Why Product Market Fit is Overrated (and what to focus on instead)
Two years ago, I was looking for a new project. I had read all the books on product/market fit.
I had grown a B2B eCommerce by over 500% in the last two years, so I was at least competent at marketing. Great, I thought, marketing is the product then.
I understood the importance of operating in fast growing markets, that a small market which was rapidly growing would quickly outpace a larger, static market.
I started a marketing agency targeting private medicine physicians in the U.S. The industry was small and growing fast, a great time to get in. Venture capitalist Fred Wilson listed private medicine as a megatrend for the next decade.
Good product. Great market. It took off, of course!
Nope.
The business never really went anywhere. However, I wasn’t wrong about any part of my hypothesis. The market has continued to grow quickly and I am at least a competent marketer.
With the benefit of two years of hindsight, it’s more clear to me why it floundered: I started it by focusing on finding product/market fit.
Product/Market Fit
Product/market fit is the idea that there is a certain inflection point in a business’ life when the product is so “fit” with what the market wants that it completely changes the nature and growth curve of a company. The company’s problem shifts from acquiring customers to handling the demand from the incoming stream.
In the words of Marc Andreessen:
“The only thing that matters for a new startup” and that ”the life of any startup can be divided into two parts: before product/market fit and after product/market fit.”
Growth hacker sean Ellis has tried to quantify it as when 40% of users would be “very disappointed” if the product disappeared.
It’s a concept commonly talked about in startup circles. It usually gets pointed out on hockey stick growth curves.
It’s not untrue. Getting to product/market fit is basically a guarantee that a company will be successful on at least some level.
I remember visiting a friend before and after his company hit product/market fit. In a matter of months, he’d gone from doing all the fulfillment himself to being so overwhelmed with incoming leads that not only did he hire a team to do the work, he was a hiring a full sales team.
However, starting with the goal of product/market fit is counter-productive because it leaves out one important element of your success: you, the founder.
There are two steps that come before product/market fit. Both improve your odds of getting to product/market fit and the long-term prospects of the business if you do.
Founder/Product/Market Fit
Product/market fit’s two relatives are founder/product fit and founder/market fit
Founder/Product fit means you (1) like and (2) are good at what you do on a day to day basis.
Founder/Market fit means you (1) like and (2) deeply understand your users, customers or clients.
While it’s entirely possible to get product/market fit without having either founder/market fit or founder/product fit, having all three substantially increases your odds of success and long-term profitability, not to mention life enjoyment, in the process.
If you like what you’re doing and you like who you’re dealing with, you’re more likely to stick with it when it’s hard and unprofitable and get to the point where it’s fun and profitable.
Philip Kaplan recounted founding and growing his first ad tech company this way:
“You can build something great for a market?—?a market you know well?—?that you don’t give a shit about. ”
The other founders he would meet at conferences all ended up growing their companies much larger. They liked what they were doing on a day to day basis, why not keep doing it? He was more than happy to leave, even when the business had growth potential.
Gabriel Weinberg of DuckDuckGo offered this reflection in a Reddit AMA as a lesson learned from his first company:
“Only start things you really want to work on for a decade, since that is generally how long it takes to get startups to a truly successful state. If you don’t have anything like that, then join a successful startup that is taking off … You can learn a lot from that success and growth as well as meet people you can go into business with later.”
I have heard similar statements from many entrepreneurs. Careers are more fractured now than they have been in the past, but still limited. Assuming a work life of fifty years and spending 5–10 years to build a business or develop a deep competency, you probably still only have five to ten shots at building something significant.
In his talk On Elementary Worldly Wisdom, Charlie Munger recounts a lesson he learned from Warren Buffett on investing that we would do well to pay attention to in our careers as well:
When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches?—?representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”
He says, “Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
If you had a career punch card with 5–10 slots, you’d be much more cautious about what you were working on. You’d have to work on it for a long time.
Focusing on founder/product/market fit instead of just product/market fit (and doing so in the right order) increases your odds of getting to product/market fit in the first place, of enjoying the process and consequently means you’re likely to stick with it long enough to reap the full rewards.
So how do you get to Founder/Market/Product Fit where it’s worth punching one of those slots on the card?
Founder/Market Fit comes first
“It takes time to reach product/market fit. Founders have to choose a market long before they have any idea whether they will reach product/market fit. In my opinion, the best predictor of whether a startup will achieve product/market fit is whether there is what David Lee calls “founder/market fit.”
Chris Dixon on founder/market fit
Kickstarter, a crowdfunding platform that allows makers and product people to pre-sell and validate their products before making them, was started by Perry Chen. Perry had been living in New Orleans in 2001 and wanted to bring a pair of DJs down to play a show. All the venues he approached wanted the money up front. For years prior to founding Kickstarter (it launched in 2009), he had thought about how to connect artists directly with fans using the internet so fans could pre-pay for events or products they wanted. He had walked through the idea maze of the market. His deep understanding and empathy with the market laid the groundwork for Kickstarter’s rapid growth.
Brad Feld of TechStars has seen the same thing with founders he’s observed:
“I’m not suggesting that product market fit isn’t an important concept. It is. But at the very beginning, especially with first time entrepreneurs, founder market fit is even more important.”
