management for you in a way that is much more modern and much more employee friendly and manager friendly and the whole thing's just gonna work better?

31:25And the response was like off the charts. And people wanted this thing. And I believe he sold his first five or 10 customers like with Figma mockups, right? Like before he had built anything really. And so that I think is an interesting example, right? Of like he was sort of stuck in the zone of like people didn't love what he was doing. He kept the persona, but he changed the problem that he was solving and the promise he was delivering through the product. And you see that this is like we do a whole section on pivots and like when to pivot and how to pivot. And I think this is actually the best framework for this is the four P's.

31:59Like, you know, lattice changed, kept the first one but changed the others. Banta changed all four, right? There are other products like plaid that actually sort of kept elements of the product they were doing. So this, I don't know if you know the story of plaid, but you know, Zach Parrott was building, plaid started out not as like a API for bank accounts. It started out as a consumer budgeting app. Like it was a consumer app. And it just, you know, supposed to like help you save money and budget and stuff. And like it just wasn't that popular. And founders kind of frustrated, but they had built this part of the product that enabled the app to like connect to your bank accounts, right?

32:39And that solved kind of like all the nitty gritty issues with that. And they really found that their friends wanted to license it from them. So like there was exactly a friend at Venmo who wanted to license this. And they got, you know, they got Robinhood at some point. They got Coinbase at some point. So that's like an example of like, they actually kept a lot of the code that they had written. They kept the product, but they completely changed the other three P's. Right. Like instead of solving for consumers who have a problem with budgeting, we are going to solve for developers at Fintech companies who have a problem connecting to bank accounts.

33:07And it was like a total flip of the four P's. But that's like why I really like this framework because I think it really helps founders think in a structured way about this. Todd, this is amazing. I'm so happy we're doing this. I think this is going to help a lot of people. I want to move on to level two. But first, let me try to summarize some of these key elements. So these four P's, essentially what you should try to change if you're stuck in this level or any level. And just to summarize, there's you can change who you're targeting the persona, you could change the problem you're solving, you could change the way you're pitching it, which is the promise is how you describe it, basically positioning.

33:40And then you could also just change your product. You mentioned Van to change cell four. Some companies change just one. Any advice for how to know which of these to change? Like, what points you to change this versus change that? Is there anything that you've seen? I think different founders approach this differently. And I've seen a lot of founders who are build first and then cell. And I've seen a lot of founders who are cell first and then build. And they can both work, right? I tend to gravitate towards the like, I want to sell it before I build it. Because I really want the signal from customers.

34:16And I want that to sort of be the guide and the oxygen that drives what I'm building. I find that very motivating. I also find it kind of like easier, honestly, rather than guessing like, oh, I'm going to write, I'm going to write 50 ,000 lines of code and then see if somebody wants this thing. I think it's better to sort of like talk to a bunch of customers, know that like, hey, if I had this thing, if I could build this thing, I know it would sell. Like I know these people want this thing. So I tend to approach it from that point of view. And therefore I focus on the persona and the problem.

34:44And the promise, right? What is the promise that is really going to click for that buyer, for that persona? And then it's the product, the product's job is to satisfy those first three piece, really. And obviously those are much easier to change and play with versus rebuilding your product. So, there's nothing else you should probably start there. I actually have a post with a bunch of awesome examples of changing the positioning, changing the persona. And so we'll link to that in the show notes if people want more examples. Okay, finally, let me try to summarize kind of the stage. So I think it's important to note, at this nascent stage, you're not like, there's not roaring product market fit.

35:16It's as you describe very nascent. You're like, getting customers, but it's hard. You said it's like 20 introductions to one sale. When you're like getting them, and the retool has a great quote, David has this quote, like every customer he got early on, he thought it was the last customer he's ever going to get. So no more people want this thing. And it's always a struggle. So I think that's very normal is what you're describing. The beginnings are rarely off into the right. And it's okay if this takes a while, you said that if it's something like, if you spent like 12 months at this stage, you're probably stuck in the stage and signs that you're stuck in this nascent stage versus this is actually normal.

35:53Signs you mentioned are, if you ask people if this went away and they wouldn't be disappointed in being like, nah, all right, it's cool. You have many customers, but they're using different features of the product. So to you, the way you describe it essentially, they're just like professional services for them. You're not actually building a product. You can sell to a lot of people. And then they're actually not using it often. Like they're paying for it, like the lattice example, but they're not necessarily using it and then they're getting trimmed pretty quickly. That's right. Anything else you wanted to touch on there before we get to level two?

36:22The last thing that I'd add at level one is there's this founder from a company called Persona. His name is Rick Song. He's like super awesome. Persona's a first round company. They do identity verification. And Rick's analogy, I just love it for level one, is you don't want to get friendzoned by your customers. Like where your customers like you, but they don't love you and they don't need you, right? And he was super paranoid about this in the early days of Persona. And his technique for doing this, which I really like super simple, was he was very close with like his first five or 10 customers.

36:59And he would go to them and sit them down one on one and say, I need your help. Like it is very important to me that this company succeeds and does not fail. So I don't want you to be nice to me. I want you to tell me, is Persona like a necessity for your company? If we went away, how painful would that be? If a competitor came along that charged half as much as us, would you switch to them? And he's really trying to get to the essence of like, is Persona critical for you or am I in the friend zone? And I just think that's a really great way of thinking about this. And love that story. It's like in a relationship, it's like the talk.

37:38Are we? Are we a thing? I love that. That's so good. Like the sooner you know the truth, the better. And it's hard to hear bad news, but I love that. Just advice or just sit them down one on one. Let me tell you about Command Bar. If you're like me and most users I've built product for, you probably find those little in -product pop -ups really annoying. Wanna take a tour? Check out this new feature. And these pop -ups are becoming less and less effective. Since most users don't read what they say, they just want to close them as soon as possible. But every product builder knows that users need help to learn the ins and outs of your product.

38:12We use so many products every day and we can't possibly know the ins and outs of everyone. Command Bar is an AI -powered toolkit for product, growth, marketing, and customer teams to help users get the most out of your product. Without annoying them, they use AI to get closer to user intent so they have search and chat products that like users describe what they're trying and doing their own words, and then see personalized results like customer walkthroughs or actions. And they do pop -ups too, but their nudges are based on in -product behaviors like confusion or intent classification, which makes them much less annoying and much more impactful.

38:46This works for web apps, mobile apps, and websites. And they work with industry leading companies like Gusto, FreshWorks, HasheeCorp, and LaunchDarkly. Over 15 million end users have interacted with Command Bar. To try out Command Bar, you can sign up at commandbar .com slash Lenny, and you can unlock an extra 1 ,000 AI responses per month for any plan that's commandbar .com slash Lenny. Let's talk about level two. So what does level two look like and what should founders be focusing on when they're in level two? Yeah, so level two is developing product market fit. And your job at level two is now you've got to go from five satisfied customers to 25 satisfied customers.

39:29And so now you've got to start thinking about demand in addition to satisfaction. Because it is very hard to just grind your way all the way to 25 customers with share willpower. But you can do that to like five, maybe 10, and we see some founders who just have phenomenal willpower and grit and grind their way to five or 10 customers to get to 25 and to get beyond 25. Like the product has to be doing a lot of the happy lifting for you. And so that is kind of the essence of this level. So if you're at this level, you probably, okay, now you're like Cedar Series A style company. Maybe you've got up to 20 people at the company.

40:06And you're starting to work on this demand source where you have the early signs of a scalable channel. And it's not just warm intros like from your VCs or from your friends. You are, you're maybe investing in cold outreach and getting that to sort of tuned and humming. You might be investing in content. You might be doing community events. But the whole idea is you're trying to scale sort of the demand source. It's still not easy. Like, you know, like a benchmark we would say is that your sales conversion without a warm intro is still probably like 10%. So that like first call to close one is like around 10%.

40:40If you get hired and that, that's great. But that's sort of benchmark for this level. You're in kind of the like anywhere from like the 500 K to 5 million ARR zone. That's sort of like a hallmark of level two. And you're actually starting to think about like efficiency metrics and sales metrics. Like you might start starting to be thinking about magic number, which is a new ARR that you take in a period divided by the CAQ, you spend in that period. So you know, something in like the 0 .5 to 0 .75 range, you want to get higher eventually. But like that's like pretty reasonable for this level. You're just starting to think about retention.

41:12Like you've been around for a year. So you've got renewals, right? And you want those renewals renewing. Maybe something like 10%, 20 % regretted churn is okay, you don't want to be higher than that. And you want your NRR to be at least 100%. And then things like gross margin and burn multiple, they're still kind of like not the focus. Those are like the classic efficiency metrics. They're not the focus right now. But we would say you want your gross margin to be like not worse than 50 % and you want your burn multiple to be not worse than 5x. Your burn multiple by the way, is just, you know, how much you burn in a current period versus how much new ARR comes in.

41:45So, you know, if you burn $5 million and you take in one and you've got a burn multiple of five, and you don't want to be worse than that at this stage. Amazing. I mean, there's a lot of these benchmarks, which I love. I imagine not everyone's going to hit each of them exactly. I guess how these are just like rough guidelines of like you're probably in the stage if you're in this level right? Yeah, exactly. There's kind of some wide, you know, bars around these metrics. It's just representative generally the stage of five to 25 customers. I love it. And it's so interesting that people think of product market fit as you said as a binary.

42:15Like I have it or I don't. And the way you're talking about this is in this level to developing product market fit. Like a company is 25 set of five customers. They're over 5 million in ARR. A lot of cases they have 25. Between 50 and 5 million. 5 million, 5 million. 500K and 5 million. Yeah. They have 20 employees. They're like, like in theory, you would think this is like a roaring success. They're killing it. They have always customers growing. But it's still just like level two of product market fit. So I think this is a really interesting insight that like, and it reminds me of when I did a bunch of research on product market fits, so many founders are like, I never felt at product market fit.

42:52It was like, never, I didn't have it. It was always like, I don't know, maybe when we get to 100 million ARR, I'll really feel like we got this. So I think this is a really good reminder that a lot of times you're not actually going to feel so confident this will last. And you're going to get to like lasting durable product market fit. So I think that's a really great insight here. Yeah. And the thing that's, you know, really, I think the hallmark of level two is you've got a product that like a handful of people like, right? It's satisfying a critical need for them. Now you've got to open the demand floodgates, right?

43:23So that we can get to 25 customers and beyond. And different companies do this in very different ways, right? It's much easier said than done. Looker is an example. So looker is a, is a first round company founded in 2012 by Lloyd tab, you know, they do business intelligence. And looker actually, looker is interesting because they spent actually kind of a long time at level one, but then like flew through level two. And the reason is because they Lloyd the founder, the first five customers of looker, he was basically going in and doing consulting for them. And the reason is because of the nature of the product.

44:01Like, looker, people don't get looker until they see their own data in it, right? And their data is modeled and they see the dashboard and they're like, oh my god, like, wow, I didn't realize these insights, right? So Lloyd kind of understood, like, this is, looker is not a product you could sell with Figma mockups, right? And so what happened was Lloyd would go into these customers, he spent 20, 30, 40 hours, right? Like before they were even a customer, modeling their data, teaching them how to use it, showing more people within the organization, like the power of the data and the dashboards.

44:32And later they called this their forward deploy process, right? Like this is how they figured out sales. And so it actually took them kind of a long time and level one to get this right. But then they were able to do this repeatedly. And so they went from five to 25, like, fairly quickly. And it's like a lot of amazing, like 75 % close rate because they were only selling customers who are already using it. There was like zero churn. And Lloyd explains that like, once he got to 20 customers, he's like, I know, I know I'm on to something. And I think I figured out a model. And the model stayed the same until they ended up selling to Google.

45:07And so they did these other things too. They started focusing on demand channels. They got a couple SDRs who were prospecting. I think they did some partner marketing with AWS Redshift. They did these like look and tell customer events in San Francisco where they got looker customers together to talk about sort of like what they were doing in looker and how they built the product. But really it was like the ground, the groundwork was set at level one and then they sort of like moved really quickly through level two. So kind of again, the way to think about this phase, this one you're starting to scale a way to drive demand.

