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bol.com | From idea to product/market fit, Omar Mohout | 9782874034602 | Boeken

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From idea to product/market fit Hardcover. Successful startups are all about turning ideas into action quickly and efficiently. Taking action is the hard part. Launching a startup requires a willingness to fail and learn. Avoiding failur...

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Product/Market Fit is a common concept in the startup world. While widely applied in conversations around new high-growth companies, it doesn't seem to have caught on in the rest of the business world yet.

It deserves to be more widely understood, because it's a useful Mental Model for the interplay between a business, it's products, and it's customers. Learning about Product/Market Fit will help you see the world differently, and inspire new ways to create value for your customers, and growth for your business.

What is Product-Market Fit?

Because it's such a new concept, there are a few overlapping definitions of Product-Market Fit. We should start with the definition from Marc Andreesen, who originally coined 'Product/Market Fit' in his post " The Only Thing That Matters ":

Product/market fit means being in a good market with a product that can satisfy that market.

This is a rather vague definition, but it's a start. What Andreesen says gives us a more vivid illustration of what Product/market fit really feels like:

You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it's happening.The customers are buying the product just as fast as you can make it - or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it.

Marc Andreesen's post on Product Market Fit is the most-recommended resource ever received on Evergreen. It was sent in separately by 6 people, including 2 Gregs: Greg Meyer, Greg Drach, Nitya Nambisan, Aaron Wolfson, and Jason Evanish.

When your customers spread your product

A complementary definition was found in Principles of Product Design, by Josh Porter, suggested by Tim Harsch. Josh's idea of the level of dedication and excitement by customers is an indicator of Product/market fit:

Product/market fit is when people sell for you

Product market fit is a funny term, but here's a concrete way to think about it. When people understand and use your product enough to recognize it's value that's a huge win. But when they begin to share their positive experience with others, when you can replicate the experience with every new user who your existing users tell, then you have product market fit on your hands. And when this occurs something magical happens. All of a sudden your customers become your salespeople.

Validation of the Value Hypothesis

The definition that feels the most precise and helpful I found in this post by Andy Rachleff, the CEO of Wealthfront, called Why you Should Find Product-Market Fit Before Sniffing Around for Venture Money. He paraphrases work by Eric Reis and Steve Blank to create this explanation:

A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. A growth hypothesis represents your best thinking about how you can scale the number of customers attracted to your product or service.

Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis addresses both the features and business model required to entice a customer to buy your product.

Worth noting on this definition is that there are likely multiple key assumptions to be validated, across product, pricing, and business models. Thanks to Joe Bayley for recommending this post by Andy Rachleff.

Myths about Product Market Fit

This post by Ben Horowitz called The Revenge of the Fat Guy (in reference to a debate with Fred Wilson), has insight that radically improves understanding of Product/market fit. In it, he outlines 4 common myths:

Myth #1: Product market fit is always a discrete, big bang event

Myth #2: It's patently obvious when you have product market fit

Myth #3: Once you achieve product market fit, you can't lose it

Myth #4: Once you have product-market fit, you don't have to sweat the competition

If the definitions above left room for these myths to take hold -  read this post and dispel them, before they cause you and your business harm.

Finding Resonance

Itamar Goldminz, a reader and common contributor to Evergreen wrote this piece that uses the metaphor of resonance from Physics to describe Product-market fit:

A good analogy for finding PMF comes from Physics: finding resonance with your customers and getting on the same wavelength as them. Note that this can be accomplished both by changing your product and by changing your customers (market pivot). Changing your wavelength is a gradual, continuous process (anti-myth #1), you know when you're close to being on the same wavelength but it's hard to tell if you're exactly there (anti-myth #2). Since both your product and your customers constantly change (wavelength), it's easy to get out of sync again (anti-myth #3) and it's clear that your actions don't prevent others from getting on the same wavelength (anti-myth #4).

How to get Product-Market Fit

Knowing that we need to get to Product-Market Fit, and what it means to do so, the obvious question is 'How?'. There is a unique path for every company (or there is failure), and these ways to look at the problem will help you find your way.

Everything is on the Table

Here is another idea from the godfather of Product/market fit, Marc Andreesen. It explains that everything is a possible lever to move your toward product/market fit, and might be changed in that pursuit.

Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital - whatever is required.

When you get right down to it, you can ignore almost everything else.

Changing teams, markets, products, names, and visions are all reasonable in pursuit of product-market fit. That's the story of many companies: Instagram, Soylent, Anyperk, Twitter - all radically changed course from their original plan to find Product-market fit.

Talk to your customers

Customer Development is a core skill to developing product-market fit. We've created a whole Edition of Evergreen on it, called How to Failure-proof your business with Customer Development.

Product-Market Fit is Everyone's Job

Every employee in the company should understand that they're hunting for Product-Market Fit, and expect that it's going to be a tough journey. It's not a matter of linear progress - it's a maze where you spend most of your time lost, never sure if you're making progress or just eliminating an idea through invalidation. Ryan Holiday has a great comment on this:

Product Market Fit is not some mythical status that happens accidentally. Companies work for it; they crawl toward it. They're ready to throw out weeks or months of work because the evidence supports that decision. The services as their customers know them now are fundamentally different from what they were at launch - before they had Product Market Fit.

Every member of the team has a role to play in finding it, from those who are building products to those that make strategic decisions or interact with customers.

Today, it is the marketer's job as much as anyone else's to make sure Product Market Fit happens. [...]

But rather than waiting for it to happen magically or assuming that this is some other department's job, marketers need to contribute to this process. Isolating who your customers are, figuring out their needs, designing a product that will blow their minds - these are marketing decisions, not just development and design choices.

These excellent excerpts come from Ryan Holiday's course on Growth Hacker Marketing, suggested by Vinish Garg.

All Markets are Not Created Equal

Andrew Chen has an underrated post about how to know when a consumer startup has hit Product/market fit. In it, he outlines what makes a 'good market':

- A large number of potential users

- High growth in # of potential users

- Ease of user acquisition

and what the benefits are of targeting a good market:

Leading with a great market helps you execute your product design in a simpler and cleaner way. The reason is that once you've picked a big market, you can take the time to figure out some user-centric attributes upon which to compete.

The important part here is that you can usually pick some key things in which your product is different, but then default the rest of the product decisions.

Product-market fit means that you've found a product and a market that wants it - but if that market is small, cheap, or shrinking... you still won't have much of a company. Don't just find a market - find a great market.

How to Measure Product/Market Fit

As management legend Peter Drucker always says: "What gets measured gets managed" - so how to we measure this concept of Product/Market fit? How do we know if we're getting closer, or if we have it?

This isn't an easy question, and there's no perfect answers, but there are three approximations that can guide your journey to Product/market fit.

Do your Customers Recommend you to Friends?

Net Promoter Score (NPS) is a simple survey, asking customers to rate from 1-10, "How likely are you to recommend _____ to a friend or colleague?" Here's a basic explanation of the Net Promoter score Metric, and how it is calculated.

Services like Delighted automate the process of collecting and analyzing the data for you. I talked with my friend Caleb Elston, and set you up with a $100 credit to get you started. If you plan to try it, email hello@delightedapp.com with the subject line "Evergreen sent me" and they'll take great care of you.

Do customers care if your company died tomorrow?

A complementary question to NPS, which is measuring how many customers love you, is this approach which measures how many customers would be distraught if they couldn't have your product/service anymore.

This is an effective way to measure your value to them, and approximate the price you could extract or the leverage you have to push growth by asking your users to share or invite their friends.

How would you feel if you could no longer use [product]?

- Very disappointed

- Somewhat disappointed

- Not disappointed (it isn't really that useful)

- N/A - I no longer use [product]

If you find that over 40% of your users are saying that they would be "very disappointed" without your product, there is a great chance you can build sustainable, scalable customer acquisition growth on this "must have" product.

This post from Growth Hacker Sean Ellis was suggested by Tyler Hayes, and introduces a tool to send out this question called survey.io.

How Many Customers Leave & How Soon?

Alex Shultz, in his talk in the Lecture series How to Start a Startup at Stanford calls out his definition of Product-Market fit, which is based on churn and user retention:

Look at this curve, 'percent monthly active' versus 'number of days from acquisition', if you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a viable business and you have product market fit for some subset of market.

This may require some context (and some research and math to figure out for your business), so check out this full talk to get the whole story:

This talk was also suggested by Tyler Hayes, who dominates resources for learning how to measure Product/market Fit. You rock, Tyler.

Extra Bonus Presentations

These two presentations, one from Andrew Chen and one from Jason Evanish, get into the process of arriving at Product-Market fit, and are worth clicking through to learn more.

