Product-market-fit is one of those terms that is used so widely and broadly, that everyone in the start-up, innovation, and tech world has heard of it. To many start-ups, it is that magical and mystical state that foretells their immense success to come.
In start-up folklore, the exploration phase (often the pre-seed / seed investment stage) is a continuous search for the right market and the perfect product. It is a hard, long struggle, which sees many teams disband, and many ideas die. Yet those who make it go on to raise their scaling rounds and quickly ramp up to capture untold riches in a few short years until their acquisition or IPO.
As soon as the mystical product-market-fit (PMF) is found, everything just clicks, and it is go-time for the exploitation phase. Now all that is left to be done is to quickly scale a capable operating organization that can reliable market, sell, and deliver the value proposition. Easy, right?
When Markets Evaporate
The problem with those tales is that they are simply not true. One of the key issues is that the notion of PMF on the surface ignores context. There is a particular point in time at which there is a status of a product, as well as the definition of a market, which have a strong fit in a couple of crucial regards. Those are a lot of caveats that go unquestioned.
“No man ever steps in the same river twice, for it’s not the same river and he’s not the same man.” — Heraclitus
Firstly, the actual focus needs to be the value proposition of the product and not the product itself. No company is in the business of producing and selling their product but in the business of addressing a key need of a consumer — for which a product is an intermediary.
“The purpose of business is to create and keep a customer.” ― Peter Drucker
Further, the notion of a market is not a strong one. The definition of a market is fuzzy at best and is notoriously hard to nail down. What is a consumer in the market for, when buying a milkshake? Is that the milkshake market? Is that the snack market? Is that the F&B market?
“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” — Theodore Levitt
Adding to that, markets and whole industries continuously change. We have moved from mainframe computing to cloud computing, are moving from automotive to mobility, and will move from white-goods to home services. Markets are neither clearly defined nor static.
A better way to look at a group of consumers, rather than calling them a market is to look at a shared Job-To-Be-Done (JTBD). Through this lens, we are not talking about the market in terms of the product category, but in terms of the underlying need. It is a more elegant way to nail one’s value proposition and keep track of the underlying dynamics.
And these jobs, that a consumer tries to get done, also regularly change. They can vary in scope, quality, or content. And they can be dislocated completely. This can be a slow and gradual process or a sudden one. It can be triggered by megatrends (like Sustainability) or new entrants (like Uber in mobility). The only certainty: The game is changing.
Mind The Macro And The Micro
There are some obvious sources for major change in consumer JTBD, which include global megatrends (e.g. Decarbonisation / Urbanisation / …), unexpected global events (e.g. 2016 US elections / COVID-19 / …) and demographic developments globally. Many of those are well-covered in my previous piece on the “7+1 Sources of Entrepreneurial Opportunity”.
When evaluating the impact of megatrends on our own scaling trajectory, they are more often than not underestimated. Global megatrends take an exponential spreading and impact curve, which means that for a long time they seem like very minor influences, even as they are just about to go big. Sensing them early and monitoring them closely is key.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction. “ — Bill Gates
The less obvious forces are the micro developments within your target customers. One important micro factor is the differences in your target customer segment within different geographies. Especially when scaling globally, your target customers in other parts of the world will not behave exactly like those in your first market. Do the appropriate research first.
Other micro factors that add up over time might be the alternatives that become available to your customers over time, which also get their job done. Keeping a constant look at the competitive landscape is important. The key here is not to look at product category, but at competition for the same job. Understand what JTBD you are in the market for, and what range of product categories could address that same job.
Don’t Take Off That Explorer’s Hat
That is why the “Nail It, Then Scale It” myth fails so many companies. If you take off your explorer’s hat after reaching a perceived PMF and then put on the exploiter’s hat to scale, the market might evaporate right under you while you try to scale broadly and swiftly — leaving you with an expensive debacle that cannot be salvaged.
“There is nothing so useless as doing efficiently that which should not be done at all.” -Peter Drucker
Rather than try to scale up blindly, a better notion would be to keep exploring, at least with a part of the organization. The idea of organizational ambidexterity has long been proposed for established corporations, yet it might also be useful for start-ups. A part of the organization should focus on understanding the customer, improving the product, and if needed, proposing iterations, pivots, or new product lines.
The PMF, which is highly contextual, needs to receive attention and investment continuously. The natural forces of decay and entropy are hard at work, and the only way forward is to consistently apply energy to stave them off. This also means that even in the scaling phase, your product organization will have a powerful voice and needs to be able to overrule operations, sales, or marketing, if necessary.
Continued exploration also merges well is the generally popular notion of “Customer Obsession.” The customer’s voice needs to be present in every meeting — through as much first-hand data as possible. Customer research needs to be a staple, and quantitative and qualitative testing need to be second nature to the organization.
This way, you will know when their Job To Be Done is in the process of change or displacement and will be able to react before it becomes a real threat.
If you have any thoughts, responses, or questions to add, I would love to hear from you in the comments below, or feel free to reach out to me directly via LinkedIn. Thank you for reading.