45:37You're not just grinding sales, cold outreach. There's a way you're starting to bring in customers that are more efficient. And in looker's case, they kind of just started coming because I imagine there's word of mouth. Yes. And people started to talk about it. Yeah. Let me do another example. Okay, a really different example is a company called Ironclad. Ironclad, you know, it's a legal. It's a legal tech company. They founded in 2015, Jason Baymeg is the founder AI powered contract management software. So this was interesting because Jason started out, he started out calling this an AI legal assistant.

46:15And this is like, in 2024 people are like, oh, AI legal assistant. Yeah, that's awesome. But in 2014, like people were like, what? And he found it really hard to sell. Like no one was looking for an AI legal assistant. And so he told us this story, you know, there was an email address on the Ironclad homepage. Hello at ironclad .com is in 2015. And like he doesn't give very much email. But like Jason's checking the email. And one day he gets this like one line email. And he almost archives it because he doesn't know who it's from. It's one line. But he sees that it's from like a person at a publicly traded company.

46:47And so he's like, oh, maybe there's something here. And the one line email is just, are you a CLM? And he was like, what is a CLM? And he's like, he like, Google's for it. A CLM is a contract lifecycle management platform. And he's reading up about CLMs. And he's like, oh, you know, we do that. And we do, yeah, we, yeah. And so he replies to the email, yes, we are a CLM. And the customer gets them on the phone. And the customer says, oh, you know, I'm in the market for a CLM. I'm looking at like 10 or 12 different vendors. But you guys look pretty cool because there's some automation and some AI stuff going on.

47:24Like, you know, can I check this out? And Jason's like, of course. So he and his co -founder take the train from San Francisco down to San Jose. And on the train, Jason is telling his co -founder, hi, hey, like I need you to code this up right now to make it look like what this customer is expecting. And they get to the meeting and they do the demo. And the customer has like no idea that they just made this demo on the train and like they're a very small company. And they win the contract against these like 10 or 12 other established spaces. Because ironclads, it's more modern, it's automated, it's got this AI stuff.

47:58Like it's just a better product, right? Or the demo looks like it's going to be a better product. And so Jason reflects on this and he's like, yeah, the thing for us is like we had been trying to create this new category of AI legal assistant and it was just like a slog, right? And instead, when we changed our positioning to play in an existing category of CLM, but a much better CLM, but customers are already looking for a CLM, they're already looking to spend money on a CLM and just expand the definition of what that category is, things just start to click. And that's how they got sort of through that zone of like 10, 20, 30 customers.

48:31And even if you look at the ironclad website today, it says AI powered contract management software, right? Like that really is the key idea still. Awesome. So this is an awesome example of positioning slash promise is the is the lever they pull here. I love the point about category design. That's one of the ongoing debates on this podcast, whether it sounds like you're in the boat of probably better not to create your own category. I think it's hard to create a category. It certainly works in some cases, but if you actually have like a really interesting span on an existing category, like there's people are, there's already buyers spending money on that thing.

49:07They're already looking for something to buy, right? Which is, you know, so if you can do it, I do actually think that way is easier. Before we get to level three, what are signs that you're maybe stuck at level two and what should one do about that? Yeah, so the whole idea of level two is this thing that the marginal customer is getting easier. And so you've got to be focusing on demand and the repeatability of demand while you maintain satisfaction. So the yellow flags are like things that are the opposite of that, right? Like your current customers are like pretty happy, but you're just having trouble opening the floodgates.

49:41Like as you're getting to the top end of level two, you should start to hear some startups kind of know who you are. You know, like, oh, you need to stop too. You're a startup, like, oh, Vanta, right? Oh, you know, you need AI powered contract management software. Oh, I'm glad, right? You sort of start to get known for a thing. And so if you're having trouble opening those floodgates and you're sitting there for, I don't know, 12 months, 18 months, that's kind of a problem. Or you have things like your regretted churn is greater than 20%. I see that as, you know, that's a satisfaction warning sign.

50:12And you, again, you have to maintain the satisfaction as you work on these other things. It's like every level just gets like more things you have to do. Or you know, you could be finding that the sales cycle's taking too long, you're losing deals late in the funnel, you're losing competitors, you're just not feeling kind of the urgency from customers. Or you're struggling to hit the price point that you want. And the way that customers will say this to you because customers are nice, right? They'll say, oh, we don't have the budget. Or like, oh, it's just not the right time for us. Like what we'd love to talk again, you know, next year.

50:45That, those, that means no, right? When you're hearing that from customers. Like you want customers who are like, oh, of course, like, yeah, this is kind of expensive, but I'm gonna make this work because I need this, right? And so if you're seeing any of those signs, those are the signs that you maybe are stock or plateauing at this level. And I really think it's important to think about the four P's and think about how am I gonna sort of pivot my way out of this. Jack Altman, who I mentioned earlier from lattice, he's got like a great quote on this. It's up on in a video on the website, which is like, you know, he said, oh, the, the most founders do like a 10 % pivot.

51:25And what they need to be doing is a 200 % pivot. And I think, Jack didn't say this, but I think part of my interpretation of this is like, it's psychologically hard as a founder. You've gotten to this many customers. You're starting to plateau, but you're like, I don't want to throw this whole thing away, right? But you sort of have to be willing to let go and really focus on nailing the four P's at this point. And in your experience, you find essentially pivoting is the answer if you're stuck. I think sometimes it's nice when it's the ironclad thing, right? It's, or I mean, it's nice is when it's the looker thing.

51:58I'm like, you don't have to change anything, right? You just, it just starts working and basically the whole thing works the whole time. That's not common. It's nice when it's the ironclad thing, when you just sort of change one of them or maybe two of them, starting over with all four of these is hard at level two, right? But oftentimes it's what's required. Like I, you know, I was mentioning earlier, like level two is the second most common level to get stuck. Most, you know, big chunk of companies are going to get stuck at level one. And the second biggest is at level two. So sometimes it's hard.

