“Pattern matching” matters most when establishing product/market fit
“In a great market — a market with lots of real potential customers — the market pulls product out of the startup.”
- Marc Andreessen, General Partner a16z
In his now famous post of 2007, Marc Andreessen of a16z argues “market matters most”. As he admits in the post, others would argue that the founding team or the product matter more. Whichever way you fall, we’d all agree that markets do matter a lot! We all know that getting to product/market fit is the key objective in the early days of any startup.
Given that’s the case, how do we best figure out, and clearly define, what that market is? My answer is “by talking to potential customers and listening carefully for patterns”.
Each one of these prospects is likely to have their own unique set of requirements — but it is the patterns across prospects which lead us to understand what is missing in the world, and from there to where the opportunity lies in filling that gap.
That starts by understanding from each of them what is working well, and what is working less well, sometimes called a Discovery Phase — if you’ve started building, show them your product but listen to whether they’d prefer you to make something different.
The key follow-up here is in understanding what it would be worth to the prospect if you can fix the “less well”. Quantifying this is crucial in understanding how large the opportunity (and therefore the market) can be, whether people will pay for what you’re building, and if so, then how much. They might tell you, they might not know — you need to figure it out. All of this underpins the business case you’ll need to present to them to get them to part with their money. So, there is a clear linkage from prospects’ challenges through to how much your business can generate by resolving these things (your pricing and business model). Bear in mind that you can add value by saving your customers money and by helping them to increase sales (see our post on value creation).
Dive deep and look for all of the ways that your solution creates value — there may well be more than just the one obvious one.
To be a pattern, of course, it needs to run beyond any single potential customer — it needs to be across customers. Ideally across a whole industry if you’re going to build a venture-scale business — one which really matters.
One obviously needs to listen to what prospects say — but also listen for what they don’t say. If you have something truly interesting, it might be that your target market hasn’t figured that out yet. That old chestnut of “we’ve always done it this way” can be a pattern too — for example revealing that a process hasn’t changed or adapted for decades, but that it could be with new technologies, now including AI (see case study on laiout below).
The major benefits from establishing these patterns are:
- You can make your product directly address the opportunity
- Your marketing message will be consistent
- Your sales become repeatable, often with a “playbook” set of instructions to follow
Once you know that all customers in a category can benefit from the solution you’ve built, you have case studies, and you understand the business case which demonstrates your value to the customer — then you have product/market fit and you are ready to scale.
HOW LAIOUT DISCOVERED ITS VALUE INCREASES EXPONENTIALLY WITH SIZE AND COMPLEXITY
Our portfolio company laiout is using AI to automatically generate floor plans within seconds for landlords, brokers and architects alike. Their sophisticated algorithms combine a building’s physical floor plan with the client’s desired desk and office mix — and automatically generates many permutations which comply with the local regulatory and workplace standards. Users can then iterate further on those designs, but always with the regulations factored in. laiout’s use of AI is a completely new way to quickly generate floor plans which until now would have taken architects or specialist designers weeks and tens of thousands of pounds to generate.
laiout has been busy — they’re being contacted by organisations large and small from all over the world who are looking to design their workspaces in more attractive ways to bring their teams into their offices. laiout’s solution works well for small organisations who simply require a quick solution for the relatively small number of patterns which comply with the regulations…
…. But what surprised the founders was the extent to which their value scales exponentially, not linearly, as the floorspace size increased. What became clear in their discussions the bigger the floor plans are, the bigger the difference is between manually designing it or automating it through laiout. With laiout, valid solutions can be generated in seconds, and the whole process completed in hours. This doesn’t just save person hours or architectural expense, but very importantly also reduces the void periods drastically which are a huge financial burden.
Even better, during initial discussions between a property manager and a prospective tenant — because the tool is visual and changes dynamically “live” — potential tenants can be quickly shown how a floorspace would look customised specifically for them. This drastically increases sales teams’ effectiveness and it saves time for everyone by down selecting only the buildings which are likely to meet their requirements.
Many startups think it is hard to engage with larger organisations — but those organisations will respond if the value to them is sufficiently high!
Pi Labs is always on the lookout for the next start-ups disrupting the way we interact with the built world. If this sounds like you, we’d love to hear from you.
