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The BLUF (Bottom Line Up Front)

1. Making something people want is challenging, but something people want to pay for is far more difficult. The difference is subtle but critical.

2. Every day, we work with founders, business owners, leadership teams, and investors to understand the key difference between want and value. We want to avoid the wasted human effort and financial capital that comes from believing the polite lies your customers or potential customers tell you.

3. Ultimately, willingness-to-pay is the best and most reliable proxy for value.

A quick intro to supply-side vs. demand-side product thinking

Ryan Singer and Chris Spiek note in this interview that most product failures start with supply-side thinking. We tend to look inward toward our capabilities. We ask what we might build for customers, and we brainstorm features we believe are valuable. This leads to responding to customer requests without understanding the context of their pain and overbuilding solutions to problems customers either don't have or aren't willing to pay to solve. Customers do not care about your roadmap. They care about solving their problem. Supply is what you offer. Demand is what they need. Demand is made up of the visible and invisible problems people are trying to solve regardless of your existence.

Case Study #1 - Netflix

Blockbuster believed customers wanted a bigger selection in their stores. Netflix asked those same customers what sucked about renting movies. They answered: driving to pick them up and drop them off, late fees, and out-of-stock films. Netflix made it possible to subscribe to borrowing and returning the movies by mail, and when the technology was ready, they made it possible to stream those movies instantly. Blockbuster died because they optimized for what they had, not what customers hated.

Case Study #2 - Toyota Sienna

Detroit automakers made minivans assuming families wanted more powerful engines and luxurious comfort features. Toyota embedded itself with real families and observed their struggles. The company watched families fight with doors and struggle with heavy seats all while juggling kids and groceries. Toyota's fixes were straightforward and far less costly than bigger engines and luxury features. The company reduced the weight of lifting seats by 75% and added sliding doors on both sides. It put cupholders everywhere. The Sienna won the market because it deeply understood parents highly valued benefits that reduced the chaos of mobilizing a family.

You don’t need to look far to find an abundance of faulty supply-side thinking.

Finding real customer problems

This insight is also at the heart of The Mom Test, which emphasizes the importance of not pitching or explaining your offering. Instead, understand their lived experience. What really happened? When did it happen? Look for revealed pain. What did it cost to try to fix a problem? Who was involved, and what action did they take to fix it? If no one has tried to fix it, it’s probably not urgent. If they paid to try to fix it and still have the pain, you might be onto something.

Real insight sounds like: “Last quarter, we lost a $100K contract when __________ failed, and we have a company-level mandate to fix it.” or “We hired a contractor to automate ________, but ultimately, we gave up because it was too difficult.”

When you’re interviewing customers, you’re not looking for agreement or confirmation. View consensus with suspicion. You’re looking for signals that indicate intense pain with clear examples of the resources and energy expended to overcome it. If 10/10 people sort of like an idea, you likely do not have a business. If 3/10 people are willing to pay you to help them solve that exact problem, you might.

In B2B contexts, understanding value requires questions like:

• When did the problem last happen?

• What did it cost you (in time, money, opportunity cost, etc.)?

• Have you tried to fix it? If so, how?

• Are you continuing to invest in solving this problem? If so, what is the budget?

• What would happen if you ignored this problem for the next year?

These questions reveal whether the problem is urgent, important, and funded. You’re not looking for hypothetical interest. People spend money to relieve pain.

Investors should think the same way. Has this team validated a painful problem? Have customers paid, even a little? Do customers have the same problems, or do the problems all look slightly different? Is there recurring budget to solve it?

It’s easier to start with one specific ideal customer profile (ICP) and customer segment (hint: “SMBs” is not a segment). If you are painfully specific, you are more likely to identify specific, solvable pain. “SMBs” are not a segment nor an ICP. Instead, an ICP or target segment sounds something like: “digitally native brands with 50-200 employees with XX% of cart abandonment costing them 6-7 figures per year.” Then, you must find 10 of them. Eventually, you need to find and serve 1000s of them, but it’s much easier to start with 10.

If you can’t answer yes to those questions, stop. Dig deeper. Pivot if you must. But don’t move forward just because someone said, “That sounds useful.”

Real validation looks like money or time (which is also money). Jeff Weinstein, a two-time exited founder and a respected product leader, once described early signs of product-market fit as the moment the customer sits up and leans forward in their chair like they’re ready to pounce at you with interest. Before starting my last company, I remember sitting down to breakfast in NYC with the President & CTO of a multi-billion-dollar public company that was recruiting me for a GM & Product role. I mentioned I was looking at potentially building a company to solve a certain problem. I watched his eyes open wide as he sat up to tell me how painful that exact problem was for his company and how much time and money he spent solving it. The conversation resulted in him encouraging me to explore that path more seriously, despite the purpose of the conversation. That’s how painful this problem was.