Andrew Chen: Zero to Product/Market Fit Presentation

Jason Evanish: Getting to Product/Market Fit

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Product/Market Fit: What it really means, How to Measure it, and Where to find it

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Product/Market Fit is a common concept in the startup world. While widely applied in conversations around new high-growth companies, it doesn't seem to have caught on in the rest of the business world yet. It deserves to be more widely understood, because it's a useful Mental Model for the interplay between a business, it's products, and it's customers.

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In order to achieve Product-Market Fit, you must define it. 3 quick steps to define it for your company. More at CustomerDevLabs.com Part of the FOCUS Framework: www.TheFocusFramework.com

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The product/market fit (PMF) concept was developed and named by Andy Rachleff (who is currently the CEO and co-founder of Wealthfront, and is a co-founder of Benchmark Capital). The core of Rachleff's idea for PMF was based on his analysis of the investing style of the pioneering venture capitalist and Sequoia founder Don Valentine." Why market matters more than anything

"Give me a giant market - always." "Arthur Rock is the representative of: you find a great entrepreneur and you back him. My position has always been: you find a great market and you build multiple companies in that market." "Our view has always, preferably, been: give us a technical problem, give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff. Do I like to do that with terrific people? Sure. Are we unwilling to invest in companies that don't have them? Sure. We invested in Apple when Steve Jobs was about eighteen or nineteen years old - not only didn't he go to Harvard Business School, he didn't go to any school." Don Valentine

One way to look at venture capital investing and creating a valuable business is as an effort to build a stool with three legs: people, markets, and innovative products. All three legs are required for success, but different venture capitalists and entrepreneurs emphasize and weight each of the three core elements differently at different times. While Valentine believed that yes, of course you need decent people, "the marketplace comes first, because you can't change that, but you can change the people" (according to Pitch Johnson, who was a venture capital industry pioneer at the same time Valentine was developing his investing style).

A famous example of changing people was when the Cisco board of directors replaced the then-husband-and-wife team who founded the company. In other cases, new team members are brought in to supply new skills instead of replacing people; Eric Schmidt being recruited to Google is a famous example of that approach.
What is product-market fit, really?

"A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis identifies the features you need to build, the audience that's likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do." "When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens." "If you address a market that really wants your product - if the dogs are eating the dog food - then you can screw up almost everything in the company and you will succeed. Conversely, if you're really good at execution but the dogs don't want to eat the dog food, you have no chance of winning." Andy Rachleff

One way to rephrase a key point Rachleff is making is to say that that nothing is as irreplaceable as a great market. In saying this, no one is saying this means that a great team isn't an accelerant to what a great market can enable! (The modified Gary Larson cartoon below captures this idea):

Nor is anyone rejecting the idea that PMF is needed. There are other venture capitalists, like Pitch Johnson and Arthur Rock, who put the quality of entrepreneurs first. But it's a matter of emphasis and timing. Rachleff observes that if you look at the most successful startups, they actually didn't have "the world's best management teams in the very early days. They happened to have conceived, or more likely pivoted into, an idea that addresses an amazing point of pain around which consumers where desperate for a solution".
The process behind product-market fit

"You often stumble into your product/market fit. Serendipity plays a role in finding product/market fit but the process to get to serendipity is incredibly consistent. What we do is teach that incredibly consistent process." Andy Rachleff

Even though serendipity plays a role here, there is a process - which is why Rachleff later created and teaches a course at Stanford, Aligning Startups with their Markets. Steve Blank also developed a customer development process based on the idea that startups should apply the scientific method just like scientists do: start with a hypothesis, test it, prove it, move on or further iterate on the hypothesis. Similarly, Rachleff observes that "First you need to define and test your value hypothesis. And then only once proven do you move on to your growth hypothesis. The value hypothesis defines the what, the who, and the how. What are you going to build, who is desperate for it, and what is the business model you are going to use to deliver it?" Startups should therefore start with the product and try to find the market, as opposed to starting with the market to find the product. It's important to emphasize here that the iteration is more about the market and the business model than the product itself.

Finally, as Reid Hoffman notes, "Product/market fit requires you to figure out the earliest tells." Using an analogy to poker is appropriate since the process finding PMF fit is an art rather than a science. PMF emerges from experiments conducted by the entrepreneurs. Through a series of build-measure-learn iterations, PMF is discovered and developed during a process rather than a single Eureka moment. A-ha moments of inspiration do happen, but PMF is not created that way.
How can you tell whether you do (or don't) have product-market fit?

"You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of 'blah', the sales cycle takes too long, and lots of deals never close. And you can always feel product/market fit when it's happening. The customers are buying the product just as fast as you can make it - or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck's." Marc Andreessen

According to Andreessen, "product/market fit means being in a good market with a product that can satisfy that market." But too often the focus is on latter part of the sentence (a product that can satisfy the market) and not the former (in a good market). Andreessen emphasizes that market matters most: "You can obviously screw up a great market - and that has been done, and not infrequently - but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure." That's why time spent building a business around the product alone is pointless: "Best case, it's going to be a zombie. ... in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter - you're going to fail. You'll break your pick for years trying to find customers who don't exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die." The converse is also true. You can have an OK team and a buggy and incomplete product but if the market is great and you are the best product available success can happen both suddenly and quickly. That success won't last unless those products are fixed, but at least the business has the beginnings of something wonderful.

"The term product/market fit describes 'the moment when a startup finally finds a widespread set of customers that resonate with its product'." Eric Ries (Lean Startup, p. 219)

The "satisfy the market" part of the Andreessen definition is where the PMF concept necessarily starts to get qualitative. Various math tests have been devised in an attempt to quantify PMF, but they are proxies for something that is fundamentally like Justice Stewart's famous definition of pornography: "I know it when I see it." Even if there is a best practices test for whether PMF exists that does not mean that creating PMF can be reduced to a formula.

So what are considered some of the best tests for PMF? Rachleff writes that "You know you have fit if your product grows exponentially with no marketing. That is only possible if you have huge word of mouth. Word of mouth is only possible if you have delighted your customer." Tying together the concepts, Rachleff also shares that entrepreneurs too often confuse product/market fit with growth in what Ries calls vanity metrics ("numbers or stats that look good on paper, but don't really mean anything important"). So what does? Rachleff suggests Net Promoter Score (NPS) as a great tool to predict the magnitude of customer love for one's product/service - ideally a score of 40 or higher "to know you're on the right track." However, while NPS is a pretty good proxy for likely fit, it is "not nearly as accurate as having market feedback in the form of purchases." People vote with their dollars, after all.

"The number one problem I've seen for startups, is they don't actually have product/market fit, when they think they do." Alex Schultz

Many founders seem to believe that what they have developed is the modern equivalent of magic beans and that people will accept them as payment for a cow. My post last weekend on growth talks about the need for an offering to have core product value. Chamath Palihapitiya believes that a value hypothesis is driven by core product value - "what the market desires about a product" ... but that it "is elusive and most products don't have any." And in fact, Rachleff has observed that this is where technology inflection points can play a role: "Truly great technology companies are the result of an inflection point in technology that allows the founder to conceive a new kind of product. The question then is: who wants to buy my product?" Marc Andreessen writes: "In a great market - a market with lots of real potential customers - the market pulls product out of the startup." Ideally in the easiest stages of a product development process pull is happening organically (i.e., without any advertising spending).
Common misconceptions about product-market fit

"First to market seldom matters. Rather, first to product/market fit is almost always the long-term winner." "Time after time, the winner is the first company to deliver the food the dogs want to eat." "Once a company has achieved product market fit, it is extremely difficult to dislodge it, even with a better or less expensive product." Andy Rachleff

Rachleff has cited examples like Intuit, Apple, and Google as examples of how being the first mover isn't necessarily the advantage here. Facebook was not the first social network either. Finding product market fit is a process that is not unlike "creating a 'dance' between the product and the market" as Mike Maples Jr has described it. It also involves taking the most powerful and compelling aspects of the product and delivering them in the form of 'WTF' level features that are not merely compelling - they rise to the level of changing people's points of view about what's even possible and create intense delight in customers." To reach that level, the target isn't just product-market fit, but "product-market scale," observes Casey Winters. As I explained in my previous post on growth, Facebook has a superior approach to generating growth and in a business with network effects that not only captures customers and changed points of view, but keeps out competitors.

