True Product Market Fit is a Minimum Viable Company

Hi, I’m Ann. I was one of the first investors in Lyft, Refinery29, and Xamarin. I have been on the Midas List for the past 3 years and was recently named on The New York Times’ list of The Top 20 Venture Capitalists worldwide. In 2008, I co-founded Floodgate, one of the first seed-stage VC funds in Silicon Valley.

When Mike Maples and I founded Floodgate, I was teaching Lean Startup at Stanford with Steve Blank. Steve had an innate sense for incorporating the scientific method into the artistry of startups. As such, we centered the class around entrepreneurial experimentation, honing in on one critical lesson: founders must develop insights and customers before focusing on growth. This, we taught our students, is the key to achieving the coveted product/market fit.

For the past 11 years, I’ve invested at the inception phase of startups. We’ve seen startups go wildly right (Lyft, Refinery29, Twitch, Xamarin) and wildly wrong. When I reflect on the failures, the root cause inevitably stems from misconceptions around the nature of product-market fit. Founders are blindly searching for growth because they see that as the proof of product-market fit when in fact they should be focused on insight and customer development first as that is more likely where product market fit will be found.

The Magic of Product-Market Fit

Most successful entrepreneurs and VCs agree that product-market fit is the defining moment of an early stage startup. Getting to product-market fit allows you to succeed even if you are not optimized on other fronts.

Most entrepreneurs conceptualize product-market fit as reaching the point where some subset of customers love their product’s features. At Floodgate, we forensically analyzed companies that died and realized that this conceptualization is wrong, as many of these companies had features that customers loved, and yet still did not succeed. Some of these companies even had multiple beloved features! What we learned through this process is that having customers love the product is merely a part of product-market fit, not the whole thing. This raises the question: what were they lacking?