In the past, I have written about the importance of storytelling. Companies often tell the same stories over and over to signal what is important to the company and why it exists. But I want to provide one bit of caution around something I call the “Golden Story”.
I have worked for a number of high-growth software companies – most of them private companies that were working against the odds every day, trying to secure more customers and new financing. One of the things we would be desperate for was some external validation that our product/market fit was on point. “Product/Market Fit” means that there was a 1) demonstrably large market with a particular problem, 2) that market was providing indicators that it was willing to spend money to address that problem, and 3) participants in the market had selected our product and used it to successfully address the problem.
Since a lot is riding on a young company proving product/market fit, we treated any story that validated our product like gold – and inevitably, we would hear such a story. Perhaps a customer had a great outcome when they used our software exactly as designed, or maybe a major customer had licensed our technology at a high price. It’s natural to love stories like these and to re-tell them.
But in retrospect, sometimes these stories can be false signals, and false signals can lead to bad events. Here are some indicators that the Golden Story you’re telling is a false signal in disguise:
- The recurrence of the story is limited. You keep telling the same story over and over. It is rarely supplanted by new versions.
- The sample size is minuscule. It’s one company out of a thousand. It’s one user out of a million. You make it seem bigger.
- You’re overly elated. It quiets your doubts, but if you’re honest, you’re pretty surprised.
When a company finds that a single story is routinely cited to indicate a strong product/market fit, its a sign that it is kidding itself. It’s not dishonesty; growth companies exist on optimism and hope. After all, people don’t like to work hard with zero validation, and companies don’t either.
When I think of one particular story from my career that turned out to be a false signal, I realize now that although we were telling the story to prospects, we were mostly telling it to ourselves. It gave us confidence when faced with customer skepticism. We wore the story like a suit of armor, using it to repel the excellent points made by detractors.
However in retrospect, I can now see that the details of the story were so improbable that we should have viewed it as an outlier rather than an indicator of the future. And so we persisted until a lack of real progress forced us to confront the truth that had been obscured by the retelling of the Golden Story.
And this gets to the heart of the danger created by the Golden Story: it destroys shareholder wealth by causing companies to persist in unworthy markets. It causes people to lose their jobs.
Look at the three characteristics I outlined above and see if there’s a Golden Story in your company. Confronting it sooner rather than later will require courage and leadership.