The Exchanges

Q Let's talk about level four. What does that look like? What are some problems people run into there? Yeah.

A So first of all, congrats. I mean, if you get to level four, You have a valuable company, right? Like you, you are probably already a unicorn and you're starting to think about, can I become a deck of corn? And so you've reached like 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 a hundred people. Uh, you're like series C, series D or beyond. You've got more than a hundred customers and you're starting to figure out how do I get to 203 hundred, eventually a thousand customers. You're beyond twenty five million in ARR. So like twenty five million and up, I think in ARR, it qualifies as level four. And your, your, your other metrics are looking really good too, right? Like your, your sales conversion first call to 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, and finally now you've got your gross margin above 80%. Your burn multiple is ideally less than one at this point. Um, you've got less than 10% churn. You've got greater than a 120% NRR. And so now the whole thing is like, well, how do I keep growing? Like, I mean, like this, you know, this thing's gotten pretty big and this is generally, you know, you know, when we get to a hundred million, esp…

AI assessment note: “benchmarks at level four are like, okay, now your team is probably bigger than a hundred”

Q to spend a few minutes on setting a little context, just so people understand who this is for and how to think about this. So maybe a first question is just why do you believe people need a framework for finding product market fit? And just also, if you want to touch on why is product market fit so important, why is that something people should even be thinking about?

A You know, the thing about product market fit is that I find it's mysterious to a lot of people. And people tend to think about it purely as an art rather than a science. And, you know, all the advice that you find out there on the internet is like very general when it comes to product market failure. You'll know it when you see it, you'll know it when you have it, right? It's not specific. And there's so many other startup topics where there is good content on the internet, you know, like hiring your first salesperson, running board meetings, uh, stuff that is specific and tactical, but there isn't That much content around product market fit that is that specific. And so I think that's actually why, you know, like Rahul from superhuman is kind of well known for his approach to finding product market fit that was published on the first round review in 2018. And it was like immediately popular and interesting to people. And I think the reason is because it was specific and because it was tactical and it brought a little bit of the science to something that people thought was just an art. And I think it's why your content is really popular too, Lenny. You know, like you, you and I worked on this, uh, product validation article together a little while back and the seven part series that you did on, uh, B to B SaaS companies and like the, the PMF benchmarking data that you had, like…

AI assessment note: “there isn't That much content around product market fit that is that specific.”

Q Last question. You mentioned that it's free. How does that work? How does that work for everyone? Yeah.

A So it's a hundred percent free and literally it costs you zero dollars. We give you zero dollars. We own zero percent of your company. And that's pretty different than I think a lot of other programs out there. And this is just something we do over the years. We've run first round angel track, which I know you were in Lenny. We've run the first round review for 10 years. We make these things free. And our belief is that you have to create value in the ecosystem. You have to put stuff out in the world that is useful. And if you can create that value, create enough value with the audience, then you'll be able to capture that value at some point. And so we think there's a win-win here. We get an inside look at some of tomorrow's great companies and they get an inside look at first round.

AI assessment note: “We get an inside look at some of tomorrow's great companies and they get”

Q Essentially it's like, there's a budget you're looking for. Is there money to go towards this problem?

A That's, that's the next question I was going to say is like, where would a budget for this come from? And the best answer is that there's an existing budget, right? Like 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. If not, it goes to this sort of like next level up a manager. And, um, you know, if it's like, if we're going to spend more than 50 K 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 don't want to try to quantify that. And so that's where I go like, well, 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, you …

AI assessment note: “the best answer is that there's an existing budget, right?”

Q And in your experience, do you find essentially pivoting is the answer if you're stuck?

A I think sometimes it's, it's nice when it's the ironclad thing, right? It's, or I mean, it's, it's nicest when it's the looker thing. It's 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 the, 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. I 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, you've seen many startups kind of struggle with this. I think it's the hardest part of it.

AI assessment note: “Starting over with all four of these is hard... But oftentimes it's what's required.”

Q solving. You could change the way you're pitching it, which is the promise is how you describe it, basically positioning. And then you could also just change your product. Uh, you mentioned ban to change shell for some companies change this one. Any advice for how to know which of these to change? Like where, what points you to change this? Versus change that. Is there anything that you've seen?

A I think different founders approach this differently. And I've seen a lot of founders who are build first and then sell. And I've seen a lot of founders who are sell 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. And 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, you know, I'm gonna write, I'm gonna write, you know, 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. Right? Like I know these people want this thing. So I tend to approach it from, from that point of view. And therefore I focus on the persona and the problem and the promise, right? What is the promise that is really gonna click for that, for that buyer, for that persona. And then it's the product. The product's job is to satisfy those first three Ps really.

AI assessment note: “I focus on the persona and the problem and the promise... And then it's the product.”