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As the former COO of DigitalOcean, Karl built the business from 10 employees and under $10 million revenue to over 500 employees and $200 million revenue in five years. He previously managed and exited two startups. Now as M13’s Managing Partner, he oversees our day-to-day operations.

Karl Alomar

Partner

Watch any Hollywood interview, award ceremony, or acceptance speech, and you’ll probably hear artists, writers, or directors talk about the process. The magic stems from the right creative process, they say. 
Product development—especially digital product development—isn’t so different. Developing a product that fits the marketplace and sustains profitable growth, indeed, is all about process. 
In this guide, we’ll explore the concept of the agile process, articulate what it means to digital product development, and offer you what you need to know on relevant topics, including product-market fit, customer feedback, and testing and experimentation. 
What we’ll cover will most likely be of maximum benefit to startups focused on digital product development. And while several of the concepts we’ll discuss certainly can apply to physical product development, the principles we’ll focus on are most effective in a digital context. 
To help build the type of products that can change consumer behavior, we’ll explain the basics of: 
 <NumberedBullet number="1" highlight="Understanding product-market fit" />
 <NumberedBullet number="2" highlight="Making sense of common methodologies " />
 <NumberedBullet number="3" highlight="Picking an agile approach" />
 <NumberedBullet number="4" highlight="Testing the market" />
 <NumberedBullet number="5" highlight="Getting customer feedback" />
 <NumberedBullet number="6" highlight="Applying 5 successful tips " />
 <NumberedBullet number="7" highlight="Resources we love" />

Learn best practices—and common failures—of digital product development using agile and lean methodologies.

Novi, M13's astronaut mascot, is pointing to a visual cyclical process from idea to product. 

Lean+Agile Karl v2021

A Founder’s Practical Guide to Finding Product-Market Fit

M13’s product-market fit guide recommends the top tools and software to manage process and communication for your startup’s agile and lean methodologies.

Product-Market Fit: A Guide to Agile and Lean Methodologies | M13

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Lindsey was M13’s brand manager for three years before joining OPTE, an M13 portfolio company, as its director of community. She previously founded Marlowe Media.


Lindsey Marlowe

Our [first fireside chat of 2020](https://www.m13.co/organizational-culture-diversity-equity-and-inclusivity) explored how we can better prioritize diversity, equity, and inclusion in all aspects of work, including product development and design. Our panelist [Kevin Kearney](https://www.linkedin.com/in/kevinekearney/) is the Executive Creative Director at [Elephant](https://elephant.is/), a creative design agency. Over the course of his career he has worked on products and services for some of the world’s most successful companies: Disney, Samsung, NBC, The New York Times, Beats By Dre, and Hulu to name a few. 
Kevin is passionate about prioritizing diversity and inclusion in product development, and he works to combat the inherent bias that often exists during this process. Below, Kevin shares tactical tips for early-stage founders to consider during their own product builds. 
## How does DE&I affect product development and design?
There are several steps in the product design process that can introduce bias into the workflow. One artifact sometimes created during a traditional design process are “personas,” a semi-fictional audience profile that represents the background and traits of a segment of your audience. Use of personas is often inherently flawed because they aren’t often based on solid qualitative or quantitative research. So strategists and designers bring their own personal assumptions to these audience profiles based on their individual experiences. It also leads designers to make broad generalizations. For example, I’ve heard people say, “We should prioritize video because we’re designing for millennials and they all love video.” 
But beyond personal biases and generalizations, some of the most biased aspects of personas are the way specific attributes are created for the persona profile. These profiles often list out sample data for an individual such as household income, interests, car ownership, geographical locations, even a name and a portrait photo. All of these elements potentially introduce bias into the process. This bias is often unconscious and unintentional, but it still very much exists. We need to make sure we’re not reinforcing it by thinking more about the behaviors we’re designing for instead of the imaginary “people” we picture using the product. 
<GuideBox id="building-diversity-equity-and-inclusion-into-your-startup" /> 
## How do founders define their target audience in a non-biased way? ‍
Defining a target audience is never a super scientific process, especially at the earliest stages. Typically the audience you think you’ll have when you first launch your product can end up being very different from the one who actually uses your product throughout the lifecycle of your business. 
It’s good to have an idea of who your audience might be at the outset, but it’s more important to go out into the world and have conversations with people who represent your addressable audience. Those conversations can be one of the most impactful inputs in your process they can inspire a new way to think about your product, like new features you hadn’t thought of. It may even spin your whole idea into something very different than what you initially imagined. 
<TextCard text="One piece of advice I have for early-stage founders is to do qualitative research with a diverse group of people about your product category, your competitors, and their relevant behaviors." topic="Talent & Leadership" /> 
Look closely at the questions that you ask to ensure they’re not limiting, because it’s easy to cluster your field research into certain areas that can limit the exposure that you’d have to a more diverse audience. 
## How can founders think about serving the largest addressable market for field research and product testing? 
Tactically, there are great firms out there that can help you do the research and conduct the testing. I’d also recommend diversifying geographical locations by spanning your research across multiple cities and neighborhoods within those cities in order to achieve a more diverse makeup. Although it’s logistically harder to cover more ground, it’s one of the best ways you can avoid having one homogenous group of participants. 
<DotBullet highlight="Think about the way your questions are structured." text="Make sure they’re not falling into the traditional, binary “dropdown menu” categories that you usually see when people think about ethnic groups and gender identification. Create non-binary questions that allow for further differentiation of your groups." />
<DotBullet highlight="Make sure testing happens in an environment they’re comfortable with." text="Don’t necessarily have it in a lab setting. Do more ethnographic, contextual inquiry with people in their homes so you can understand more about the environment your product will live in. Make sure you’re not just asking broad questions about the space, but have people actually perform tasks related to products they already use that might be in the same, or even a competitive, space." /> 
<YoutubeVideo video="https://youtu.be/i6F7YV6Lu_M"/>