"Product/Market Fit Myths: Myth #1: Product market fit is always a discrete, big bang event; Myth #2: It's patently obvious when you have product/market fit; Myth #3: Once you achieve product/market fit, you can't lose it; and Myth #4: Once you have product/market fit, you don't have to sweat the competition." Ben Horowitz

Even though tight product-market fit and product-market scale help beat out the completion, that doesn't mean that the struggle stops there. Markets and the actions of competitors in that market (which are not always visible to outsiders) are always changing. Constant adaptation is therefore required to retain PMF. Steve Blank observes, "What matters is having forward momentum and a tight fact-based data/metrics feedback loop to help you quickly recognize and reverse any incorrect decisions."

One mistake many people make is to believe that the process described in feedback loop diagrams does not apply to them. The reason the process is depicted as a circle is that it is both iterative and continuous. It is highly unlikely that even a hundred internal whiteboard product planning sessions will result in a product that has perfect PMF from the start.

"Getting product right means finding product/market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it." Fred Wilson

One of the most common ways that startups die is "premature scaling," a term first used by Steve Blank. A business is "scaling prematurely" if it is spending significant amounts of money on growth before it has discovered and developed PMF. Steve Blank describes one important reason why premature scaling can happen: "Ironically, one of the greatest risks ... is high pressure expectations to make these first pass forecasts that subvert an honest Customer Development process. The temptation is to transform the vision of a large market into a solid corporate revenue forecast - before Customer Development even begins." A study conducted by Startup Genome concluded:

"Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely... In our dataset we found that 70% of startups scaled prematurely along some dimension. While this number seemed high, this may go a long way towards explaining the 90% failure rate of startups."

An entrepreneur quoted by the authors of the study said:

"Premature scaling is putting the cart before the proverbial horse...As an entrepreneur there's always the temptation to grow the sales team at the first sign of revenue traction, but there is always the danger that this early traction is coming from the subset of the market that are early adopters and not the actual market itself. Additionally, too often I've seen startups ramp up sales before they've figured out the most efficient way to achieve profitability. A vicious cycle ensues wherein the more a company grows, the more it farther away from profitability it becomes."

Viddy is often cited as an example of a company that died of premature scaling. For a period of time Viddy was able to use Facebook OpenGraph to grow its user base to millions of users before it ever had PMF. That mistake eventually meant the company was sold for very little and it faded away like the Cheshire Cat. Other business that suffered from premature scaling included Friendster, Orkut, and Digg. Groupon suffered from premature scaling but was able to pivot and save itself so far.

By the way: Not everyone uses this premature scaling terminology. For example, if you look at this list of reasons why startups fail from CB Insights, premature scaling is not even listed but is perhaps buried in other categories:

[As an aside, "Pivot Gone Bad" is a popular Country Western song written by a founder who wrote: "My Co-founder Left with my Husband and I'm sure going to Miss Her."]
How to get there

"In the early days of a product, don't focus on making it robust. Find product market fit first, then harden" Jeff Lawson

Again, the process is discovery-based and experimentation is required. There is no value in hardening something that customers don't want to buy. Andreessen argues that "The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product." If nearly everyone at the business is focused on trying to fulfill product demand instead of "siting around" trying to dream up new feature to create demand, there is almost certainly PMF - but the reverse is not the case.

PMF is not a magic elixir. It signifies an important milestone that is necessary but not sufficient for success. Once a company has PMF it still must find a sustainable growth model and create a moat against competitors and so on. What PMF does do is help prevent businesses from spending money trying to grow a business (often inorganically) in a way that is doomed to fail.

"In general, hiring before you get product/market fit slows you down, and hiring after you get product market fit speeds you up. Until you get product/market fit, you want to a) live as long as possible and b) iterate as quickly as possible." Sam Altman

What Altman is saying is reflected in what co-founder Jessica Livingston calls the Y Combinator motto: "make something that people want. If you create something and no one uses it, you're dead. Nothing else you do is going to matter if people don't like your product."

Andreessen argues that the life of any startup can be divided into two parts: before product/market fit (what he calls BPMF) and after product/market fit (APMF):

" When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital - whatever is required. When you get right down to it, you can ignore almost everything else. I'm not suggesting that you do ignore everything else - just that judging from what I've seen in successful startups, you can.

