“Product/Market Fit” Isn’t Just for Startups
When building products, “it’s better to have 100 people [who] love you than finding a million who just sort of like you” was the advice that Brian Chesky (AirBnB founder and CEO) took to heart from YCombinator’s Paul Graham… and you know how the rest of the AirBnB story goes.
No one would argue that when you’re creating new products, it’s all about finding the product/market fit. Companies like AirBnB and Uber are modern, yet legendary startups that have found product/market fit, thereby disrupting existing markets to create new ones that many of us didn’t envision. According to Marc Andreeson, “Product/market fit means being in a good market with a product that can satisfy that market.” If you can find this fit, it will be the key to unlocking a new market’s hyper-growth “tornado” stage, as coined by Geoff Moore’s in “Inside the Tornado”. And though the startup and VC communities have an established playbook to achieve product/market fit, very few can find that break-through.
The odds are arguably even slimmer for big tech companies to break into new markets with a big hit. Ironically, most big tech companies had found a product/market fit at some point during their evolution otherwise they wouldn’t have become big. So as they mature, companies seem to be losing focus on this product discipline. It’s not that they don’t continue to innovate. There’s plenty of innovation happening, but the innovations big companies bring to market tend to be incremental and are rarely as successful as the first hit product.
Can big companies be more than one hit wonders? Can they do more than buy their way into new markets? Yes, if product teams can maintain an intense focus on finding product/market fit and recognize the common pitfalls that hinder this pursuit:
- Leading with financials: As companies grow, they are challenged with a dichotomy — sustain revenue and profit growth while reducing business risk. Publicly traded companies also face the quarterly pressures of managing Wall St.’s expectations. But growth is harder to achieve the larger they get, so big companies naturally look for growth in new product areas. The resulting product strategy is derived from an obsession with using financial data such as market size and growth forecasts, revenue and predicted market share, and profitability goals. This focus on short-term financials shifts product development priorities away from finding product/market fit to meeting time-to-market or revenue targets. But a rigid financial plan is the antithesis to product/market fit because it reduces a product team’s ability to iterate, pivot, move timelines, tweak business models, or do whatever it takes to truly satisfy customers. The resulting products tend to be mediocre if not complete duds, opening up the door for a competitor to enter and do it better. Financials should be used to guide, not to dictate.
- Assuming we know our customers: Product managers are responsible for knowing their customers and they spend lots of time with customers to improve and evolve products. When looking into new markets though, PM’s tend to apply existing personas to new sets of customers, shortcutting the work required to truly understand their customers free of assumptions. Especially when racing to get products to market, product teams often skip the time-consuming, yet critical steps that call for regular, iterative discussions and demos to obtain customer validation and feedback. Minimum viable products then get defined by what product teams believe vs. what has been sufficiently validated with enough customers.
- Our competitors have it, so must we: When looking for new revenue streams, it’s tempting to be a slightly better “me-too” in a market that competitors have already validated for us. The set of core features and capabilities are pre-defined by competitors who are first to market. Why reinvent the wheel if you don’t have to? The danger of jumping on the bandwagon means that you miss opportunity to do something radically different to solve for the same problems or to create a new market — develop the next hotel property or create Airbnb? The subsequent rewards tend to be proportional to the innovation.
So how do you avoid these pitfalls and develop your “product/market fit” muscle?
- Be really inquisitive and understand customer intent: Talking to customers is an important step that every company recognizes; but it is much more than listening to what they say. You have to dig in to truly understand the end users’ intent. This requires hearing what they say, but just as importantly, watching what they do (because they don’t always say what they mean) and asking the right questions to diagnose the real problem they want you to solve. An effective technique is to conduct 30–50 “follow-me-home” visits where you sit with end users in their environment and you watch, listen, and learn. When conducting these follow-me-home discussions, use the 5 Why’s interviewing technique to find customer intent. AirBnB’s Brian Chesky is known for taking this immersive approach, having spent months on the road staying with Airbnb hosts in order to deeply understand how to improve the guest experience.
- Create fast, iterative development and feedback loops: In the cloud computing era, agile software practices like continuous delivery give dev teams the ability to create and quickly deploy software, test it with end users, and then use the feedback to iterate on the product until it’s right. Frequent demos along with an extensive preview or beta stage gives you a chance to gather both qualitative feedback from customer interviews and quantitative data from different sources. Today, there is a breadth of application monitoring and analytics tools that can really help you tune into customers’ needs. Adopting this adaptive, data-driven approach requires an influential champion who can drive what’s often a grass roots cultural shift throughout the product teams. And product teams need to create a customer engagement framework to find the right users, manage the interactions, collect the data, and prioritize the feedback for incorporation into the product, rinse and repeat.
- Let customers tell you when you have a minimum viable product:
Due to internal and market pressures, letting customers decide when your product is ready is a challenging discipline for product teams. Most companies establish a rhythm of product launches around annual events within a fiscal year, which can include sales kick-offs, industry trade shows, and user conferences. These events impose artificial product readiness constraints that can force companies to introduce products that haven’t really been validated, much less adopted and loved by early customers. Product teams cannot yield to marketing pressures and compromise product/market fit. Product/market fit should only be determined by your customers’ answers to two important questions:
Would you be willing to pay for the product as is right now?
Would you refer this product to friend or colleague?
When the answer to both those questions is YES, that’s when you’re ready to launch and put your go-to-market machine to work.
The intensity needed to get the first handful of users to love you is very hard and takes institutional patience. Ironically, big companies who are well funded and can afford to take the time to get the product right end up short-cutting the process more so than startups who are cash strapped, but laser focused on finding product/market fit. Big companies can still innovate like startups, but that requires keeping the ruthless focus on finding product/market fit in every new venture as if it’s the first.
