Product market fit, why most incentives don't work and morning coffee

How are all these related IF they are related at all? Give me 4 minutes to explain.

As product leaders we tend to have a love affair with our idea. 'Seasoned PMs' with a few years under their belt, fall into the trap of 'anecdotal fallacy' where they mistake their personal experience (n=1) as a shared experience of the masses, possibly due to assigning a higher weightage to the 'judgement' built over time. This often leads to 'doubling down' and stands in the way of 'pivoting' before it is too late.

In my experience (see what I did here!) you strike a product market fit when the demand for your product organically surpasses the supply.

Taylor Swift concert tickets selling within hours of being released at the price determined by the seller without a need of discounting to be 'sold out'. An 'internet' phone launched in 2007 that has sold 2.3B units at the price it commands. Early days of iPhone were marked by right innovations at the right time - what would the utility of an internet phone be if it was a pure browser based experience without the ~2M apps on its app store. Another marketing genius was 'sent from my iphone' email signature that allowed users to humblebrag while being the vehicles of advertising the product.

For a fit to happen, you need a market and a market is nothing but a large enough segment of customers who have a real problem for which they are willing to pay. Today, we see many products and companies spawn to offer a solution to a problem that doesn't exist. Sure, DeBeers may have created a wedding commercial complex by making a pressurized rock become the symbol of love and the size of the rock a predictor of the length of the marriage OR AWS and Azure creating an enterprise cloud market across industries by introducing cloud computing “as a service” model. What these companies had is a luxury that is not afforded to many smaller companies - the ability to wait in the purgatory of the pre PMF stage for years and the cash reserves to allow them to do that.

In today's bootstrapped world where individual business units operate as startups and have to constantly justify their existence, it becomes critical to step back and look at the deepest and most meaningful customer needs and create a product around those needs. Your V1 product or MVP (MLP in Amazon) is the secret sauce where the judgement and experience comes into play. MLP is typically a set of core features on the critical path of your CX that allow your customers to complete the task to solve their problem. Too broad of a definition and you end up in a forever lingering and 'under production' MVP which may set back your launch timelines and in some cases the first mover advantage or competitive edge. Too narrow of a definition and you miss core components without which the product (though needed to address a problem) has no or low utility for the customer and hence poor adoption and engagement. Bard anyone? The rush to announce vs the desire to improve the MVP such that it was ready for general availability resulted in the gaffe for Google.

There are multiple schools of thoughts on the value of distribution as a part of product success but in my experience of launching multiple products and growing them from 0 to $XB in revenue across multiple companies and industries, distribution reigns supreme. If your customers don't have a low effort way to become aware of, access or engage with your product, it will be a shiny object discovered only by a few. As LLMs become a mainstay in our lives, how many of us have used or even tried Perplexity? It is as good if not better than its more popular counterparts - ChatGPT and CoPilot. Copilot will be woven into all surfaces and touchpoints on a Windows machine. That gives it a massive distribution channel and opportunity to become smarter in the future with the access to data, being a centerpiece in Windows.

Finally, incentives. Incentives are a peculiar tool in a product manager's toolbox. Having used them a few times in the past myself, I can say that they work well to draw attention to your product, garner early users, drive ongoing engagement and boost efficiency (margins) when used surgically. But, they can also mask product market fit assessments and blindside the team to an 'organic pull' of the product vs a 'steroid pumped' performance of the product. In business as well as in sports, the latter eventually shows up. There is another category of a more sinister type of incentives: 'misaligned incentives' that result in unintended consequences at best and a contrarian impact at worst. A classic example is the focus on fast, short term impact in tech companies with monetary incentives revolving around 'what did we launch this quarter', 'how did that result in topline gains or MAU/DAU improvements' with little patience for the long term and downstream impact of the change. In such systems, employees optimize for monetary incentives and end up making decisions that optimize for local maxima.

And where does my morning coffee fit into all this? - Well, how else would I have written this article! A coffee (mushroom coffee these days) is also my beverage of choice to have deeper conversations on product, leadership, team dynamics or parenting.

Until next time..

PS: No LLMs were harmed (or used) in writing this article. Image courtesy - DallE 3