"Founders have to choose a market long before they have any idea whether they will reach product/market fit." Chris Dixon

Some venture capitalists want to see product-market fit before they invest and leave it to angels to do the investing pre-product market fit. They would rather buy a business with product-market fit than try to predict whether a founder will find it. Key as always is for the venture capitalist to let the founders do the heavy lifting ("You do not want a venture capitalist who hire a dog and then tries to do the barking."). The key point Dixon makes is that founders have control over this by thinking carefully about what they're trying to do and why. There is also founder-market fit.
Notes:

http://digitalassets.lib.berkeley.edu/roho/ucb/text/valentine_donald.pdf

https://www.fastcompany.com/3014841/why-you-should-find-product-market-fit-before-sniffing-around-for-venture-money

http://pmarchive.com/guide_to_startups_part4.html

Page 219 of The Lean Startup https://www.amazon.com/Lean-Startup-Entrepreneurs-Continuous-Innovation/dp/0307887898/ref=sr_1_1?ie=UTF8&qid=1487086125&sr=8-1&keywords=lean+startup

https://blog.wealthfront.com/demystifying-venture-capital-economics-part-3/ http://firstround.com/review/When-it-Comes-to-Market-Leadership-Be-the-Gorilla/

http://blog.pmarca.com/2010/03/20/the-revenge-of-the-fat-guy/

http://avc.com/2013/03/revenue-traction-doesnt-mean-product-market-fit/

http://startupclass.samaltman.com/courses/lec06/

https://www.media.mit.edu/events/2012/04/04/media-lab-conversations-series-reid-hoffman-summary

https://twitter.com/johnhenderson/status/829388910903955456

https://twitter.com/sama/status/610902540608122880

http://cdixon.org/2011/06/20/foundermarket-fit/

The Startup Genome Report: https://s3.amazonaws.com/startupcompass-public/StartupGenomeReport2_Why_Startups_Fail_v2.pdf

Mixergy Rachleff interview: https://mixergy.com/interviews/wealthfront-with-andy-rachleff/

CB Insights: https://www.cbinsights.com/research-reports/The-20-Reasons-Startups-Fail.pdf

Mike Maples: https://austinstartups.com/dare-to-make-your-startup-legendary-9db6aa524f5d#.73nlu1qqv

Casey Winters: https://www.linkedin.com/pulse/first-product-market-scale-casey-winters

1. Casey Winters of Pinterest https://www.youtube.com/watch?v=bpnYFG1-rdk

2. Andy Rachleff https://www.youtube.com/watch?v=7G9Cb6sCjL8

3. Mike Maples: https://www.youtube.com/watch?v=zfOsP3PmI1U

4. Marc Andreessen: https://www.youtube.com/watch?v=zfOsP3PmI1U

5. Sachin Rekhi https://www.youtube.com/watch?v=huTSPanUlQM&list=PLsPCoIQy_CmAzkx2S6ILBbzweZe53Nb2g

6. Don Valentine https://www.youtube.com/watch?v=nKN-abRJMEw

Categories: Uncategorized

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A Dozen Lessons About Product/Market Fit

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The product/market fit (PMF) concept was developed and named by Andy Rachleff (who is currently the CEO and co-founder of Wealthfront, and is a co-founder of Benchmark Capital). The core of Rachleff's idea for PMF was based on his analysis of the investing style of the pioneering venture capitalist and Sequoia founder Don Valentine."

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The Three Fatal traps between MVP and Product-Market Fit by Matt Clifford

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Matt (@matthewclifford) is co-founder and CEO of Entrepreneur First, Europe's leading accelerator for technical founders. The only seed investment programme willing to back the best founders pre-team and pre-idea, EF has built an outstanding track record: EF startups have raised over $20m, achieving a collective valuation of over $85m.

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by Chris Guest

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Every big brand and agency seems to want to act "like a startup." But that doesn't mean what they tell you it does.

If you work in the corporate or agency world, chances are that at some point in the last 5 years you've had to listen to someone telling you to "Act more like a startup," "Think more like a startup," or "BE more like a startup." While it is true that all companies need to keep pace with the rate of business redefining innovations that startups are creating, the key to achieving this is not just about being scrappier or "hackier."

To create long-lasting innovations that can grow and become the future of your business, you need to optimize everything you do for finding and achieving Product/Market Fit. Here's why...

A quick background, for context

The first 15 or so years of my career before I joined a startup were spent in top digital agencies in London and San Francisco, working for many of the world's most respected brands, including Audi, Ferrari, Fiat, McLaren, Mercedes-Benz, Verizon, Visa, and many more.

Over this time I saw our clients realize the need to compete by experiences rather than just by advertising, and so the nature of our briefs shifted from campaigns, microsites and websites, to apps, connected products and services. Clients began to expect sustainable products that would grow thrive in the long term.

