What startups get wrong about product-market fit, according to the legendary investor and founder who coined the term
If you ask Andy Rachleff, a lot of startups miss an important aspect of the all-important idea of product-market fit, or PMF.
In his view, to achieve true PMF, it’s not sufficient to merely create something that solves a problem. Rather, PMF is when the market is desperate to buy what you’re selling. There are plenty of products on the market that are useful, but greatness comes when a startup figures out something that its customers literally need.
Founders would do well to take Andy’s thoughts on product-market fit seriously, given that he famously coined the phrase, building on the ideas of legendary Sequoia investor Don Valentine. A co-founder of Benchmark Capital, Andy would go on to retire from a successful VC career and teach courses on entrepreneurship at Stanford Graduate School of Business. Soon after, he became an entrepreneur by founding Wealthfront, where he serves as chairman today.
Speaking on stage at Vertex Intersect ’24, our annual gathering of startup founders, CEOs, investors and technologists, Andy shared his thoughts on what product-market fit means today, and some common mistakes that startups make in seeking it:
- Iterate on the market, not the product: If customers aren’t desperate for what you’re selling today, adding a whole bunch of features isn’t going to change their minds. If you’ve identified an inflection point in technological development, and your product is a genuinely useful reflection of that insight, then the right buyers are out there somewhere — it’s up to you to find them.
- Savor the surprise: Andy says that the misapplication of that first rule is the reason why people get the wrong idea about successful startups. There’s a habit, he says, of finding your market, and then retroactively adjusting your narrative so it seems like that was always the plan. In real life, he says, the process of iterating on your market will almost certainly result in a surprise, as users find unexpected value from your product. He paraphrases Intuit co-founder Scott Cook, who advocates for “savoring the surprise.” That surprise is often the seed of a startup’s long-term success, so focus on it when you find it.
- The big market can wait: Startups have a habit of going after the biggest customers they can find on day one, Andy says — especially those trying to chase a hot trend like AI. This almost never works, in his experience: Big companies, as a rule, aren’t going to be desperate to buy anything from an unproven startup. Instead, it’s important to buckle up for the long haul. Start with smaller companies in particular niches that intuitively understand what you’re selling and are hungry to buy it, and work your way up to the midmarket and Fortune 500 from there. You’ll refine your product, messaging, and sales motion along the way.
- Fail fast and fail cheap: Sometimes, founders will wait to have a minimum viable product (MVP) before trying to talk to a single customer. That seemingly reasonable approach can be counterproductive, Andy says, given that startups are on a ticking clock before their funding runs out. Instead, he says, startups should work to find some kind of signal in the market — a Kickstarter, Google search trends, a smoke test, whatever — and put together a prototype as fast as they can. If that prototype finds its market, then you can put together an MVP, and PMF (hopefully) awaits. If it doesn’t, scrap it and move on to the next hypothesis.
On a separate but related point, Andy also advised founders that board meetings can be a powerful tool for founders, if they’re used thoughtfully and tactfully. He says that his favorite board meetings are those where the leadership team sends over the table-stakes financial projections and business updates as a memo ahead of the meeting.
The actual meeting time is instead given over to a candid discussion between the C-Suite and the board about one or two key strategic decisions facing the company. This has the dual benefits of getting to run ideas past a panel of experts, and making sure that your investors understand your decision-making process. For those startups still in search of product-market fit, it can be a way of making sure you’re on the right track, and for those who already have it, it’s a way to make sure you’re staying ahead of the game.
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