If your customers won’t risk anything, why should you?

In many scenarios, you don’t need to build a full product. You can put up a landing page, measure clicks, or fake the feature and deliver the solution manually. Most customers just need a compelling value proposition and promise combined with social proof.

Here’s one test: Before forming an entity or writing a single line of code, can you convince five customers to pay you $50K each for a solution you will deliver that is 90-95% the same across those customers? How about in under 3 months? Or in under 1 month?

These conversations often result in things such as...

• A contingent contract: “We can pay you $20K now through the design period, and the remaining $80K if we reach XYZ milestones in 6 months.”

• A paid pilot or audit: “We will pay you to do a diagnostic of the problem right now with us.”

• Services before solutions revenue: “We will pay you to come in to help us solve this problem.”

One of our friends was even able to get a one-million dollar contract signed, with cash in the bank, before he ever hired a team or even formed a company. Based on that insight, he quickly raised a large amount of venture capital funding. That’s what real demand-side product thinking looks like.

Product-market fit is not binary. It’s more like chemistry or cooking. It’s a process that requires skilled talent that includes many possible combinations of “ingredients” with trial and error. It is a combination of the size of your market, the speed and cost at which you can sell into that market, and the price you can charge your customers.

We think of everything in terms of Econ 101. What is the shape of the demand curve? It’s Price * Quantity. How do you provide value in volume? Value is a function of pain and magnitude. Volume is a function of the number of people with that pain and the speed at which you can help them.

Build something people want to pay for.

A Note on Services Businesses

For services businesses, the same logic applies. In most services businesses, customer willingness-to-pay is directly correlated with perceived peace-of-mind and reduced risk. Enterprises pay McKinsey exorbitant amounts of money not because no one else can do it, but because they cannot afford to be wrong about the problem they need McKinsey to help them solve, or they want to be as confident as possible about a risky decision. They want to reduce FUD (fear, uncertainty, and doubt). Some services are more commoditized and seen as “less risky” than others. Monthly bookkeeping has lower willingness-to-pay than the more complex, riskier, and higher value service of providing strategic tax advice on how to reduce tax liability. Many people want to build software businesses because they are inherently more scalable and higher margin than services businesses, but the process of uncovering customer pain and willingness-to-pay in these businesses is similar.

As an aside, I received and ignored a piece of advice from Aaron Au, the Cofounder/CTO of SuccessFactors (NASDAQ: SFSF, Acquired by SAP for $3.6B in 2012) and a former CTO at SAP for 8 years. When I started my last venture-backed software company, Aaron encouraged me to start by selling services because that would allow me to uncover the sharpest pain and largest budgets in my problem space. “Could you let someone else pay you to find product-market fit and then decide how much funding you need once you know what to build?”, Aaron asked. At the time, “services” was a dirty word in venture capital. In my immense brilliance, I ignored his advice and raised $5M in venture capital based on my own brilliant “supply-side thinking.” Unsurprisingly, Aaron was right. There were multiple other great businesses hiding in plain sight that I ignored in favor of all the cool features we built that only a few customers really wanted.

A Note on B2C Businesses

Consumer and prosumer businesses operate on similar fundamental principles to B2B companies but face distinct challenges. The core difficulty lies in understanding true consumer behavior. People often are not self-aware or honest about their desires and demand. Behavioral observation is more valuable than stated preferences for determining consumer utility and willingness-to-pay, so there is always an initial emphasis on adoption, usage, and trust ahead of monetization in most consumer use cases.

Distribution presents a particular challenge in consumer markets, where gatekeepers like Google, Apple, Meta, and increasingly, LLM companies like OpenAI, charge fees for advertising (Google and Meta Ads) or platform access (App Stores) to reach customers. For various reasons beyond the scope of this post, those fees are growing and driving up customer acquisition costs (CAC), and it is harder to make the monetization math pencil. Some monetization models rely on advertisers (i.e. eyeballs). Others rely on subscriptions or one-time purchases. The paradox: you almost always need consumers to experience value before charging them for it. Unfortunately, even if you get adoption, it very often does not translate into willingness-to-pay, and when it does, that willingness-to-pay is too low to justify the cost of acquiring those customers, which is why creating novel consumer products, especially digital products, is so difficult. Success is determined primarily by your ability to identify distribution channels and growth loops that improve your willingness-to-pay while simultaneously lowering customer acquisition costs, including word-of-mouth (i.e. Glossier, Allbirds), network effects (i.e. LinkedIn, Venmo, Airbnb), community (i.e. Lululemon, Peloton), or other unique distribution advantages.

Get in touch

Crescendo works with medium-sized software companies to improve their pricing, packaging, and promotion strategies. If you’d like to book a quick consult, reach out at [email protected] or schedule time via the button below.