More and More SaaS Startups Haven Fallen Out of Product-Market Fit

So there’s one topic you have to be ruthlessly honest about as a founder: are you falling out of product-market fit?

The reason you have to be ruthless is while sometimes falling into product-market fit can happen relatively fast, e.g. with a magic feature … falling out takes time.

It takes time for customers to churn, especially bigger customers, and especially customers that sign annual deals.

It takes time for your brand or even just your mini-brand to stop carrying you into deals.

It can take years to truly fall out of product-market fit. Or at least — to truly see it clearly.

But overall in SaaS this is happening faster than ever. Why? Three reasons:

1️⃣ The Post-Covid “Pass”

The so-called “downturn” out there gave almost every startup with slowing growth a pass in late 2022 and 2023. It wasn’t their fault. Perhaps not. But it also disguised a lot of falling out of production market fit at the same time.

2️⃣ Vendor Standardization

It took the App Hangover of 2022-2023 to finally do it, but larger companies especially are now finally skipping best-of-breed players for “good enough” core vendors. Did you adjust? Many best-ish-of-breed haven’t fully yet. It means you have to be even better than before. Clearly, demonstrably, better in a very important way.

3️⃣ AI. Yes, AI

Vendors and startups that haven’t embraced the tsunami of change that is happening in some cases, and still to come in others, are falling behind. B2B is about automation. Automating workflows, automating processes. AI is the holy grail here for many customers. It’s already ripping through the contact center, where many customers are aiming to use AI to automate 50% or more of support issues this year. It’s coming in every space.  Does AI always work 100% in SaaS today?  No way.  Are vendors overpromising what they can do today?  Oh, you betcha.  But don’t let today’s exaggerations of performance obscure the fact that this is a huge wave of change that customers are embracing.  They want cheaper, more efficient automation.  That means AI.

So be honest, be aware.  The question is simple, even if the answer is complex:

Do you have better product-market fit today than 12-18 months ago?  If not, it’s really time to get more aggressive and mix things up.

The bad news is you are behind.

The good news is, especially if you have annual contracts and reasonably happy customers, it’s not quite too late.

We had a conversation around this with the CMOs of HubSpot and Zapier here:

And a related post here:

(image from here)