Founder-Product-Market Fit: Aligning Stars For The Holy Grail of Entrepreneurship
The only thing that matters is getting to product-market fit. — Mark Andreesen, a16z
Corollary: The only thing that matters is getting to founder-product-market fit.
In this article, my goal is to first explain what product-market fit is, why it matters, and tell you some quantitative ways to figure out if you have achieved it. My corollary to the broadly accepted theory of product-market fit is that a founder’s fit to that product and to that market is highly important as well.
After that, I am sharing here my own experiences building vChatter, scaling it to millions of users through explosive growth, my mistakes and going through the whole lifecycle of an idea from 0 to 1 and then back to 0.
What is Product-Market Fit?
Product-Market fit is the nectar craved by all the startups. It is that promise land all the entrepreneurs are searching for. Like many great things in life, very few people actually understand what it is, how to determine whether you have achieved it, and how to get there.
My professor from UC Berkeley, Steve Blank, is the pioneer of the customer development process (which morphed into the lean startups movement with Eric Ries). Their basic premise is to make sure that you should prove your product’s value hypothesis before you go about proving its growth hypothesis.
Product-Market fit is the point where you have proven your product’s value hypothesis.
Steve Blank paints a picture of a customer coming from across the table, grabbing you by the collar and asks — “when can I have this product?”.
In his book, The Four Steps to The Epiphany, Steve talks about the customer validation phase, the end of which is marked by Product-Market-Fit, the most important event in the life of a startup.
A startup is an organization put together to search for a business model for a product that has found its product-market fit. — Steve Blank.
Here are a couple other ways to look at Product-Market Fit -
You have reached product/market fit when you are overwhelmed with usage — usually to the point where you can’t even make major changes to your product because you are swamped just keeping it up and running. — Michael Siebel, YCombinator
The age-old advice that you hear from all startup advisors and read in all the entrepreneurship books, as told by YCombinator’s and Open.AI’s Sam Altman is to make something people want. It is very obvious and common-sense, but, history is littered with examples of products that builders spent years building that nobody used or wanted.
Don Valentine from Sequoia Capital tells about the companies he likes, where, the market is so big and desperate for the product that the companies succeed even if everything else goes wrong.
The world takes notice when a product catches fire and Millions of users start flocking to it. vChatter was one of those moments for me.
vChatter: One of my first encounters with Product-Market Fit
When Will Bunker and I released a prototype for vChatter, developed over a weekend, it was simply a Facebook Canvas Application, where three out of four buttons on the screen did not work, and said “Coming Soon”.
That Monday after the weekend release, we were woken up by messages from all over the world, the first one I remember was from a guy in Beverly Hills, complaining and angry about things that did not work in our app. It felt good to know that someone cared about our product enough that they complained.
There were tens of thousands of users on vChatter within weeks and Millions within the next few months. That exponential growth, 503K new users within one week, was one of the first times I experienced Product-Market-Fit for the first time for a consumer internet product.
Heuristics to determine if you have achieved Product-Market Fit
Andy Rachleff talks about these heuristics that you can use to determine if you have achieved product-market fit. We will discuss two each for enterprise and consumer startups.
Product/market fit means being in a good market with a product that can satisfy that market. — Andy Rachleff (Founder, Benchmark Capital and Wealthfront)
Consumer Heuristic #1: Exponential organic growth — The keyword here is organic. Many people trick themselves to buying growth (with ads and paid marketing), and thinking they have achieved product-market fit.
We had a leaky bucket with vChatter, we did not align our paid marketing efforts with the people who were really getting value from our product. Our word-of-mouth growth kept us going while the metrics from the paid channels were obfuscating our true state.
Consumer Heuristic #2: Net Promoter Score — NPS or Net Promoter Score is a great proxy to customer satisfaction score for consumer startups. It indicates if you are simply reaching those consumers or also creating real value.
One of my friends, Pokin, who worked with us at vChatter, made us run our first Net Promoter Score surveys. One of the questions there was, how will you react if vChatter is taken away from you. Our score from that question was much above average and showed us the value that we were creating in our users’ lives.
Enterprise Heuristic #1: Sales Team Yield of greater than one — Sales team yield is calculated as the contribution margin brought in by sales divided by the cost of the sales team.
You achieve Product-Market Fit when your sales yield is greater than 1.
Enterprise Heuristic #2: Number of customers moving to the paid version — Enterprise startups mostly provide a free version or perform a Proof-of-concept. The real test of the value comes after you shut off that free evaluation after 30 days. How many customers still stick with your product?
It is important that you pull the plug after a certain period since if the customers do not decide to pay after that fixed period then they are not desperate for your product.
If the customer does not scream when you take away your product, then you have not achieved product-market fit. — Andy Rachleff.
What is Founder-Product-Market Fit?
How do you know if the founder is one of the top people in the world to execute this product-market fit hypothesis? Does this product and this market (and those customers) align with what this founder knows, understands deeply, cares about and will not leave even if everything goes south?
A founder needs the following aligned with the product and the market, to have an unfair advantage -
- Care — Do you deeply care about the users and the user needs that this market addresses? If you do not care enough, then, during the tough times (that always arrive), you will lose the interest in pushing forward and the organization will suffer.
- Knowledge — You need to have enough knowledge about the industry, the users and the players in that market that you know where your product is going to fit. Note that I said, enough knowledge, and not immense knowledge, since, great entrepreneurs have some level of ignorance about the market that makes them take a crazy plunge that other experienced players are not doing.
- Connections — Do you know people within the industry and ecosystem who can help you build the product, help you take the product to the earlyvangelists to go from 0 to 1.
- Secret sauce — Is there a very deep insight that you have gained over your lifetime that makes you uniquely qualified to tackle this hypothesis at this moment in time?
- Story — Have you had life experiences that made your personal story so compelling and interesting that the initial customers, investors and employee can not ignore?
Key Takeaways to Remember
- Keep in mind the four heuristics to determine if you have achieved product-market fit.
- Founder fit is the key ingredient of the mix for a successful outcome as it ensures a long term alignment enabling the team to remain motivated during rough patches.
- Do not spend effort and money on growth if you have not achieved product-market fit yet.
- Keep iterating on your core value hypotheses with customers till you have achieved product-market fit.