Building a startup is unfair.
Why? Because hard work has very little to do with your chance of success. Sure, your startup will never take off if you don’t work hard. But I’ve seen people work for years on a company that went nowhere. And I’ve also seen people hit home runs on their very first shot.
In this post, I’ll discuss how startups can effectively work their way towards Product-Market Fit (PMF) by using the four green lights approach.
Hard Work Isn’t Everything
Hard work is important. But for startups, some things are much more important: A great product, a receptive market, and positioning your product in such a way that will resonate with your customers.
It can be hard to hear that hard work won’t guarantee success. From an early age we’re told that hard work is everything. Without hard work, you’ll get nowhere. And during your studies, this was certainly the case.
But unfortunately, start-ups aren’t like that. And that’s not fair.
Introducing The Four Green Lights
Running a startup is an inherently risky business. The payoff can be huge, but there’s every chance you’ll face total failure. And in the early days of running a startup, you’ll have to deal with uncertainty and doubt on a daily basis.
At this stage, figuring out PMF may seem impossible. But there’s one structure that, time after time, has helped countless startups reach PMF.
It’s called the four green lights, and it’s a framework that startups can adopt to structure their path toward PMF, and from there long-term success.
What Are The Four Green Lights of PMF?
- Value proposition: Build something cool that people want to buy. But remember that it’s just as important to build something that people need, as well as something that people want. The product you build needs to solve a problem. But it also needs to be something that gets people excited.
- Persona: Find your ideal customer and narrow it down. Make sure there are enough potential customers out there to make your business viable.
- Positioning: Find the words that strike a chord with your customers, and which make your startup stand out in a crowded and highly competitive market.
- Go to market: Find a repeatable channel that will allow you to reach your persona, again and again.
Startups that reach PMF have turned each of these four lights from red to green. But when even one light is red, a startup isn’t quite there yet.
Please note: It’s not necessarily a bad thing to have red lights. A red light, or two, or three, or four, doesn’t necessarily mean that your startup’s doomed. No matter how many red lights you have, there are always things you can do to turn your lights from red to green.
So below, we’ll discuss how to handle each step, to take your startup from four red lights to four green lights. This is how you take your startup from a state of uncertainty and doubt to PMF.
🔴 🔴 🔴 🔴 Four Red Lights
Start with the value proposition.
When all of your lights are red, vision and motivation are your best friends. Motivation will drive you to act. A strong vision can give you something tangible to work towards. And when you can picture what you want to achieve, you can also start to envision what you need to do to get there.
At this stage, you need to work hard until a light turns green.
(I know I said above that hard work alone won’t bring startup success. But it’s still important!)
Usually, the first red light to turn green is the “value proposition”. When all of your lights are red, it’s a good idea to develop your products or services into something that people truly want and need. The path to building something that people want can take a long time. It's made of ups and downs:
And it’s also at this stage that you might decide to abandon an idea. Maybe it just doesn’t have the appeal you thought it did. It’s best to nip bad ideas in the bud so that you can focus on developing something that could make an impact.
🟢 🔴 🔴 🔴 One Greenlight, Three Red Lights
Then comes the persona.
When the first light turns green, it means you’re ready to execute. It means you have a viable product, a great idea that’s actually going to bring some value to people. It means you’re on to something, and you know it.
Congratulations. That’s quite a big deal!
But even at this stage, it may still be unclear whether there’s room to build a business around your product. Who is your customer? How many potential customers are there out there? Where and how can you reach them, and how can you convince them that your idea’s worth their time and money?
Once you’ve got your first green light, you need to start working on the three remaining red lights at the same time, until one turns green. And if your startup is to survive, at this point you need to move fast.
🟢 🟢 🔴 🔴 Two Green Lights, Two Red Lights
Two green lights – woohoo! Your next step is figuring out your positioning.
When you’ve got two green lights, it’s certainly a cause for celebration. But it’s also a time for reflection. You need to get to the bottom of understanding what made an impact, and why.