Try these strategies for more inclusive product development and design.

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Avoiding Product Design Bias: Considerations for Early-Stage Founders

For more inclusive product development and design, early-stage founders should rethink using personas and instead do more qualitative user research. 

Avoiding Product Design Bias | M13

Avoiding Product Design Bias: Tips for Early-Stage Founders

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As M13’s general partner, Latif leads the investment team. He was previously the managing director of Virgin Management, Sir Richard Branson’s investment firm focused on venture and growth technology investing in the Americas.

Latif Peracha

The term “product-market fit” (i.e. PMF) is used by both VCs and startups. The definition, however, can vary depending on your perspective. For investors, it’s a key metric—allowing you to remove one risk factor and giving you something to measure beyond intuition, personal experience with a beta version, or the length of a waitlist (or some other loose indicator of demand.) As a founder, it gives you the confidence that consumers value your product or service, letting you focus on accelerating growth. 
## Product-market fit: Does your company have it? 
As a core Series A firm, we measure PMF by considering the following:
<DotBullet highlight="Faster traction than a business can support." text=" It’s bursting at the seams and can’t seem to hire or ramp up manufacturing or servers fast enough to keep up with demand." />
<DotBullet highlight="Traction has been achieved with limited or no marketing." text="to keep up with demand. Traction has been achieved with limited or no marketing. An unaided trajectory indicates lightning in a bottle: a community of evangelists who found your product organically and love it enough to share with friends. As the famous Stanford professor Andy Rachleff once said, “You know you have fit if your product grows exponentially with no marketing. That is only possible if you have huge word of mouth. Word of mouth is only possible if you have delighted your customer.”
" />
<DotBullet highlight="Before you invest significantly in growth, you must establish a baseline proving you’ve reached some level of this fit." text="We recently invested in Coinmine, a D2C crypto mining business that found this magic. With no real marketing budget, revenue is growing [100% MoM], customers are buying multiple products and are arriving in droves. Who are these people? What’s driving growth? Why are people buying multiple products (at a $799 price point)? When you start asking these questions, you know you’ve found it. Now is the time to find answers and start spending marketing dollars to accelerate growth.
" />
<DotBullet highlight="But here’s the trick: Your unit economics have to work without substantially changing the value proposition. " text="If you have a freemium model, the math must work once you start charging for your product or service. If you have not yet initiated a pricing model, you must have data points that indicate a willingness to pay. This includes high engagement rates, glowing customer references, and some NPS-type measurement, etc." />
<TextCard text="Your unit economics have to work without substantially changing the value proposition." topic: "Product" />
As an investor, we need to have a high level of confidence that charging or introducing a revenue model does not change the consumer experience or demand. Take a look at Pinterest, for example. Its first years were spent focused on product and user growth. Only after they amassed 100M MAUs in 2015 did they turn to an advertising model.
<DotBullet highlight="If you are generating negative gross margins on every sale," text="you are either subsidizing your growth by trading pricing for market share (i.e. Uber/Lyft), or you have an ineffective business model and should probably try something new. Marketing expenses are typically below gross and contribution margin, but must be considered through a ratio that indicates that the lifetime value of a customer is great enough to justify the customer acquisition cost." />
<DotBullet highlight="It’s also important to avoid the fallacy of large numbers." text=" TAMs can also fall into this category—a topic for another day! A long list of registered users waiting for a product launch is helpful, but doesn’t meet the definition of product-market fit." />
## Engagement is key
Engagement is critical—without this, it’s difficult to build a sound business. And it doesn’t matter how small the engaged group is. If there is recurring, organic engagement and the math on a per unit basis works (or we have confidence that it can work), investors will pay attention. We often make investment decisions by extrapolating from early, limited cohort data. In fact, this stage is our sweet spot. Valuations tend to be (more) reasonable when we are required to extrapolate off of a small base of engaged users. We are also looking at the data driving the engagement. After all, not all customers are created equally; the market you find may not be the one you expect.
<TextCard text="If there is recurring, organic engagement and the math on a per unit basis works (or we have confidence that it can work), investors will pay attention." topic="Product" />
## Commerce and marketplace businesses
Are people actually spending money to buy the product or service? If so, why? Is it truly a better offering, or are sales driven by a large marketing campaign backed by introductory pricing? 
Rally Rd, a NY-based alternative asset platform focused on democratizing access to hard assets through fractionalized ownership, has reached significant adoption with the average age of a customer being 26. Yes, age 26. I was also surprised—thinking the average age would be much higher given the first offering was collectible cars. I realized the company had found product-market fit. However, the market was different (and more interesting) than one would expect: young people looking for alternative assets. This indicated a larger market for fractional ownership of other unique assets such as trading cards, memorabilia, and art. 
## Software businesses
How quickly are paid and free daily active users growing? How is conversion from free to paid changing over time? 
Slack is an incredible software business that found traction early on through significant word of mouth via the development teams at tech companies. The story of its origin is well known. CEO Stewart Butterfield’s original business was focused on developing multiplayer video games. When this did not succeed, he focused on some interesting messaging technology that had arisen out of the ashes of the gaming business. The business instantly found PMF. It only began to spend real marketing dollars to secure large enterprise accounts after it reached a multibillion-dollar valuation and was ubiquitous among major startups worldwide. 
The lesson? Serendipity can play a role. You may stumble upon PMF in the most unexpected places. 
In the end, finding product-market fit will feel like a “eureka” moment. You’ll know when it happens. First comes fit, then comes real growth. 
‍ 
‍