52:27I think the trap is not doing enough to realize that you're actually like not progressing to product market fit in the way that you need to. And just starting to burn money and not make progress. And you know, you've seen many startups kind of struggle with this. I think it's the hardest part of it. Yeah, especially once they're like a million, two million, three million, a hour, they're like, look, we're making all this money. And they don't necessarily realize that they've been stuck at this stage for so long. So just to kind of summarize flags that something is wrong. And they should probably think about changing your persona, your problem, your promise or product is, it's been 12 to 18 months at this stage of product market fit.

53:05You are churning about 20 % of customers. And these are logo, logo churn, I imagine, just like businesses stop using you. Your sales cycles are really slow. Is there a sense of what slow means just like a rough heuristic? What should it? Well, some sales cycles are slow. Like if you're selling to companies that are bigger, selling to government, that type of thing, you know, I don't know, rough rule of thumb is like, you know, there's different ACVs also. Like if you're the kind of product that is 20k, 30k annual contracts, that was looker, right? But they were able to do the sales cycle very repeatedly because they closed so often, right?

53:42There are some contracts that are 100k, 200k, you know, six figure contracts. Those can take a long time. Those can take three to six months. You can't basically be in the worst of both worlds where you've got a slow sales cycle and a low ACV. Like that is the quadrant of death, basically. Awesome. Okay. And then the other sign is just you're not finding demands starting to come to you. You're not finding a channel to drive demand. And is a big part of this inbound that you start, you're supposed to start seeing more inbound coming at you. Or is it more just sales becomes easier? It's both. So like sales becomes easier.

54:14But I like, I think if you are starting to get to level three, which is where we're getting to next, you've probably got 10%, 20 % of your inbound coming, or completely organically organic inbound. Awesome. Okay. So again, if you're stuck at this stage and these are signs there, like, oh man, this sounds familiar. Your advice is find one of these things to shift. The person you're going after, the problem you're solving, the way you position it and or your product, if you have to. Yeah. And probably just look for something that is a lot more of a burning pain. It's usually that the problem is not significant enough, important enough to people, or the promise is not valuable enough.

54:52It's, it's usually kind of one of those mil to assuming you have a reasonable persona. Awesome. And the reason I am spending so much time here is you, as you said, most companies get stuck here. That would be to be SaaS company. So I think it's really important to make sure people have something to go with. And in the course and in the post, you put out there's more examples of companies going through this and what they did. Let's talk about level three. What does level three look like? What should you be focusing on there? Yeah. So level three is strong product market fit. This is where I think it starts to get fun.

55:21This is where like all the product market fit addages come in. Like the fish are jumping into the boat. You know, the rock is rolling down the hill and I'm trying to chase it instead of pushing it up the hill. And keep in mind for most enterprise founders, this, we're now three, four, five years into the company. Right. So it's, it's not like easy to get here. And to get to L3 here, you are looking for repeatability, right? The marginal customer has become much easier. And so you mentioned Lenny this, this quote from David Sue from retail, which I love too. And, and you know, I'll read it again.

55:54He said, you know, we talked to someone who said that finding product market fit was so visceral. You immediately felt it like a geyser. And we honestly never felt that in the first couple of years at retail. Every customer we got, whether that was number four, number 14, felt like the last customer we were ever going to find. It felt like rolling the stone uphill. And if you stop pushing, it's going to roll back on you and crush you. And that's how it felt until we had a few million in ARR. Right. That's when the boulder went down the other side and we had to chase it and chase it to keep up.

56:23And this is, you know, you mentioned earlier, like founders were like, I don't not try ever felt product market. But this is like when you start to feel it, right? And, and Jack Altman, you know, again, from Latta said, this is just the biggest shift was in the ease of getting leads. Like I remember thinking, I don't even know where these leads are coming from. Just more and more of them are showing up each month. But that is like a great feeling. That is a great feeling. Philip Callazone from Vercada. He's in, you know, some of the videos on our website too. His quote, I'll read it was after our first year.

56:53Sales in 2018, those next two years were crazy. We were barely keeping up with production. We had to scale all the systems. Like a lot of things had to happen in the span of 12 to 18 months in order to deliver on everything that customers were hoping. The solution was going to do for them. And that in itself was a very formative and tricky part of the journey. So the benchmarks when you are at level three are now you're probably like 30 to 100 people inside your company. You're probably a like series B ish kind of territory in terms of venture. Like maybe maybe late series A maybe early C but like probably around series B.

57:27You've really cracked, you know, a demand channel. Like you've cracked marketing and sales. You've got at least one channel that is very scalable and probably 10 % or more of your inbound is coming from just like referrals and word of mouth. And you're like, you're getting known like we talked about ACV ranges are very high. You know, very wide, I should say. I'd say like if you're in this like, you know, on your way to, you know, 100 customers, well, where you want to get to with level three is like 100 customers. And so if you're sort of, you know, approaching 100 customers and maybe have like 75 K kind of average ACV, that would be strong.

58:02Right. You're sort of in this wide zone of 5 million all the way up to 25 million ARR that is very like level three. And you're actually starting now to think about some of these efficiency metrics. Remember we've been sort of like punting efficiency. We were saying it's, it shouldn't be worse than like a certain number, but it's like not a focus. Now it's like, got to come into focus because the way that we get to level four. Is we keep ripping on the satisfaction in the demand and we tune this thing to get very efficient. So like, you know, we're talking about our gross margin needs to be above 60%.

58:33Hopefully above 70%. Our burn multiple is now below three. Right. Like ideally we're in like the ideally we're like close to one. Right. Burn multiple like in the one to three zone is where we want to be at level three. Regretted churns less than 10 % NRR is greater than 110%. These are like good kind of benchmarks for this level. Curing level three again tells me level two is where you need to. It's basically your pivot from I'm just grinding customers selling, pitching constantly trying to find new people to level three. Where it's coming at you in life's basically three. You always hear about it.

