Like a Glove Podcast, Episode 14: Ongoing Maintenance, with Jason Whitney

JASON:
I’ve been engaged with the startup community in Indiana for quite a while, probably seven or eight years, currently associate vice president at IU Ventures and executive director of the IU Angel Network. So we work with high net­­‑worth individuals who are trying to connect back to startups that have some Indiana University DNA.

PAT:
Cool. And what does “Indiana University DNA” mean?

JASON:
Yeah, so a variety of different things. It could be a faculty member who’s trying to start a startup company based on the research that they’re doing. It could be an alumni who has started something all across the country, could be a parent of a current student, could be a company that’s not affiliated with the university that’s trying to commercialize some intellectual property that’s owned by the university.

PAT:
Gotcha. And so your job is to engage angels to invest in potential startups, but also through IU Ventures specifically, you’ve got a philanthropic fund that invests in startups, right?

JASON:
Yeah. So we do some traditional venture investments on our own, but also provide opportunities for our alumni to help engage and try and help commercialize some of that research, become customers, advisors, technical support folks for those, those startup companies.

PAT:
And so you see a lot of deals then, right. So you’ve been in this position for—

JASON:
Two years. Yeah. Yeah.

PAT:
How many deals would you say you see a year? I mean, certainly in the first year, you guys were going at breakneck speed.

JASON:
Yeah. Well, there was a backlog of deals that needed to be reviewed. I mean, we’ve, we’re up over 325 deals in the last 24 months. So I mean, a hundred, 120 deals a year is probably our steady flow going forward and we kind of scaled back those efforts a little bit because I think we got out over our skis and we’re having to now manage the portfolio that we’ve developed. But as we start to ramp that back up with the development of our angel network, we’ll see a lot more deals.

PAT:
Gotcha. And so that first year was plowing through that backlog and also establishing that you guys were real, credible investors, right. That you had a portfolio and you had the wherewithal and expertise to actually invest.

JASON:
Yeah. We were just trying to prove we could do deals, but also help to create support and syndicate networks for, especially the faculty members who didn’t have the network that we had around the country to help bring money back to the state and to help support those companies.

PAT:
Awesome. So part of the reason I wanted to have you on was because we’ve had a lot of startup CEOs on so far, and I really wanted to get a perspective from the other side of the table. And so what’s your definition of product-market fit?

JASON:
Yeah. It’s interesting question. I think that’s the point when you’re out sitting across the table from the customer, and you’re not having to convince them that your product has value and can benefit their company, and they’re actually wanting you to come engage in their company, or telling their friends about your service so that they can help be advocates for your sales process.

PAT:
Gotcha. So in your mind, it’s an easy conversation with the prospect. They easily get, “Hey, why does this product or service solve my pain point?”

JASON:
Yep.

PAT:
Gotcha. Are there things they say in the conversation that make you kind of come to that conclusion, or is it just kind of a more overall feeling of, “Okay, yeah, this is an easy conversation to have”?

JASON:
I think a lot of times when we’re talking with startup founders, we can tell that they’ve reached that point based on how long the sales cycle is, especially in those B2B SaaS sales industries. And if they’re a year and a half process, or they’re selling to the wrong person, they’re trying to push it into the wrong place of the company, we can get a good idea of the fact that they’ve got product-market fit. But if they’re talking about how nice it is to go into a company and be able to engage with those folks, then we know that they’re there.

PAT:
And how do you know if a sales cycle is long. I mean, if it’s a year and a half for most companies, that’s going to be long. But if you are, I don’t know, trying to sell a rocket to the U S government, right, a year and a half is probably …

JASON:
Right. Yeah. Yeah. Especially a lot of the companies we deal with sell into the healthcare space. And if you’ve ever tried to sell into a hospital chain, it’s ridiculously long and you can’t figure out who the right person is to sell to. But if it’s something that’s a sales enablement product, it’s probably a much shorter time cycle, because it’s something that’s directly driving revenue. If it’s something that’s on the purchasing side, it could be a lot longer because they don’t see that direct ROI back from the purchase of your product. Yeah.

PAT:
Gotcha. So with the length of sales cycles is driven a little bit by the type of product you have and how big their pain point is. So that’s part of it. And what I also heard was maybe it’s the right or wrong person too. If you’re trying to push it into the wrong department, you’re pushing a sales enablement product to purchasing, you’re going to have problems.

JASON:
We see that all the time, people are selling to the wrong person in an organization and struggling to get their product into the market. And it’s really just a byproduct of the fact that they don’t know who they’re supposed to be selling to. Especially in that hospital market, a lot of times companies will say, “The doctors love it. I’m selling it to the doctors.” But at the end of the day, the doctors aren’t the one who’s cutting the check for your product. It’s that finance manager down the road. Or they discount the fact that it might have to engage with the operations people or building maintenance people who also need to be on board, and they’re not selling to them, either.

PAT:
So folks are selling to the end user, the doctor in that case, but they’re not selling to the person actually who has control of the budget.

JASON:
Yeah. Yeah. So the messaging is totally different.

PAT:
Yeah. Gotcha. And so in that case, it’s, you have to have different messaging, a different approach, depending upon who you’re talking to.

JASON:
Yeah, for sure. Yeah.

PAT:
So you work with a lot of startups, you see a lot of deals, you said you see them selling to the wrong person quite a bit. What’s the most common mistake you see them making about product-market fit specifically?

JASON:
Yeah, probably a couple of things. One, that they think that their product is the end-all, be-all solution to that problem space. And they’re not willing to listen to the feedback from the customer or potential customer to help modify the product, to make it fit better into that space. But also another area where I think there is a mistake being made is, they might have a really good solution, but they’re discounting what’s currently the solution for that customer. So it could be that you’re selling an enterprise-level B2B SaaS product, and you’re ignoring the fact that they’re currently addressing that problem with two different softwares that they have year-to-year contracts on, that are cost prohibitive for them to then bring in your product. So although they may love your product, the finances of it might not work at this point in time for them to be able to bring it on board.

PAT:
So the switching cost in that instance is going to be too high for them to do anything, right.

JASON:
Yeah. Yeah. And that’s, I mean, that’s kind of a hidden cost, right? You just don’t assume that that’s there when you’re going in to talk to your potential customers. And they could be your best friend and your best customer ever, but the money just doesn’t add up.

PAT:
Gotcha. And the first part of your answer was, you said, you know, folks think they’re kind of the end-all, be-all for that particular problem space, but they don’t listen to feedback. And so for startup founders out there, how do you distinguish between, “Okay, I heard this feedback, and I dismiss it, because I think I have a different vision of how the world should work or how this industry should work” versus “I’m just stubborn, and I’m just not going to listen, period.”

JASON:
Yeah. I mean, I think that’s where you have to trust your customers and those initial people that you’re putting your product in their hands. You have to know that they’re good stewards of what you’re doing, and they’re your friends, and they’re giving you honest feedback. And you know, if at the end of the day, you’re too stubborn to listen to them, you probably need to move on and do something else. But if you’re not directly using that product in your business, and they are, I mean, you kind of have to roll with them.

PAT:
Right. You have to listen to them because ultimately, they’re going to be the ones that cut a check to you.

JASON:
They determine your success, right? It’s not whether you think you’ve got a really cool product, it’s whether they think you have a really cool product.

PAT:
Does your perspective on this common mistake in product-market fit, does it change from industry to industry, software to non-software companies? And do you notice any patterns, or is it pretty much the same across any startup?

JASON:
We do work with some folks who are outside of the software space who maybe have a medical device or a durable good. Obviously it’s much harder for them to produce a product, change it based on feedback, get it back out into the market. It’s much more cost-prohibitive for them to put it in a lot of people’s hands, because then you got to physically make a lot of whatever that is. So much harder in that space than it is in the software space, where you can just deploy it out a bunch of different places.

Pat:And so does that, to take a little bit of a tangent here, is that where technologies like 3D printing really come into play, where you can do one offs?

JASON:
That’s true. Yeah. You can, you can 3D print something overnight and have it back out in somebody’s hands and iterate on it rather rapidly, but it’s not always possible, right.

PAT:
So which startups do you see that don’t make this mistake? I mean, what’s kind of the characteristics of the founders where they’re willing to listen to customers and they, you know, they think their product is really good, but they don’t believe it’s the end-all, be-all.

JASON:
You know, I think that question–more than the reliance on the customers and trusting the customer, I think that comes back to mentors and advisors that that founder has surrounded themselves with. And have you been working in a silo this entire time while you developed your product, and then you start pushing it out into market. So, you know, it’s been your baby for however long this development process has been. But if you’ve surrounded yourself with talented, experienced mentors and advisors who have challenged you to get outside of your comfort zone and have asked you questions throughout the process, even if they’re not potential customers for you, I think those are the people who are more successful and are less likely to make this product-market fit error or take this process out years and years and years where you’re, you’re already done at that point.

PAT:
That’s a really good perspective. So if somebody has a mentor on board at the beginning of their startup, they’re probably more open to hearing feedback, but also they’re getting more regular feedback and they’re getting a different perspective. And presumably the mentor has not just general startup experience, but they have domain experience, right? And so they can give them true and real feedback in addition to what their customers are saying.

JASON:
Yeah. Yeah. I think the folks, you know, especially in our ecosystem that are open to asking for help are definitely the ones who are more successful.

PAT:
Can you talk maybe a little bit about, or maybe give some examples where you saw really great product-market fit in either just a startup in general that you’ve seen or specifically any of the companies you’ve invested in?

JASON:
Well, I guess other than that, I don’t want to name names, but you know, a company like Slack that is highly regarded as having a great model of product-market fit, where they got it out to a bunch of people, they actively listened to that user feedback, and then it spread virally throughout that community, is a great example of product-market fit. And, you know, I was reading a story not too long ago, about the founder of Slack, who was the person who was listening to Twitter to see the comments, right. Personally on Twitter, responding to people’s concerns with the product and then able to take that back to the product development team. I think it’s a really interesting one. I mean, on the bad side, you got people who thought they had great product-market fit just because they were the first person to market. And then in reality, you were just the first person there. It was a terrible product, but you were just the first person who identified that problem and had a solution for it. That creates some problems as well, but didn’t actually listen to any other customers.

PAT:
So the CEO really needs to be the one, at the very beginning of the startup, for sure, they need to be the one listing to customers, not just the product manager or whoever’s head of product, right?

JASON:
Yeah. Cause those are the people, that’s the person that’s going to make your first couple of sales anyway, right? So they definitely need to be the person who’s out there and listening to the customers so that they can better reflect their product back to those people.

PAT:
So the person closest to the customer who kind of has the ability to take that feedback and to really listen to the customer and make actual changes. But let’s shift a little bit to a subset of product-market fit and talk specifically about market size.

JASON:
Ah, the dreaded market size.

PAT:
You know, from investor’s perspective, when a startup is pitching you for their beachhead market, that initial market, how do they make it small enough so that they can target enough of the right folks to give them feedback on product-market fit, but it’s not so small that you turn off a potential investor, and they get anchored on, “Hey, this is a super small market,” and just tune you out the rest of the pitch.

JASON:
Yeah. I mean, if you come into our investment committee with a really small market, we’re going to bang on you. And if you come in with a really big market, we’re going to bang on you. Right. So it’s like, I understand the quandary from the person on the other side of the table. Like, “What am I supposed to say here that doesn’t get me beat up on?” But I think the right answer there is, I would rather you come in with that smaller beachhead market, but come in with a plan to show me what you’re going to learn from that small market and how you’re going to then transition that into the larger market. And maybe it’s the mid-size market and then the larger market, but what’s the timeline to expand out into those markets, and how are you going to transition what you’ve learned into those other spaces?

PAT:
So from your perspective, it’s less about the size of the market, but hey, what are you going to learn and how are you going to transition from one market to the next, right? You can’t just say, I’m going to do it. You got to have an actual plan.

JASON:
Why are you going to that next market? And how are you going to leverage those initial relationships to get into that next market?

PAT:
And the timeframe to do all that, right? And that fits into how much capital you need to raise and use the funds. Right? And so that, that’s a really important piece that, that timeframe.

JASON:
And nobody ever comes in with that slide, either.

PAT:
Really.

JASON:
I never see anybody with a really well-developed slide that reflects the timeframe and why they’re going from market to market.