This can be quite a complex puzzle to solve. And often, the only way to solve a complex puzzle is to tweak one factor at a time. So at this stage, you need to get methodical and analytical. Work out what you did right, so you can keep doing that. And also work out what didn’t go so well, so you can start doing things differently.
In her book "Obviously Awesome", April Dunford explains how you need to find your uniqueness and find the segment of users with whom this uniqueness resonates. Positioning isn't just about your unique value. It's the combination of unique value and finding out who cares about it.
Here is a handy template for you to use:
🟢 🟢 🟢 🔴 Three Green Lights, One Red Light
Last piece: figuring out go to market.
When you’ve got three green lights, you’re just one combination away from PMF! Success has never felt so close.
But remember that startups are playing an unfair game. Remember that, for some startups, all that hard work never does pay off. Some startups never see that fourth red light turn green. It’s deeply unfair, it’s very frustrating, but it’s just the way things are.
So what can stand in the way of that fourth and final green light? A few things. For example, you may have identified your persona, and you may have found a way to reach them with words that resonate. But if you cannot reach your persona in a repeatable way, then that fourth red light will never turn green.
This is what Brian Balfour from Reforge calls the product/channel fit. He says:
Product Channel Fit when your product attributes are molded to fit with a specific distribution channel. As a result, you can't think about Product and Channel as silos.
This is an example of product/channel fit at Hubspot:
When you’ve got three green lights, it might feel like you’re almost there. And you are! But even at this late stage, you need to continue to challenge yourself.
How Airbnb Went From Three Green Lights To Four
Airbnb is everywhere now, so it’s easy to forget that they were once a struggling startup. They too had to go through the process of turning their red lights to green lights, one by one. And when they were at the cusp of success, with a viable value proposition and a strong customer base, they gave themselves one further push so as to nail that final green light.
To begin with, Airbnb just offered air mattresses in student dorms. And that, by the way, is where the name comes from: they put an air mattress in a room and called it a bed and breakfast!
Initially, they were just running a service for students who wanted to visit each other on campus. This was a good service. But it wasn’t a “four green lights” service. They had their product, and they had their persona. But was their market repeatable?
So they challenged themselves. They found a bigger market with bigger needs, and they tweaked their business to appeal to travelers of all types visiting big cities.
Over time Airbnb expanded their audience even more. They started to target tourists visiting cities, and eager to have a "local experience". Rather than simply offering air beds in spare rooms, they now started to offer affordable yet luxurious alternatives to hotel rooms.
When Airbnb decided to broaden its market, it took a huge risk. Essentially, they went back to the one green light stage of their development. They had a great idea, but they had to build their personae, their position, and their markets from scratch. But their risk paid off, and before long, all of their lights turned green.
And that’s why Airbnb now has a presence in every town and city in the world. It’s because, when their success seemed assured, they didn’t rest on their laurels. Instead, they took a great idea and made it even bigger, and even better.
In What Order Do The Four Lights Turn Green?
Some startups will see their lights turn green in the same order as I listed them above:
- Value proposition: They’ll come up with a viable idea.
- Persona: They’ll do the work to find their customers.
- Positioning: They’ll figure out how to market their idea to appeal to these customers.
- Go to market: They’ll find a repeatable channel that lets them reach their customers again and again.
But sometimes, there might be a bit of back-and-forth on the green lights. For example, once they have three green lights – a product, some customers, and some ideas about positioning – some startups might start alternating between steps 1 and 3: In talking to their customers, they’ll realize they need to tweak their product in some way. And having tweaked it, they’ll of course have to rethink how they position it.
However, for most startups, steps 2 and 4 will hardly change as they approach PMF. Your founding team will include specialists who are there to solve problems in specific categories, such as data collection and marketing. And these things can be harder to change. But it’s important to remain flexible and adaptable to what your customers want and need.
Conclusion – What Colour Are Your Lights?
If you’re an early startup chasing PMF, then I hope the four green lights approach helps you as much as it helped me.
The most important thing you can do, at any stage of the process, is to be honest with yourself about how many lights you’ve turned on. Because if you understand this, then you’ll have a better idea of what you’ll have to do to move forward.
So how many lights have you turned green?