Learn more about what investors really value when it comes to product-market fit.

Three people discuss with each other at a table surrounded by plants.

Finding Product-Market Fit

M13 Partner Latif Peracha explains more about what seed to Series A investors like M13 really value when it comes to measuring product-market fit for startups.

Finding Product-Market Fit | M13

finding-product-market-fit thumb

Fine-tune your product with actionable advice, useful tools, and other strategies for finding product-market fit.

Product

Get the support you need to build your product, including actionable advice, useful tools, and other tactical strategies for finding product-market fit.

Product Resources for Startups | M13

Get the support you need to build your product, including actionable advice, useful tools, and other tactical strategies for finding product-market fit. 

Creating innovative products

Move faster from MVP to closing your next round with these tactical tips, templates, and other brand and marketing resources.

Brand & Marketing

Novi Brand & Marketing

Move faster from MVP to closing your next round of startup funding with these tactical tips, templates, and other helpful brand and marketing resources.

Brand and Marketing Resources for Startups | M13

Connecting with your customers

Drive better decisions by knowing which metrics to monitor—and act on.

Data

Learn how to monitor KPIs, and explore other important startup metrics that can guide you in your next big decision.

Data Resources for Startups | M13

Measuring what matters

Get support at every step of the way with these tried-and-true fundraising tips, tools, and templates.

Fundraising

Ready to raise your next round of startup funding? Get support at every step of the way with these tried-and-true fundraising tips, tools, and templates.

Fundraising Resources for Startups | M13

Raising your next round

Help your startup reach the next level with tactical tips, advice, and other resources for growing your business.

Growth

Novi Growth

Help your team reach the next level with tactical tips, advice, and other essential resources for creating successful growth strategies for your startup.

Growth Resources for Startups | M13

Growing your startup

Set yourself apart from the competition with these tips and tools for diligent execution, improved efficiency, and more.

Operations

Stand out from the competition with these tips and tools for diligent execution, improved efficiency, and more ways to take your startup to the next level.

 Operations Resources for Startups | M13

Elevating your operations

Get better results by focusing on human capital, including developing the skills to manage and lead effectively.

Talent & Leadership

Novi Talent & Lendership

Learn how to invest more in human capital with these tips and tools for interviewing, hiring, and managing talent and leadership teams at your startup.

Product

Creating innovative products

A Founder’s Practical Guide to Finding Product-Market Fit

Avoiding Product Design Bias: Considerations for Early-Stage Founders

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Avoiding Product Design Bias: Considerations for Early-Stage Founders

Finding Product-Market Fit

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Finding Product-Market Fit

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