59:06It's just it's rolling downhill. Fisher jumping in the boat. I haven't heard that one before, but I love this. So essentially you found a demand channel. You found a way to get people to come to you. A lot of them are just hearing about you from other people. You don't even know where they're coming from 10%. You said they're coming from referrals and you're getting to like 100 customers. I have actually have a date. Another quote from David Suitt and retool and he actually said even at 100 customers, he still felt like every customer he was getting was the last one. He's like, oh, wow. He's like, I can't believe we got door dash.

59:35That's incredible. That's okay. I think there's no more. That's it. He's a critical person, a critical of himself, but a very high expectations person, let's say. Yeah, I actually another quote from Ali Goatsy from Databricks actually said even at 100 million, he wasn't sure they have product market. I don't know. I don't know that's what he felt like this is it. Okay, we're done. We're going to cap out here and I get that. I think if you told many, many precede founders that they'd get to 100 million and not know whether they had product market 5, they'd probably take that. But I think that's maybe an interesting insight.

1:00:06Like it's often good to be really paranoid and not feel like, okay, we're on our way. Let's start pouring money. Let's do it. I think that's what makes a lot of the best founders the best indeed. Okay, so level three, anything else that would be useful here, maybe what are signs that you're struggling at level three, your stock. Yeah, so level three problems. And again, it's hard to get to level three. So like, you know, awesome work for getting here, but the problems that might start to emerge are, you know, you've got a leaky bucket. Like your NRR is below 90 % or your regretted churns greater than 10%.

1:00:39Maybe growth is just slowing down. Like you grew 3x each of the prior two years, but you're kind of struggling to do a 2x this year. And that in part that can become, you know, at level three, you know, we're five years into the company or so. There's probably a lot of competition. Like if you've gotten here, you've got something that's working, right? And people are starting to notice and there's going to be competitors. And they they could be the big, the big competitors. They could be the new startups, but you're going to have to figure out how to navigate probably a tougher market than you entered five years ago.

1:01:09And so, you know, maybe maybe you found your first scalable channel, but it's getting saturated. You got to you got to find a new channel. These are kind of like the level three problems or like you're growing, but like I said with efficiency, like you're spending too much money to grow. So you feel like, okay, yeah, we can grow at 3x your over here or 2x your over here, but it's like that's going to push our burn multiple above three again. And you're stand that's a little bit of a pickle to be in, right? When you sort of have to trade off growth and spend like that. You kind of make it sound like a life's great.

1:01:39Level three people are coming at us. I think it's important to note like never is it easy. Never is it like, okay, we're good. Let's just ride this wave. Life's going to get so much easier from now on. It's never easy as you said. There's all these things you're always still juggling. You still aren't sure it's going to keep going. No, I agree. It's like your spinning plates and the higher levels you get, this is more plates. You know, you have to keep spinning. And so at level three and getting to level four, we've got to maintain satisfaction and demand. We cannot let them regress in a market that's getting harder, right?

1:02:11And we have to really start focusing on efficiency. And the companies that can maintain satisfaction and demand and continue to grow and become really efficient now where I level four. We'll talk about level four. What does that look like? What are some problems? People run into there. Yeah. So first of all, congrats. I mean, if you get to level four, you have a valuable company, right? Like you are probably already a unicorn. And you're starting to think about, can I become a dacky corn? And so you've reached the very high, the highest levels of satisfaction, demand, and efficiency. And so the benchmarks at level four are like, okay, now your team is probably bigger than 100 people.

1:02:47You're like series C, series D or beyond. You've got more than 100 customers and you're starting to figure out, how do I get to 200, 300, eventually, 1000 customers? You're beyond 25 million in ARR. So like 25 million in up. I think in ARR, it qualifies as level four. And your other metrics are looking really good too, right? Like your sales conversion first, call the close one is probably better than 15%. Your magic number is greater than one. Your CAC paybacks less than 12 months. All these things are like super awesome. And finally now you've got your gross margin above 80%. Your burn multiple is ideally less than one at this point.

1:03:21You've got less than 10 % turn. You've got greater than 120 % NRR. And so now the whole thing is like, well, how do I keep growing? Like, I mean, this thing's gotten pretty big. And this is generally, when we get to 100 million, especially in beyond, the stage that founders are thinking about, how do I keep growing by expanding TAM, by expanding total addressable market? And to expand TAM, I can usually take my product and bring it into new markets. Or I start to think about multiple products, as a way to expand TAM. And so this is where you see all the truly great companies, like the legendary companies are all able to do that.

1:04:00Like, Vanta has begun to do this. Right? They have like the Vanta Trust Management platform. They've got security questionnaires. They've got vendor risk management. So they're starting to do this. You know, you think of Vercada, who I mentioned before, like they started with security, cloud security cameras. Now they do alarms. Now they do smoke detectors. Now they do badge readers. You know, Stripe has sort of classic Stripe, but they've got Stripe radar, Stripe Atlas. Square has the square stand, cash app, square checking, square loans. Like all the companies that are, you know, tens of billions of dollars of value, have figured out a way to do this.

1:04:32And it's kind of like the never ending journey that you said before, Lenny, like, you know, the congrats you got to level four, but there's just like this endless thirst for continued growth. And the interesting thing about that is that it requires finding product market fit over and over again. Like just because you got to level four on your on your main product, doesn't mean product market fit is free on all these new products. Right? And you've been inside Airbnb, and I've been inside, you know, Dropbox and Twitter, like getting new products to be successful is hard. Right? And it requires this mindset of like, yeah, we've got a little bit of advantage because people know who we are.

1:05:08And we have a customer set that hopefully we can layer on new products too. But it's not easy. You know, you have to get into this mindset of like, product market fit is never easy. And if we want to continue to grow, we got to find it again and again and kind of maintain that mindset. Casey Winners has this great point also that expectations of customers ever increase. And so you have product market fit today, but they're going to there's going to be better products coming out. They're changing the world changes. And so not only do you have to worry about competitors, there's just expectations continue to rise.

