Product / Market Fit
I recently discovered a post by Marc Andreesen from a 2007 Stanford Class on the subject of Product/Market Fit. The post is adapted from a series of lectures he gave as part of the class, “Business Management for Electrical Engineers and Computer Scientists.” In it, Marc breaks down this question:
Which is most important to a startup’s success (or failure), Caliber of Team, Quality of Product or Size of Market?
Marc’s assertion is that a great (big) Market is the most important factor in a startup’s success.
“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. In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.”
This articulates the conventional wisdom and driving question for entrepreneurship throughout the past decade. “What’s the size and value of the market?” In other words, if the market isn’t HUGE, your idea isn’t worth building. If you decide to build it anyway, you earn the “lifestyle business” label, a stigma of $M businesses that will never become $B businesses.
This conventional wisdom from 2007 persists today to the detriment of entrepreneurs. The calculus of identifying a big market and building a minimally viable product to address its existing need is a fast-track to immense competition. Competing (as desribed in Peter Thiel’s Zero to One) is the exact wrong pursuit for a startup hoping to make money. In perfectly competitive markets, margins are reduced to zero as companies fight to offer the lowest price solution.
I was struck by the contradiction(s) that Marc glossed-over in the second half of his lecture. He briefly acknowledges that in “best case scenarios,” great products can create huge new markets. His example here was VMWare. He calls VMWare’s product “transformative,” then asserts that “…it doesn’t really matter how good your team is, as long as the team is good enough to develop the product to the baseline level of quality the market requires.” He quickly qualifies that VMWare’s team was exceptional, which begs the question, “Can a non-exceptional team create a transformative product?” The answer, I think, is NO.
And why does is seem like Marc is discouraging the pursuit of best case scenarios? To me, his message to engineers is that we shouldn’t take big, even crazy risks to build something totally new. In order to figure out what to build, just find an obvious need in a big market and quickly address it with a product that meets the lowest threshold of quality. Again, this seems like a great way to put a mediocre product into a hotly competitive market where the most important differentiation can only be the lowest price, resulting in zero profits.
We can all agree that a startup’s success is based on its ability to achieve Product/Market Fit. But I take issue with Marc’s explanation of how a startup manages to achieve this fit. Even he acknowledges that “people are terrible at understanding causation.”
The conventional wisdom captured in Marc’s lecture is giving entrepreneurs fundamentally flawed advice and encourages a fallacious formula. Begin by identifying a perceived huge market opportunity then work backward to derive a product that addresses an explicitly felt need.
1 — Find a huge market with an obviously felt need
2 — Build a minimally viable product
3 — Watch the $ come flying at you from all directions
I’m not saying this doesn’t work. It does. There are many successful companies that have followed this order of operations. But I believe the companies that have significantly changed the world haven’t followed this process. They’ve created markets by crafting transformative products, an approach that directly contradicts the conventional wisdom of working backward from a big market opportunity.
The best way to achieve Product/Market Fit is to craft a new product that creates and dominates a new market (Peter Thiel’s “Creative Monopoly”). Be convicted in your beliefs. Build a product that you are deeply convicted can change peoples lives, starting with your own. Create something you believe should exist in the world regardless of the current market need or the perceived opportunity.
Don’t compromise on the fundamental aspects of your world view. Ignore the status-quo and believe in your ability to change things for the better. By definition, you’ll have to ignore certain realities, and you risk being delusional — but press on.
I’m working on a company that is fundamentally changing the experience of being a baseball fan. Our products are catalyzing a new, big market of discerning fans who love and need our products, though they never knew it before we created it and put it into their hand. Learn more about us here.
NOTE: Marc Andreesen is one of the smartest entrepreneurs and thinkers of the internet age. While I thoroughly enjoyed challenging his lecture, I greatly respect and appreciate his opinions and his work.
