Product-Market Fit is a Fraction Not a Bit
Marc Andreessen wrote a blog post on June 25, 2007 “The Only Thing That Matters” where he wrote
In a great market — a market with lots of real potential customers — the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. 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.
[…] Conversely, 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.
[…] The #1 company-killer is lack of market.
In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff’s Law of Startup Success:
- 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.
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. Market matters most.
And neither a stellar team nor a fantastic product will redeem a bad market.
Third question: as a startup founder, what should I do about all this?
Let’s introduce Rachleff’s Corollary of Startup Success:
The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.
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.
Lots of startups fail before product/market fit ever happens.
My contention, in fact, is that they fail because they never get to product/market fit.
[Editorial note: this post obviously raises way more questions than it answers. How exactly do you go about getting to product/market fit if you don’t hit it right out of the gate? How do you evaluate markets for size and quality, especially before they’re fully formed? What actually makes a product “fit” a market? What role does timing play? How do you know when to change strategy and go after a different market or build a different product? When do you need to change out some or all of your team? And why can’t you count on on a great team to build the right product and find the right market? All these topics will be discussed in future posts in this series.]
Andreessen posits product-market fit as a one bit variable–either you’ve got it or you don’t. This formulation has had a very strong influence on a lot of customer development thinking ever since. To my knowledge he hasn’t written the follow up posts he promised in 2007 so others have been left to puzzle it out.
I think he got it wrong for several reasons:
- Markets evolve, early markets evolve rapidly. Even if customer uptake starts to occur it may falter as customer demand changes.
- New products enter the market that change the status quo and render your product less desirable.
- New technologies enable new categories of product that obsolete your product or dissolve your niche into a larger market.
I think it’s a fraction that measures the relative fitness at a point in time for a product solving a problem for a particular customer set. If those customers “reference each other’s buying decisions” (to borrow a phrase from Geoffrey Moore’s “Crossing the Chasm”) then you have a market and a measure of product-market fit.
Reading Ben Yoskovitz’s “Product-Market Fit or Market-Product Fit?” crystallized this for me. He argues, as Blank does, that most startups need to “sell the product they have” which means finding a market for the existing feature set.
After all, you don’t just start building the product, launch it and then hope to heck that it works, right? But this happens a lot. We don’t always get to start at Step 1. In some cases there’s a functioning product, a bit of traction, but no clear direction and no scalable opportunities (at least not plainly in sight). So when this happens, what can you do?
Steve Blank talks about this in “Four Steps to the Epiphany.” Instinctually you may think it makes sense to keep building more features or radically change the product. But if the Product-Market Fit isn’t right, more features isn’t likely to solve the problem. And investing in rebuilding the technology is going to take a long time, cost a lot of money and not necessarily guarantee any additional success. Instead, Steve recommends finding a market for the product you have. Take the product, point it at a different market and see what happens. Rinse and repeat.
In my mind that’s Market-Product Fit — finding a market to fit an existing product (vs. building a product to fit an existing market).
For many startups this is what they need to do because they’ve got a product but no market. Find a market. In some respects this is a slight handcuff – you’re not starting from scratch and the product can feel like “baggage” – but before throwing your product in the garbage and starting anew, it’s worth looking for a market where there is a fit. Incidentally, the same holds true for a business model. You may have a product but the wrong business model. You don’t scrap the product, you change the model. That’s very much Market-Product Fit.
Pitch the product you have, but… don’t feel obligated to pitch it exactly as it exists today. Simultaneous to your efforts in finding the right market and business model, you need to be envisioning what I would call “product+”. This isn’t a complete rebuild of your existing product that will take huge development time, but there’s no reason you can’t pitch a modified/extended version of your existing product as you’re discovering the appropriate market, business model and that market’s product requirements. As you’re collecting feedback, and plowing through prospective prospects, you should gain significant clarity on what product+ will look like. That will help you iterate quickly on the product development front. But sell what you have now.
It’s not easy to find a market for an existing product. And the reality is that there may not be a market for the product you have and it will require significant changes or a complete overhaul. (Or it’s time to get into a new business.) But before you get to that stage, stop, pull back and look for a customer base that will pay for what you’re selling. It’s still about following a rigorous Customer Development process, but starting partway through and trying to go back, without going completely back. Think of it as Market-Product Fit.
It’s a little bit like beating swords into plowshares but I think this is a good model and an important re-framing for founding teams to bear in mind. Whether it’s “P-M fit” or “M-P fit” it’s not a binary variable, it’s a fraction between zero and 1 (few products are perfect) that varies over time in response to changes in the market and the availability of new technologies and competing alternatives. Many successful products achieve modest success in an initial niche and then find a much better (and/or larger) niche where they achieve better traction.
- Andreessen abandoned and erased his blog but it’s been rescued from bit rot at http://pmarca-archive.posterous.com/ His Product-Market fit post is http://pmarca-archive.posterous.com/the-pmarca-guide-to-startups-part-4-the-only
- The inimitable Dave McClure offers the following investment thesis in “MoneyBall for Startups”
Invest BEFORE product/market fit, measure/test to see if the team is finding it, and if so, then exercise your pro-rata follow-on investment opportunity AFTER they have achieved product/market fit. It’s sort of like counting cards at the blackjack table while betting low, then when you’re more than halfway thru the deck and you see it’s loaded with face cards & tens, then you start increasing your betting & doubling-down.
Let’s face it — most venture investors are sheep. We like unfair advantages. We want to know that there is already customers, revenue, and that elusive thing called TRACTION. Unfortunately, if it’s obvious that there is already customers, revenue, and TRACTION then there will likely be a LOT of other investors at the trough, the competition will be fierce, and as a result the price to invest will be high.
Update Oct-25-2010: Patrick Vlaskovits pointed out a blog post by Ben Horowitz–Andreessen’s partner at Andreessen-Horowitz–entitled “The Revenge of the Fat Guy” that I had overlooked. Some of his points seem to contradict Andreessen’s earlier formulation of Product Market Fit as a threshold or a bit, in particular he lists four myths of Product Market Fit:
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.
Here are two excerpts that elaborate on these myths:
Product market fit isn’t a one-time, discrete point in time that announces itself with trumpet
fanfares. Competitors arrive, markets segment and evolve, and stuff happens—all of which often make it hard to know you’re headed in the right direction before jamming down on the accelerator.
Some companies achieve primary product market fit in one big bang.
Most don’t, instead getting there through partial fits, a few false alarms, and a big dollop of perseverance.
By the time it got acquired, Opsware had achieved product market fit for a category of software called data center automation.
But it wasn’t at all obvious that was going to be our destination while we were getting there. We actually achieved product market fit in a number of smaller sub-markets such Unix server automation for service providers, then Unix server automation for enterprise data centers, then Windows server automation, and eventually network automation and process automation. Along the way, we also built a few products that never found product market fit.