1:05:39So it's a never ending battle to give people a little bit of a broader sense here. War percentage of companies you find kind of make it through each of these stages in your experience. So it kind of rough numbers you may have in your head. The majority of companies, so greater than 50%, probably closer to 60 or 70 % are going to get stuck at L1 or L2. And so that leaves roughly let's say 30 % make it to L3 or L4 just in our experience looking broadly. And that's our entire goal. It's like if that can be, it means again, once you get to L3, you've got a real shot. You've got a real shot of building an awesome company.

1:06:19And so if we get that number, help founders get that number above 30%. Imagine if that was 50, 50. And half the companies that we were working with at CED, we're able to get to level three strong product market. I think that would be epic. And I think our founders would, they're being credible benefits the ecosystem from that. Okay, so essentially 60 % of companies don't make it past L2. And I love the way you're framing it. If we can just get a few more companies further, that makes a massive dent both in the world and the lives of founders and people that want these products. Another question I wanted to talk about briefly is just again, the timelines of each of these levels, just in your rough experience.

1:07:01Like how long do each of these levels roughly take so people can get a sense of like, oh shit, I've been taking a lot longer. Maybe there's a problem. Yeah, so again, this whole thing probably takes four to six years. And so let's just pick five years as the number to get to level four. I think the way this works ideally is you probably take 12 to 18 months to do level one because that is the most important level, actually, in my mind, because that's where you're really choosing the right persona and the right problem to focus on. And I think it's like just that choice is one of the most important choices that founders make.

1:07:41And the interesting thing, you know, my partner Josh Kaplanman talks about this all the time is that founders spend 99 % of their time building because that's what they've done, right? And they spend like 1 % of their time picking and picking the market, picking the problem, picking the customer. And in reality, it's that pick that like determines the constraints and the boundaries of where you're going to be working for the next hopefully like 10 years of your life. So there's a real imbalance there. And I actually think that like, that pick is the most important thing. So I would actually like to spend, let's say, somewhere 12 to 18 months in level one, just really figuring that out and figuring out my four P's.

1:08:21And then hopefully I move very quickly. You know, it takes me a while to get to my first five customers, first five satisfied customers, but they love it. And then I go quickly from through L2, maybe that takes about a year. This is kind of like the looker, the looker path, right? The happy path. And then L3 is kind of long just because we're going all the way from, you know, 5 million in revenue up to 25. And that might take, you know, a year or two, probably two years, even in a good case. And then getting from 25 to 100 million is hard, obviously, very hard. And then that probably takes a couple of years.

1:08:51And then you're figuring out all of these things. Like you're growing your team and your company's got a lot more moving parts and functions. And there's like a demand generation side of the house and sales and there's engineering. And the whole thing just gets more complicated with a lot more people. But I think that if you set the foundation really nicely, kind of at level one and level two, that hopefully the whole thing, you know, the boulder is kind of rolling down the hill and it's carrying you forward. And you don't just feel like you're pushing this rock a pill for five years. I don't think that's like a, that's not a fun place to be.

1:09:22There's a lot of founders in that place. And I know if you, so just this is really interesting. So you're roughly saying that maybe spend a year, year and a half on level one, which is you're just grinding cold emailing, reaching out, selling customers, maybe getting to five customers in the first year and a half would be a good, like that's like at the extreme, but that's a good outcome. And then maybe another year trying to get to what was it? Twenty, twenty five customers. Going from five to twenty five quickly. Yeah, if I, if I see a company go from five customers to twenty five in a year, that is almost always a strong that there's like a sign that there's some pretty strong product market fit there.

1:09:56Awesome. So many companies don't go through that and they have the funding to kind of keep iterating, exploring, trying to figure things out. I imagine, I don't know if you have the answer here, but just what's your advice of like if it's been like four years and they're not, demand is not starting to come to them. They don't have twenty five customers. Is it wait until you run out of money, just give it a shot or is it? Let's just give the money back and move on to something else. Well, that's a personal decision for founders. I, I do think if you've been going at it for four to five years and you haven't started to find anything that you're really feeling pull from the market on, I don't know.

1:10:34You've done it for four to five years. It's like what are the chances that you're going to magically find something? I think there are probably a handful of startups that do it that figure it out and get back on like an amazing growth curve, but that's the exception rather than the role. So if a founder wants to return the money to investors, if a founder wants to look for a soft landing, there's no shame in that. Like product market fit is very, very hard. That's why we're doing this. That's why we're trying to increase the odds. And we're also trying to like sort of make it clear what it looks like.

1:11:05And what it doesn't look like. And everybody knows when they do a startup that the odds are that you will not get there. Right? And so there's no shame in that. And I would completely be supportive of any founder who wants to take that path. I love that advice. I think that was a really important point to make. Let's quickly summarize the levels. And then I want to also summarize the four Ps again. Because I think that's the thing you can actually do. And so I think I just want to reinforce. Here's the four things you should play with if things aren't going in the direction. So first of all, just summarize the levels, what it looks like and what you should be focusing on there.

1:11:38Okay. So level one, nascent product market fit. You're just trying to get three to five customers and you're focused on satisfaction. First and foremost, level two is developing. This is where you're going from five to 25 customers and you're really starting to focus on demand. Level three is strong product market fit. You're going from 25 customers up to 100 or more. And you've got to start thinking about efficiency at that scale. And then level four is extreme. You're more than 100 customers. Your company is awesome. You got to keep doing all three of those things well. And you have to start looking for ways to expand your total addressable market.

1:12:14Okay. Perfect. And then let's come back to the four Ps. I have a draft. I have your post up here. So I have kind of the detailed version of each of these things. But could you just talk through these four things just like what is it you should be thinking about changing if things aren't working in the four Ps basically? Yeah. So the four Ps again are persona problem promise and product. And the persona is interesting because in some ways it's synonymous with the market. A lot of people are like a lot of people think of the market in like this macro economic way where it's like oh, it's this category of ERP software, whatever.

1:12:52I think it's like much more tangible for a founder to think of the market as like a collection of people. Right? Like Jack Altman was thinking about his market as all of the HR leaders out there. And he was thinking about how many of them are there and what are the problems they have and how much money are they willing to spend on solving those problems? Like it's a it's a collection of people who who have money to to pay for a product or pay for a service. And so that's really the first piece like find the persona and really try to get into the mind of the persona. That's another thing I was amazed about, you know, spending time with Zach from Plaid and Lloyd from Looker and Jack from Ladis.