PAT:
I mean, I’m kind of stunned. I mean, if somebody had that slide, is that going to be good for you, because nobody else does that?

JASON:
I’d much rather somebody bring that slide in, right? Yeah. I mean, we’re early stage investors and I would rather know that you at least have a roadmap. We all know we’re going to pivot at some point. So I’m okay with pivoting, we pivot as an organization ourselves, but we like to know where those pivot points could be and what the milestones are that we’re going to use to determine if we need to pivot.

PAT:
And so from your perspective, you’d want to see somebody draw a line in the sand and say, “Hey, this is how I’m going to pivot” or “how I’m going to transition from one market to the next.” And maybe it’s going to end up being wrong based upon what we learn over the next one or two years. But you’d rather them draw a line in the sand and know that you’re at least thinking about it.

JASON:
That’s probably the best way to put it is, you’re at least thinking about it. How do you look at it as an angel investor?

PAT:
You know, I guess now I’m thinking back on all the pitches I’ve seen, I don’t know that I’ve ever seen somebody talk about specifically the transitions from one market to the next. Like they’ll always have here’s market size a, market size b. But they don’t talk about the transitions. What do we hope to learn at least from the beachhead market? You know, once you get to the second or third market, who knows what you’re going to learn there. But yeah, that our initial market, I don’t think I’ve ever seen that before. They just kind of assume they’re gonna continue to grow big.

JASON:
That’s exactly right. “I’m going to have this growth curve, and I’m going to stay on it. And this is the next logical market that I’m going to go to.” Okay. It’s just a guess.

PAT:
“And this is going to be the only round we’ve ever raised, because we’re definitely going to be profitable by the end of it.”

JASON:
Right. I heard that earlier this week.

PAT:
And so for you, it really doesn’t, it doesn’t matter, the size of your beachhead market doesn’t really matter in relation to that final ultimate market. It really matters about what the transition is, what you learn, and what the timeframe is.

JASON:
Yeah. Yeah. It doesn’t matter to me what size that market is, but I just want to know that you’ve got an idea of what that market is. I see a lot of people who say, “My product is for everyone. Everyone is my customer.“ Like, okay, well, please get out of my office. Like, let’s narrow that down. And I think that that kind of flow that we just talked about, will help to address that.

PAT:
Yeah. And so for those folks who do truly believe their product is for everyone, do you spend time convincing them that they need to start with a smaller market? Or are you just like, “Nope, I’m going to pass on this deal and find somebody who already understands that.”

JASON:
No, I think it’s important as an investor to give that accurate feedback back to the companies and to talk to them about why you would initially not be a yes, because of an aspect like that and to try and work with them, through them on that process. We’re doing everybody a disservice if we don’t do that.

PAT:
If you don’t teach them and don’t tell them what you’re looking for. That’s fair. And so hopefully they’ll listen to and make some changes. How much time has to pass and how much does the company need to change in order for you to maybe invest at that point?

JASON:
Yup. Yeah. I mean, those are all fair questions coming back to us from the entrepreneur. And obviously there’s a lot of ambiguity there that can take place. But I think for the founders, they should ask those questions when people are saying no, because most people are going to want to provide that feedback. Cause it’s better for the next investor. And it helps us develop a relationship, because this is not going to be your first startup. So the next time you come in, I want to have a good working relationship with you to be able to invest in your next company.

PAT:
Even as an institutional investor, you’re really looking for, Okay, I don’t want just this deal, I want you, and I want to make sure that whenever your next startup comes around, that we teach you and educate you on what we’re looking for so that we do get in that next deal.

JASON:
Yeah, for sure. You’re going to have another one, and either I want to get in on it or one of my friends wants to get in on it. So let’s help everybody out.

PAT:
Gotcha. You know, if a company doesn’t have product-market fit, how do you know whether you need to change your product or market or both? What’s the thought process on approaching that?

JASON:
Yeah. I mean, I think you, at the beginning of the product-market fit process, you’ve identified who your customers are and what markets you want to go towards, right. So you’ve done your research, you know where you’re trying to target your product. If you have a nice working relationship with those folks who have your beta product in their hands, if it’s not going well over time and you’ve changed the product a little bit and it still isn’t working, I would try and uncover with those folks, is it nice to have, or a must have? Is the problem even appropriate for the people in this market? Like am I just shooting at a blank target? So if you’re able to ask the right questions with those folks and uncover if they ever really actually need to solve this problem, even though it’s an identified problem, and the answer’s no, then it might be time to move on to another market if you’ve done some small tweaks.