The problem is

If we look at the portfolio of almost any agency, or at the roll call of projects at any industry awards night, we see lots of cool and inspiring work that wins awards, but not much that really survives and thrives in the long term.

On the whole, the typical agency model is still: Get a brief from the client → work in secret → have an idea that the smartest experts and biggest personalities are sure is correct → build in secret → then launch with a huge flashy campaign.

To this day, this process still works very well for brand/marketing campaigns. There absolutely is still a role for the Don Draper character within the agency that has the bright idea, and there is still a need for huge explosive launches. But when it comes to creating a sustainable product, Don doesn't rule, the customers do.

"We need to be more like a startup!"

At about this time, there was a whole host of articles, posts and declarations from numerous sources, including our own CCO at the time, that preached that agencies and their clients should act/think/be more like startups in order to be more successful. It is clear why this was so fashionable a point of view at the time. What is less clear, is exactly what should a company do to be more like a startup?

Answers seem to vary from just being more scrappy, to working in smaller teams, to using more tech, to removing layers of bureaucracy. By no means bad suggestions, but obviously not game changers in their own right.

How startups REALLY act differently

When I first read The Lean Startup by Eric Ries, it completely changed my thinking and exposed what was wrong with everything that most agencies and corporate clients were doing together. Eric, together with his contemporaries like steve blank, Alex Osterwalder and a league of bloggers and podcasters have taught the startup world that no matter how smart you think you are, you do not know all the answers, and in fact you are probably wrong. Your product and business model will not survive its first contact with your customers, so you had better adopt a scientific process that tests all of your ideas as hypotheses, and find out as quickly as possible if they are wrong.

But while many terms and principles like "fail fast" and "MVP" have crossed over into the mainstream and can be heard being recited in corporate halls across the world, in my opinion, the rest of the non-startup world is yet to pick up on what I think is the most powerful concept of them all: Product/Market Fit.

I believe that understanding of Product/Market Fit is the real defining difference between startups and the agency / corporate world.

What is Product/Market Fit?

As I discussed in my first Medium article, there are various interpretations and definitions of Product/Market Fit. I find it most useful to think of as:

The point at which you have proven that you have created a great product,
that solves a problem that a lot of people really want to see solved,
and you can take your product to that market profitably.

Sounds kind of obvious? Well it should be! Product/Market Fit has probably always been the defining factor for whether a business is successful or not, since the first trade in humanity. But lack of familiarity with this concept outside of the startup community shows that it is not as well understood as it should be.

The composition of Product/Market Fit.

I like to think of Product/Market Fit as either a pyramid, or a ladder of several rungs/levels that the innovator must climb to reach the point of Product/Market Fit.

Level 1: Vision
Have we articulated a clear and compelling vision? Do we know the change we want to create in our customers' world?

Level 2: Problem/Market Fit
Is there a significant sized market for this, and do they REALLY care about the problem that we think they care about?

Level 3: Problem/Solution Fit
Does our solution REALLY solve this problem? Or does it at least significantly move the needle to warrant the time and effort the user needs to invest in it? Do users "stick" with it?

Level 4: Solution/Marketing Fit
Can we efficiently and sustainably reach the audience and convince them to buy the product?

Level 5: Product/Market Fit
Does it all come together, such that the unit economics of the business really make sense at the scale of our ambitions?

Again this might sound obvious, but to share what I've more commonly seen in the work of agencies and their big brand clients:

Level 1: Excellent, inspiring and compelling vision.
No problems here, agencies are amazing at this

Level 2: Often skipped entirely.
The vision typicaly moves straight into being executed, with no validation of how big the audience really is, and whether they really care

Level 3: Crafted by experts alone
The solution is often designed and built how the designers, clients or other HIPPO's think it should be, without testing if customers will really use it every day

Level 4: Fireworks
The team designs and executes an amazing launch marketing plan that really gets noticed, but doesn't build a sustainable engine of growth, and traction is lost after the campaign ends

Level 5: Fake traction
The product is launched without Product/Market Fit ever having been achieved, the product stops delivering value to the business, and is eventually killed.

Does this sound familiar?

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If you really want to be more like a startup, you must optimize for Product/Market Fit.

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If you work in the corporate or agency world, chances are that at some point in the last 5 years you've had to listen to someone telling you to "Act more like a startup," "Think more like a startup," or "BE more like a startup."