1:13:32They had all of these people like they were text messaging with all of their customers, right? And they're meeting them like on the weekends and stuff like they really, really knew their customer well. They were friends with their customers. And so you've got to get so deep into the mind of the persona and like, you know, what are their challenges? What are their goals? How do you help them sort of succeed at their job? That's the stuff that really gets you, you know, kind of earns you the right to get the rest of the piece right. And so the problem obviously comes next. And I think about this and I can actually get into Lenny a little bit if you want to do get into some of the customer discovery stuff because that's that's the second session.

1:14:13Perfect segue. Yeah. And I was talking a little bit about we think of it as dollar driven customer discovery. And you know, like I think a lot of founders are familiar with customer discovery. I think many like are they at least talk to customers, which is good. I don't think most of them do it in like the highest signal way because again, like customers are their people, they're nice, they're going to be polite, right? They're also not good at like predicting like things that they will use or buy or want, right? They're very good at talking about their problems, but they're not necessarily good at predicting their own behavior.

1:14:46So we think about it in terms of dollar driven discovery, which is how do you test the dollar potential of a hypothesis? And this is like a whole two hour session, but I'll try to do briefly here just to give you a sense. Let's get into it. Let's keep going. I'm just checking. So you've got to identify extreme value, right? This is like independent of what I'm building Lenny. Like I want to hear about your problems and your challenges and what is most important to you. And so I need to do it in kind of this like non -leading way. And I need to avoid the trap that we call happy ears with founder, you know, because like I found a lot of founders like I want to build this thing.

1:15:22I want you to like my thing. And so I like look for the things that you say that sort of like support what I'm doing. That's the trap, right? And so I could just try it on you Lenny. Like, oh yeah, I might say let's do it. Okay Lenny, so you are, you're doing Lenny's newsletter and you're building Lenny's podcast. What like when you think about we're sitting here in April, when over the next three months, let's say, what are your top three goals for Lenny's newsletter and Lenny's podcast? Oh, wow. Interesting. I'm trying to find a more scalable way to do this newsletter long term. It's basically something I have to do for the rest of my life and theory.

1:16:00I don't know if there's an exit path for this newsletter career. So I'm trying to find ways to scale this over time. That's one, two is just up leveling the quality of each podcast episode in terms of visuals and audio and trailers and things like that. And then three is make the community more valuable to everyone that listens. That's in the newsletter community. Those are top of mind. Okay, awesome. And so what's hard about those three things? Like you said, you want to scale the newsletter, you want to increase quality, you want to make the community awesome. Like what's what's hard about those things?

1:16:34What's standing in your way of doing those? I don't I don't have a I don't have the answer yet. I guess is the answer. I don't know exactly how to do this yet. You don't know how to do it. Okay. So what if I was able to it's probably a service in this case, not a product? What if I was able to give you a service that said Lenny, you're going to be able to scale this podcast. We are going to help you find the 500 best guests in the world that are really excellent. We're going to guarantee they show up. You're going to have endless content on your podcast in your newsletter. You know, what do you what do you think about that?

1:17:14What do you think about that idea? I pay a lot of money for that. And so okay, so that's like an example of like a wow statement, right? And you probably had in the back of your mind like, how are you going to do that? Like is that actually going to work? That's right. In in in my experience, that's a good thing and an exciting thing. Like if I'm sort of pitching a product idea to somebody and they are like, wow, does that really work? I mean, that thing works. I'd sign up for the wait list today. That to me is like, okay, now I got I got to figure out how to build that thing. But like, I know if I am able to build it and deliver on that promise, they are going to want it.

1:17:51Right? Or you would maybe say signs like you would demonstrate a behavior that that shows that you're interested in. Like you'd be like, Oh, Todd, can we meet again next week to talk about this? Or like, Hey, Todd, I actually would love to show this to the people I work with. Can you send me the deck? Those are like the signs that I am looking for. If you had reacted like, yeah, that sounds kind of interesting. That's a no, right? That is a no. That is a polite way of saying the word interesting is a polite way of saying no. Right? And so I'm either looking for wow statements or I'm looking for demonstrated behavior that shows interest.

1:18:27I then would probably keep, if I want to keep going with this, and this is all in the identifying extreme value, I'd ask you like, well, what stands out as valuable here to you? Right? And I want to hear you answer quickly. You know, you mentioned it's either going to like, it's going to make my products so much better. It's going to drive, you know, success for my business or it's going to save me a bunch of money or something, save me a bunch of risk. Right? But something where you like would very quickly be able to identify like, why that's valuable to you. So that's kind of like part one is like extreme value.

1:18:54Then I got to sort of like figure out ability to pay and willingness to pay. And for you, this is like kind of easy because you're, you know, you're not like a 5 ,000 person company and like, you're the boss. So like, this is probably pretty like streamlined. Right? There's no like procurement function at Lenny's newsletter. But so like, let's say I'm sort of like going after a bigger company, the questions I'd ask on confirming the ability to pay are like, you know, are you currently looking for a product like this? Or are you building something internally? Like this is kind of the iron cloud thing, you know, where Jason was like, oh, you're looking for a CMO, CRLM already.

1:19:30Like if a customer like, you know, another way I think about it is like if a customer has a problem and like, I really think they have a problem and they know they have the problem and they're looking for a solution for the problem. Or they've even tried to build their own solution to it and failed. That's like the best customer, right? Because they know how hard it, they they want this thing badly, they've demonstrated that and they've actually failed at building it because they underestimate it how hard it was. So like, are you currently looking for building a solution here? Essentially, it's like there's a budget you're looking for is there money to go towards this problem?

1:20:01That's the next question I was going to say is like, where would a budget for this come from?

