The Most Dangerous Moment

Hello Predictable Revenue community,

I'm writing this on Thursday night after giving a talk at Lightfield's office in San Francisco.

About 40 founders showed up to hear me talk about the most dangerous moment in a startup's life. The irony wasn't lost on me. I was standing in a CRM company's office telling founders not to buy a CRM.

But I'm getting ahead of myself. 

A few years ago, my team at Predictable Revenue got tapped by Uber to help them launch Uber Eats. Same team we'd deployed to hundreds of other companies. Same playbook. Same effort.

The results were 33 times better.

Not 33% better. 33x.

Same people. Same process. The only thing that changed was the market opportunity they were pursuing.

That's when I realized something I'd been getting wrong for years. Product-market fit isn't binary. It's not on or off. It has strength. And that strength multiplies everything downstream.

This changes everything about how you should think about scaling.

The trap everyone falls into

Here's the mental model almost every founder operates with:

Interview a bunch of potential customers. Find a gap. Build an MVP. Get 10 companies to give you money for it. Declare you “have product-market fit” and then switch into sales mode. Hire a salesperson, maybe a BDR, pour gas on the fire.

It feels logical. It feels clean.

It's also how most startups kill themselves.

Not die. Kill. Because no matter what survey you look at, the number one killer of startups is premature scale. Spending your cash reserves on anything that won't produce a return before you've actually figured out what you're scaling.

And the time you're most likely to make this mistake? Right after you land your first 10 customers.

The pressure is real. Investors ask about pipeline. Advisors ask how you'll scale. Internally, there's this gnawing fear that maybe this won't last. A strong urge to "get sales off my plate."

So founders react. They hire.

Here's what I see happen over and over:

You have 10 customers. Four are from one ICP. Three aren't really using the product anymore. Three are from a previous iteration of your MVP that you probably aren't going to support moving forward.

You hire a salesperson. Takes 2-3 months to find someone good. They take 3 months to ramp. Now they're 5 months in, haven't closed much, complaining they have to source their own meetings. You give them 3 months to show progress. They never produce enough to be profitable. You fire them with 2 months severance because you want to protect your reputation.

Eight months gone. Plus salaries, tooling, and the time you invested helping them learn.

Sales mode doesn't fail because salespeople are bad. It fails because you don't have a strong enough signal to guide them. You can't teach someone what you don't know yet. Who to target, why they buy, where to find more of them.

What to do instead

I stole the answer from Keith Putnam-Delaney, the founder of Lightfield (where I gave this talk tonight), when I interviewed him for our podcast last month.

Keith and his team built Tome first. It had huge usage but weak pull and was hard to monetize. They ran pilots, did good work, but nobody would pay. They made the hard call to pivot and shrink the team from 70 people down to 7.

They earned their first users by trading desk space in their office to 12 startups in exchange for feedback on their new tool, which eventually became Lightfield.

The tell that they were onto something? People used it daily and had strong opinions about it.

Then they asked those 12 customers one question: "What do we need to build to get you to introduce us to 3 founders?"

That got them from 12 to 30 customers.

The best part? They didn't let themselves invest in any GTM until they hit 100 customers.

This is what staying in customer development mode looks like. Earn referrals first, then scale.

The 3/10/30 rule

Your first and only goal is to make 3 customers extremely happy.

Ask them: "What features do I need to build to get you to refer me to 3 of your friends?"

Once you’ve delivered and they agree, ask each of them for a case study and introductions.

Once you have 10 customers, repeat the same question. What you're looking for here is to prove the pattern. This type of customer needs this set of features and is happy to part with this amount of revenue.

At 30 customers, you're proving repeatability. But now you also ask them how they typically buy tools like this, where they hang out online, where they consume content.

When done at this scale, it tells you what GTM channels you need to invest in and what type of team you'll need to build.

Before you hit this stage, you shouldn't be investing in GTM because you won't know what ICPs to focus on, the nuances that each of them care about, or what channels will work.

The numbers (3, 10, 30) aren't magic. They're checkpoints that tell you whether your funnel and referral ratio are getting stronger.

How to measure PMF strength

There are many ways to measure product-market fit strength, but my favorite is simple: the percentage of your customers who have given you a referral.

Just count the number of customers who have given you a warm intro divided by total customers.

The downside is some industries and personas aren't as conducive to providing referrals. The upside is it keeps you 100% focused on improving the product for your customers until they're comfortable giving you a referral.

When I scaled Carb.io from $0 to $1m ARR in 3 months, we had hit on such a big pain that every customer we brought on referred us to at least one more customer. That meant for every customer I onboarded, I could guarantee another one was coming.

At least until they realized our product had major issues. But that's a topic for another day.

You might be premature scaling if

You have more employees than customers.

You're spending more time in internal meetings than customer meetings.

You hired a sales team to "figure it out" instead of scaling something you already proved.

Customer feedback is filtered through multiple layers instead of getting it direct.

You're spending more cash to bring in fewer customers than when you started.

If any of this sounds familiar, you're not in trouble yet. But you need to pump the brakes.

Your job isn't to scale sales

If you take one thing from this email, take this:

Your job isn't to scale sales. Your job is to strengthen product-market fit.

When PMF is strong enough, scaling won't be a debate. It'll be obvious.

Customer development and sales aren't separate phases where one ends and the other begins. They're the same motion. You slowly adapt your process based on how feature complete your product is and how consistent your referral ratio and retention are.

Full sales mode is earned when those numbers are predictable. Not before.

What to do this week

Pick your 3 best customers. Ask them what it would take to get them to refer 3 peers to you. Start tracking your referral ratio.

That's it.

Don't buy a CRM. Don't hire a salesperson. Don't build a GTM motion.

Just talk to your customers and make them so happy they want to tell their friends.

Everything else can wait.

Collin

PS - I got my first organic mention in HackerNews as well as a few more reviews that came in, if you haven’t got your copy of The Terrifying Art of Finding Customers, today is the perfect day to do so. Why? Because it’s today and you’ll forget to do it tomorrow.

HN thread:

Amazon review: