The 5-50-500 rule for building great products
If you’re building a new product, it’s tempting to set lofty goals like reaching a million users right after launch.
But making product decisions is very different when you only have a few initial customers instead of millions.
When building startups, I like to create my products with three milestones in mind:
- 5 happy customers
- 50 happy customers
- 500 happy customers
It’s a framework I call the “5-50-500 Rule”.
This rule helps me focus on the most important goals based on the stage of my startup.
Here’s what I advise founders to focus on during each stage:
5 happy customers – Validate the Customer
Many founders believe that startups either take off or don’t. There are a handful of startups that grow on their own, but most need a push to get going.
In the early days, start by doing things that don’t scale. Focus on solving a very specific problem for 5 customers. Not 100. Not 1,000. Just 5.
What are the core features you need in an MVP to provide value? Keep the scope tight, and don’t worry about scaling until you have validated you’re building the right product.
Many founders create elaborate launch and marketing plans to “go viral” and hit a million users fast. This is a big mistake because the first version of your product probably isn’t what the market wants. You don’t want to quickly spread the wrong product around to lots of people, right?
Your core focus for this stage should be validating the problem with 5 initial customers. If five people are willing to pay you, you’ve got something worth exploring.
50 happy customers – Validate the Product
Getting 5 customers indicates there’s a problem to be solved, but that’s usually not enough to validate your product as the right solution. You need lots of data points with multiple customers to prove you’re effectively solving the problem.
Continue to manually recruit and onboard new customers. Don’t make your product self-serve yet. Your goal right now isn’t to grow – it’s to learn more about your customers and make sure you’re building the right product for them.
As you increase the sample size of customers, you’ll discover patterns and trends you didn’t expect. You’ll notice behaviors that surprise you. And you’ll have more data to confidently determine who your customer is – and who they’re not. This will help you refine your go-to-market strategy.
You can get lots of early customers using an MVP with no code, so keep doing things manually as you gather feedback from your customers and improve the product.
Once you’ve hit a certain number of customers, you’ll have the confidence (and hopefully revenue) to start building a more scalable product to grow. For me, this number is usually 50-100 customers for B2C products and 5-20 customers for B2B products.
If you’ve hit 50 customers who love your offering and are providing helpful feedback, you’re in a great position to build your v1 product and start scaling.
500 happy customers – Validate the Business
You’ve nailed down your customer and proven they love your solution. Now it’s time to figure out if you have a viable business.
The goal of this stage is to find a scalable and repeatable way to acquire and retain customers.
You’ll likely need to start writing code to build your v1 product because your manual methods of acquiring and serving customers won’t scale from here.
The core focus now is sustainable unit economics for the business. As you explore different distribution channels to acquire new customers (ex. social media, blog posts, partners), closely monitor the cost to acquire customers (CAC) and the lifetime value of customers (LTV).
In a healthy business, the ratio of LTV to CAC is usually at least 3 to 1. If your ratio is exactly 1, you’re breaking even. If your ratio is less than 1, you’re losing money.
Reaching 500 customers is a difficult milestone to achieve. What got you to 5 and 50 customers won’t get you to 500, but you also have more users to run marketing and product experiments to learn faster.
The 5-50-500 rule is the product framework I’ve used to build many successful products. I used it to bootstrap my previous startup to 200,000 users and get acquired.
These steps are more fluid as you gradually get more customers. But the important thing is to hit the goals for each stage without getting ahead of yourself.
Don’t focus on scaling too early. Instead, focus on building the right product.
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