1:20:08And the either like we already spend money in some way, you know, for like a competing tool or something that can be displaced by you or we're spending, you know, we put five engineers together to like help build this thing, right? There's some source of budget that that I can get. And then the question is, well, how does your team make decisions on third party tools to bring on? And you're never going to get like the cleanest answer here. I mean, like in larger companies, you might get semi clean answers, but it's something like, okay, like this manager can approve it directly up to a certain dollar amount.

1:20:38If not, it goes to this sort of like next level up manager. And, you know, if it's like if we're going to spend more than 50K on it, we actually have to compare three different alternatives, but like whatever, there's like some known process, right? That's what I'm looking for rather than just like a bunch of ambiguity. So that's kind of like ability to pay. And then I'm going into willingness to pay. I want to try to quantify that. And so that's where I go, like, what, you know, what's your budget for solving this? What are you paying for this other tool? I just, let me show you mine. Is that's, you know, would you pay, you think that you'd pay less for that?

1:21:08You'd pay more for that, right? Can you replace this other thing with the thing I have? And then I love this question. I know, I think you've had Motivon, Ramonajam on the show, right? He has this question. He's from Simon Kutra. Like, I love his thing of like, Lenny, what is a fair price you would pay for this thing that I just described to you? And then you say your thing and then I go, okay, well, what would be an expensive price? And then you say, and then I say, okay, what would be a prohibitively expensive price? And you sort of ask those three questions. And like, generally when people tell you the fair price, it's a little bit of like, they're trying to get a deal.

1:21:41And the expensive price is the one, like, if the price could, the expensive price is the one that they would actually pay, right? That we're there saying it feels expensive, but you put it in front of them. You say, it costs this much. If it's really good, they want it, right? And the prohibitively expensive one is the one that's like too expensive and they'd have to just, I just can't do that, right? So I love these style of questions. I think they're just a lot more specific than what I see most founders doing, which is just like chatting with customers. You really want to try to like sort of put them to some questions where you know they're going to answer honestly because you're asking them questions.

1:22:13You're not asking them to speculate. You're asking them like fairly concrete stuff. Oh, and the thing I should say is like, in the two -hour session, like I mentioned, we should, like, it's like one thing to explain this stuff, but it's another thing to see it. And so we show like tons of Zoom recordings. Like from founders who have gone through the program, and we actually do this thing where all the founders who are going through the program, they record all their videos, their customer discovery videos, and then our team watches all of the videos and creates highlight reels. And so, you know, and we sit around in a room and watch them together.

1:22:48And we say like, oh, look at these questions that Lenny asked, and did you see how the customer responded? Wow, that's like an eyes -light up moment, or like Todd asked these questions. It's kind of leading the witness a little bit, and the customer didn't seem that interested. So the thing that's interesting is like, as a founder, you're, you never see anybody else's version of this, right? You only see, have your own experience. And so just like seeing how other founders do this, like in a real live setting is like super, like people love it. And it's always easy to like hear these things. It's much harder to be the person asking these questions to a potential customer you're trying to sell, and it's just asking like, how much would you pay for this?

1:23:23So I love that you kind of force people through the actual practice of it. Todd, you're going to get a lot of applicants for this program. This sounds amazing. And then you're giving a peek at the stuff that we haven't really talked about. On this point you just shared, which is essentially trying to get real skin in the game, insight into how to have a big of a problem. This is, I love that you just basically shared a bunch of questions. So we could just rewind right now and just write down all these questions that you shared and use them on your talking customers. Obviously the classic problem is they tell you they're going to buy it, but they don't.

1:23:51And all the stuff you shared is here's ways to get at will they actually buy it before they have the actual product? Is there anything else you want to say on that? Just like tips for not being tricked. And people just saying, oh yeah, I love this thing. I know you talked there a lot of this, but yeah, I think there's a couple of things. One is you have to know what to show people when you're actually showing them something. You know, lattice is the kind of product I mentioned that could be sold with Figma mockups. Looker couldn't be sold that way. Looker, you actually had to do a demo with their real data.

1:24:23So it required a lot more work to do that. Vanta was neither like a demo or a mockup. It was actually doing the work, right? And like pilot was like that. There's a bunch of companies like that. So you sort of have to figure out what is my product and sort of like how does it solve the problem? And therefore what what fidelity does my kind of early product or early demo have to be at in order to land the sale? And then I think you have to know when like when you've talked to enough people, it takes time to talk to people. And kind of the rule of thumb is like if you talk to enough people and you can like predict 70 to 80 percent of what the next person is going to say to you because you've just talked to so many people and you've heard the patterns so clearly that's when you've talked to enough people.

1:25:04But these are you know, these are all like things you got to learn and that's why like doing it experientially in the way that we do the program we think is was best. Is there anything that we haven't covered that you wanted to touch on before we let you go? No, I just you know, if you're listening, if you're a B2B founder kind of in those early days of starting your company or you know anyone who fits that description and you have an appreciation for just how hard it is to find product market fit and you don't want to go it alone, then please apply to this program or share the application like we promise we will review every single application.

1:25:35And I'm just really looking forward to working with a group of 20 or so amazing founders and helping them navigate these early days of product market fit findings. What I love to do. So just to make sure the right people apply, remind people who is a great fits. It's B2B founders and you said they're they've been added for six to nine months, something like that. Yeah, something in that zone or earlier. Yeah, and you sort of have an idea of what your product is. You have a hypothesis about what it is and who it's for, but you probably haven't started writing any code yet. Okay, and if they've been at it for four years and haven't found success, this is not fit for that.

1:26:05There's not a fit. I could try to help them one on one, but no, that's not a fit for this program. Yeah. And then how do they apply and when when their applications do? Yeah, so you go to pmf .firstround .com applications are open. They're going to go to May 7th, and then the program starts on May 29th. And if you want to reach out to me specifically, you can find me on Twitter. I'm at tjac .jac. You can follow me DM me and yeah, I'm looking forward to working with some amazing founders that I know are listening right now. Amazing. I'm so happy we did this. I feel like this conversation is going to help a ton of founders and they're going to come back to it again and again.

1:26:40Todd, thank you so much for being here. Lenny, it's been a pleasure. It's been my pleasure. Bye everyone.