PAT:
Gotcha. And so it’s a nice-to-have product to fix this pain point or a must-have. And I think probably some of that goes back to what you said earlier about, hey, there’s other problems in the market or other problems with this client that, that maybe I didn’t see, like, hey, they’re in a one- or two-year contract, or maybe actually my product is better than what they’re doing now, but the cost of moving is just too much. Your product’s only 5% better, but there’s going to be a 100% switching cost.

JASON:
There’s a lot of variables there that are outside of your control.

PAT:
And so, do you right-size your market? If somebody, if most of the folks that you’re trying to sell to are in one- or two-year contracts, I don’t know, somehow you figured that out, that that’s kind of industry standard–do you right-size your market so that, okay, it’s literally half of what I thought it was going to be, because I can’t sell to some of these folks that they’re just not legally ready yet?

JASON:
Ready. Yeah. You have to.

PAT:
Tell me, what do you think is the single biggest thing folks can do to get better at product-market fit?

JASON:
You know, I think it would be constantly be seeking it. Even if you are close to the point where you think you’re there, you have to continue to engage with those customers and your trusted partners to be able to always iterate your product, even when you’re in the market. Because just because you found a fit today, it doesn’t mean tomorrow some kid in Palo Alto hasn’t come up with something that’s even better than what you’ve got, and he’s already knocking on the door of your customers. He or she is knocking on the door of your customers. So I would say to be better at it, you have to do it more, just like everything we do. And you have to continually ask those questions of your customers and your prospective customers.

PAT:
So at what point, you know, once you’ve found that initial product-market fit, I mean, how often do you need to keep iterating? To make sure you still have it? Because you have to focus on other things like sales, growing sales, right? You can’t just say, Hey, let me keep making this product perfect. I mean, yeah, maybe that’s the right mindset, but can you functionally and practically do that?

JASON:
I mean, obviously it’s cost prohibitive to always be doing that, but I think it’s on all of us to set a routine and to constantly push out those updates to help better the product, whether it’s a quarterly update or a monthly update to, to continue to do that.

PAT:
Gotcha. And so that’s one big theme I’ve heard through all of these interviews is, Aet up some sort of structure so that you’re constantly working on product-market fit. And that it’s something that is not necessarily at the forefront, but it’s something that you can’t forget about. Right? So it’s either, “Hey, 15 percent of so-and-so’s time is going to be focused on product-market fit” or “Set up a monthly update” or “X number of customer interviews every month.” So that it kind of forces, it’s a forcing mechanism to make sure you don’t forget about them.

JASON:
And I don’t hear founders talk about that aspect of it a lot, of the ongoing maintenance, right. We have to do that for our cars and our homes. And we need to do it for our business as well to continue to stay on top of that stuff and not let things get away from us.

PAT:
That’s a really good perspective. There’s kind of maintenance for product-market fit. Right. So you’ve kind of initially built the house, right. And then you can’t just say, “all right, I’m going to live in it. And it’s going to last over the next 50 years.” You gotta continually fix things and tweak things. And yeah, that makes a lot of sense.
All right. That does it for this episode. Jason, I appreciate you coming on. Thanks. What’s the best way folks can get in touch with you?

JASON:
IUventures.com is probably the best way. We have opportunities to engage there. And we spend a lot of time on the road talking to folks across the country, so we’re happy to meet up when we’re doing that.

PAT:
Especially if you’re an IU alum, who’s a founder, you definitely want to talk, right?

JASON:
Or if you’re in a warm weather place in a winter month. We’re happy to meet with you.

PAT:
All right. Thanks, Jason. I appreciate you coming on.

Like a Glove is a production of The Mill, a coworking and business incubator space in Bloomington, Indiana. Our mission is to launch and accelerate high-potential companies, and our vision is to become the center of coworking and entrepreneurship in Indiana. You can learn more about The Mill at dimensionmill.org. Thanks for listening, and be sure to check back every other Monday for new episodes.