Whether you are new or an established company – finding product-market fit is never easy
They could have continued being successful on a smaller scale and be stagnant but they recognized there is a global market opportunity and decided to act. Here is the story of Lemax, a successful Software-as-a-Service company from Croatia.
When starting any kind of business, testing your idea with your key users and/or customers is something you do not skip or do half-assed. If you do, the market will evaluate it for you eventually. However, when you are an established business, with years of service to your loyal customers – it’s easy to get lulled in by good sales and feedback. You may think you have found your niche, secret sauce, your competitive advantage… for the time being.
But your product market fit will constantly change. Because problems you are solving for your market evolve and change over time, said Željko Bak, VP of Products from Lemax, as we discussed new changes that await this web-based travel software for tour operators and travel agencies.
What happened next is a story about building a product company on the shoulders of an ordinary software development company. This story is still untold, it’s ongoing. I will share our successes and failures on this journey. If you are a Product person maybe it will inspire you to start your own company, or if you are a small software business owner it will open new perspectives and encourage you to dare the same. I expect many readers will recognize their situations, problems and will be able to try some solutions we tried.
Finding one’s true colors
Lemax has been in the industry for the last ten years offering digital solutions when digitalization was only starting to become a buzzword. You may think till this day their energy depleted, but they’ve proved that thought wrong each year.
So, why would they seek product-market fit again when they were already successful – or why should you? As Željko says, markets evolve and change over time, and so do your customers’ problems. And if you want to get ahead of the market and stay there – you need to keep up with those changes. Which is why it’s crucial to nurture your startup mindset and constantly innovate:
When it comes to innovation in B2B SaaS, it should be about discovering your customers’ problems, understanding their size, and deciding if they’re worth solving.
Željko also shared a key question that helped Lemax and can help you stay ahead of the market. Ask yourself from time to time: how would we solve problems for our customers today, knowing what we’ve learned so far?
Your product-market fit can be perfect – until it’s not anymore
For a long time, Lemax served small and medium businesses in the tourism industry and was quite successful in that field. Many of the SaaS companies start that way, building their way up. Especially if it is a complex service that is in fact at a forefront of digitalization in the industry. Željko explains:
You can probably recognize a lot of similar companies around us – building products for their clients, refining and maintaining those solutions. Our product was no different – it was developed in line with our customers’ needs and we were growing and delivering one project after another within our customer segment size.
Because small travel companies usually have similar, less complex demands, it was relatively easy for Lemax to service their customer base. But then their customer size started growing – at first slowly, and then more and more rapidly. Željko points out:
Being the swiss knife for your clients sounds good, but when you think about it in depth – you can see a lot of legacy issues that can hamper the company’s growth in the future.
The quantum leap: From small to big clients…
When you are doing well, when you are successfully fulfilling the needs of your customers, it’s easy to get stuck with your way of doing things. However, not only are the market and your customers’ problems evolving over time, there are also plenty of new players rising, with a fresh set of eyes to see what you’ve missed:
Reality in most industries today is that a lot of new startups will recognize the problems you’ve been solving for a long time and will bring in new approaches, new solutions, new technologies and new thinking to your clients.
In the travel industry, luckily for Lemax, that moment hasn’t happened yet. Even though companies are more and more aware of the need to digitally transform their business, there isn’t a single market leader or major industry disrupter in near sight. That’s why Lemax decided to be that kind of challenger. Željko explains:
We recognized we were already solving a huge problem for the industry, just on a smaller scale. So we asked ourselves: do we dare to step up into the biggest players’ arena and become the leading solution for our market? And we did dare.
However, if you are working for a B2B company you may suspect that is not a thing you just say and do.
How to get ready for – the scale?
In short terms, you will never be ready – enough. Željko points out vividly:
For years we’ve been providing customers with tens of users; then gradually came inquiries from customers with hundreds of users, and before we knew it – customers with thousands of users. And all of this was done through inbound sales, which confirmed to us that our market was hungry and in dire need of a solution like ours.
While it was super exciting, it was also a completely new challenge for us because the growth wasn’t linear – it was more of a quantum leap. There is no way you can be prepared for this. This raised the bar for everything we do, but also put a lot of stress on the company and our people – and triggered us to reevaluate and validate our product-market fit as preparation for the scaling stage when the tourism industry recovers.
Get the team ready!
Making that decision – to step into the biggest players’ arena and work their way to the top – Željko doesn’t hide, it wasn’t easy at all. If you decide to scale your business, he adds, you need to know there is no way to tell how it will affect your company – and change will happen everywhere. So, one of the crucial first steps for scaling preparations was to get the people on board with all the necessary changes.
All your teams need to collaborate in new ways, learn and do new jobs they never did before – from marketing, sales, through product development, delivery, and customer care. You also need to recognize what is no longer working and unlearn some old behaviors.
That’s all extremely important because the way you function internally is translated to your customers. Business owners usually do not think about this part enough, Željko believes.
No change comes for free
Last thing, but not least, the money. It is important to allocate the funding for growth and transformation into the global product company. For that purpose, most startups decide to take early-stage investments, often even before they have proven their product-market fit.
But Željko tells me they’ve decided on a different approach, arguably a more difficult one, which is to bootstrap.
It made more sense to us to finance our growth primarily through our sales revenue and not outside capital because we have a strong belief that our product value will grow enormously in the future. This decision allowed us to have complete autonomy over our product development, which was very important to us.
But there is no formula for this kind of decision. Every business owner needs to set his or her priorities straight and take into account the industry specifics she or he is in so they can make better decision which road to take – outside capital or bootstrapping.
No whiteboard will help you
“How will you know you have achieved product-market fit?” That is a question that you most probably have heard many times if you are reading this. Željko as Vice President of Product and Engineering is no exception, so he explains:
You cannot find product-market fit by brainstorming, analyzing, or spending time with your team in front of a whiteboard. What you can do is talk to your clients, run limited pilot projects, validate assumptions about the size of the problem your product is solving…, but the ultimate test are the customers themselves.
When you have customers that are renewing their subscriptions, and your user base is growing, you will get clear signs that you have achieved product-market fit. Then you need to ask yourself what has contributed to this and what deterred you from good results so you can proactively steer your efforts in the future.
Željko also shared with me some valuable practices and tips Lemax is trying to implement. First of all, your product team should continuously talk with clients to understand the unserved problems they are facing. In that process, you also need to assess if the potential clients are willing to invest in a solution that could solve them. This implies a lot of experimenting, Željko explains, and that requires the organization to be ready to take some risks and learn from its failures.
One of the most important changes we made was breaking down our single product into a portfolio of smaller products, each one delivering rounded value to our clients in a way that’s simpler and faster. So, at this point, we are making the shift from a one-size-fits-all solution to a number of specialized ones – which are easier to market, implement and support later.
For Lemax, decision to do that was only an appetizer to a whole new product market fit strategy. It will take some time for them to adjust to it in every way, but they’ve already made a few very important steps. So, if you want to learn how they’ve recalibrated after every milestone of that journey and how they’ve done this with the help of their customers, stay tuned for the next article.