How startups can find product-market-fit and the right investors. Decibel Partners' Jon Sakoda explains

In this episode of 100X Entrepreneur Podcast, Jon Sakoda talks about ‘continuous improvement’ and his journey from being an entrepreneur to a venture capitalist.
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Entrepreneur and venture capitalist Jon Sakoda believes that product-market fit is really found by taking two rough stones and grinding them together.

“One rough stone is your product, the other rough stone is the market, and if you can’t actually find product-market-fit, you create it by grinding, and eventually, you find the ultimate fit between what you are trying to do and what the market will need,” he says.

After being an entrepreneur for a few years, Jon launched Decibel, a Cisco-backed venture fund, with an aim to push through the conventional boundaries of early-stage investing in SaaS startups and enable a way for entrepreneurs to get access to unparalleled resources when needed most.

Prior to launching the venture capital firm, Jon had launched instant messaging platform IMLogic in 2001, and later exited the company in 2006 after it got acquired by Symantec.

Jon says that after starting up in the instant messaging space, the company pivoted many times in order to find the right market fit. IMLogic eventually pivoted to become an enterprise software company for instant messaging services for several sectors including financial services, energy, healthcare, government, media, telecommunications, and manufacturing, among others.

“When I was 24, I started a software company on top of instant messaging. We came up with a few great ideas for games and applications that would make instant messaging more interesting. But we ran into some challenges with companies like AOL, MSN, and Yahoo, as they didn’t want us to build consumer based applications. They felt that was inside of their strategic goal and not necessarily something they wanted partners to do,” he says.

Jon Sakoda, Founder, Decibel Partners. [Image Credit: 100X Entrepreneurs]

Business pivot or continuous improvement?

According to Jon, the company then pivoted in many ways at a time when pivot wasn’t as conventional as it is today. Eventually, the firm, which started as an instant messaging startup, ended up being an enterprise.

However, he explains that what he thought was a business pivot during early-stage product development, he now thinks of it as a continuous improvement. He believes continuous improvement is a more positive term for describing the process of finding the right product-market fit.

“People think that product-market fit is when you sit and design a product on a whiteboard, you build it, and then you introduce it to the market, and people magically buy it. But I have come to believe that product-market-fit is really found by taking two rough stones and grinding them together,” he explains.

Citing an example from his own experience, he says that while they entered the market with ideas to make instant messaging, the industry dynamics didn’t allow them to create many of the fun applications they wanted to.

“I think in many cases, you have to listen to the customer and where the market is moving. If you can do that, you can ultimately iterate or pivot or improve yourself to the point where you find product-market fit. So, I remind people that this is just a natural part of the early-stage process. I think some people may become impatient and lose faith in themselves, their teams, or their technologies, but we should all remind ourselves that it is a natural part of the process. If you can continuously improve, you will eventually find something that fits,” he adds.

Venturing into venture capital

After exiting IMLogic, Jon began working with New Enterprise Associates (NEA) as the General Partner and was responsible for leading investments in early-stage startups in the B2B software and consumer internet sectors.

In 2018, Jon left NEA and launched his own venture capital firm, Decibel, in partnership with Cisco.

“My simple view of the industry is that we are now in a very large and diverse market in venture capital. Founders have a lot of choices, but it is important for them to try to find investors who will provide the most value to their company so that they can figure out a way to find product-market fit and to scale as quickly as possible,” he says.

According to Jon, Decibel’s goal is to work with B2B software companies and provide them with all the capabilities and early-stage help they might need. He explains that for B2B software companies, access to customers is a very important aspect as they need to sell to other companies who have their own budget and priorities.

“As much as independent venture firms aspire to be great at doing that (getting access to customers), I feel you need some specialisation and help in figuring out how you are going to reach dozens, if not hundreds and thousands of customers. Not every company needs access to customers like in healthcare or biopharma or in other industries, it may not be the most important thing as sometimes science or product design is the most important thing. But in B2B software, access to customers is the most important thing. Also, I felt that Cisco really had a lot to offer in that regard,” he adds.

Jon says that he shared a common goal with Cisco, which was to be able to work with founders at Seed, Series A, and early Series B stage.

In this episode of 100X Entrepreneur Podcast, a series featuring founders, venture capitalists, and angel investors, Jon spoke to Siddhartha Ahluwalia about his journey from being an entrepreneur to a venture capitalist and much more.

Listen to the podcast here.

Notes:

01:39 – “I’m a recovering entrepreneur.”

06:29 – Pivoting and finding product-market fit

09:11 – Partnership with Cisco

13:20 – Leveraging strongholds of industry dominant LPs in the VC firm

17:20 – “What makes you great in getting you from 0 to 1, may not be great in getting you from 1 to 10 or 10 to 100.”

23:10 – Coaching for early-stage founders; for Performance and Efficiency

29:27 – Having an Advisor v/s having a Coach as an early-stage founder

32:30 – “You should be more conscious about who you want to work with, rather than, where you want to work.”

Edited by Megha Reddy