Most successful companies are created by someone who has a problem and finds a solution for themselves. This is often called “scratch-your-own-itch.” The advantage of scratching your own itch is that it makes it incredibly easy to make business decisions. Should we use a pop-up? What color should we make this button? If you’re deeply enmeshed in the market, you can trust your intuition for product decisions.
I often push people to start businesses closely related to the jobs they have (or get jobs closely related to the business they would like to start one day). If you’re already at founder/market fit, you don’t have to reinvent the wheel.
This was advice I could have used two years ago.
I didn’t know anyone in the private medicine industry. I didn’t understand the market’s psychology. I didn’t understand how averse many doctors were to marketing. I met many who chose to either let their practices fail or flounder instead of learning and investing in the marketing.
There was a way around this, though. The trail into the private medicine market was blazed by so-called conversion companies. Instead of convincing doctors that they should become business people, they made a deal with the doctors that they would manage all the business stuff, take a percentage off the top, and all the doctors had to do was see patients and take a salary.
What I realized after I got out of the market was that I never had founder/market fit. I lacked a deep understanding of the market. No one in the market knew, liked or trusted me.
Last year, I tried another project: writing a book. The book was aimed at people interested in becoming entrepreneurs, a fast-growing market that I had spent a lot of time learning about since I’d had to figure out for myself. I knew hundreds of people in the market and liked them.
This project did much better. Who’da thunk it? I’ve since developed an internal checklist for evaluating a market before I go into it.
- Are you are ok with the idea of having lunch with one of your customers every Friday?
- Is your intuition good enough that 80%+ of your product decisions are correct without having to ask customers?
- Are there at least 10 people in the market that know, like and trust you?
- Is the market growing 10% year over year?
Next: Founder/Product Fit
In 2005, Dan Norris started a web design agency. He knew many of his potential customers, had a great sense for design, and the market was growing quickly. He probably had founder/market fit.
The problem was that it was a sales-driven business and Dan, by his own admission, wasn’t very good at sales.
In a reflection, he had this to say:
“In my first agency I was a poor match. The people who do well with local consultancies are not like me at all. I knew that, but I pushed on anyway.
It’s worth thinking about what skills you have, what are you known for and where you can provide the most value.
If that doesn’t line up with your business idea, it’s going to be a long, hard struggle.”
Dan loved content marketing. He wrote two hundred blog posts and built a five thousand person email list just from content.
His current business, WP Curve can be grown effectively through content marketing alone because it was a much less expensive product. Since products under $300 can generally be sold through marketing alone while more expensive products require a sales call, all of a sudden Dan’s skillset matched up with what his business needed to grow. His business now makes more in a month than his previous business did in a year. That’s the value of product/founder fit.
I really like online publishing. I think the way the internet has provided voice to billions of people who didn’t have it before is an amazing thing. I started a podcast about private medicine. Most doctors don’t even know what a podcast is. The customer acquisition channel I was good at and interested in wasn’t a good fit for the product I was trying to sell.
How do you want to spend the next four years of your life?
Even if you deeply understand the market, like it, like what you are doing on a day to day basis, and are good at it, it isn’t sustainable if you can’t put a profitable business to it.
Product/market fit is like water. You need it to survive, but it’s not really the point. Finding product/market fit without founder/market fit or founder/product fit means you’ve found a scalable, profitable way to do something you don’t like with people you’d prefer not to talk to.
Steve Blank, one of the early pioneers of product/market fit, was approached by a team of founders who presented him with data showing that there was good reason to believe they could get to product/market fit for their business.
“Should we pursue the idea?” they asked.
His response? “How do you want to spend the next four years of your life?” Steve had been successful in multiple startups where he was working with engineers and research scientists.
When he started a company selling video games to teenagers, he quickly realized he hated teenagers. He didn’t want to talk to them and understand their problems or psychology to be able to make a better product. He mostly wanted them to go away. They did, by not buying anything.
Project Evaluation Checklist
Here’s an exercise you can do before launching a project.
First, make a list of all the markets you’re interested in. Brainstorm as many as you can think of. Go through and eliminate any that you can’t answer yes to all of the below questions.
Founder/Market
- Are you are ok with the idea of having lunch with one of your customers every Friday?
- Is your intuition good enough that 80%+ of your product decisions are correct without having to ask customers?
- Are the at least 10 people in the market that know, like and trust you?
- Is the market growing 10% year over year?
Of the remaining choices, brainstorm three product ideas. Now filter all those product ideas and business models through these questions.
Founder/Product
- Do you like what you would be doing on a day to day basis to grow the business?
- Are you good at it (or are you willing to get good at it)?
- If you didn’t make any money, would you still have had a great time?
Answering all these questions before you start asking “how do I get to product/market fit?” will make it more likely that you do get to product/market fit and that you stick with the project long enough to reap the rewards.
If you’d like a free template to do the exercise yourself, click here.
Originally published at taylorpearson.me on March 8, 2016.
Taylor Pearson is the author of The End of Jobs. Get his free essays about entrepreneurial strategies and mindsets that yield 10x results by signing up to his free weekly newsletter. Follow him on Twitter at @TaylorPearsonMe.