What does this widely misused term really mean?
Recently I have heard the term Product-Market Fit (PMF) thrown around more than enough times, that it made me question if I ever got the concept in the first place.
The quick answer is no. The long answer is this article. So let’s get into what PMF really means.
Marc Andreessen’s Blogpost On product/market fit for startups has been one of the most influential posts on the term. Michael Seibel, the Managing Director at Y Combinator and co-founder of Justin.tv/Twitch and Socialcam has built on this definition in his article on The Real Product-Market Fit.
Andreesen tries to find out what single determinating factor best predicts startup success. There is a wide divergence of success for startups. The three core elements of each startup are:
Of these three factors what correlates the most to success? Or asking the other way around – what’s the most dangerous: a bad team, weak product, or a poor market?
Team: Andreesen suggests that many VCs will say that team is the most important. The caliber of a startup team could be defined as the suitability of the CEO, senior staff, engineers, and other key staff relative to the opportunity in front of them. However, we probably will all agree, that a great team with a bad product in a bad market will not be successful.
Product: a startup's product can be defined as how impressive the product is to one customer or user who actually uses it. Is the product easy to use? How many features does it have? Is it fast? What’s the design like? How buggy is it? Is it fast?
But once again, Andreesen would suggest that a startup with a great product with a bad team in a bad market will not be successful either.
Market: the size of the market is the number and growth rate of customers or users for said product. And here is the catch. Andreesen says that “in a great market, a market with lots of real potential customers, the market pulls product out of the startup.”
In a great market, the product doesn’t need to be great - it just has to work a little bit. And the market will never care how good the team is, as long as it produces the viable product. “Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter – you're going to fail.”
Your unique and special v1 idea on how to solve a certain problem is usually wrong. The only process to reach PMF will be through launching, talking to customers, and iterating.
So what is Product-Market Fit then?
First of all - it might be possible that real PMF can only happen in a great market. PMF is the only thing that matters for a startup. Before a startup has reached PMF the customers aren't quite getting value out of the product. Word of mouth isn’t spreading and usage isn’t growing fast. The sales cycle takes quite long and many deals never close.
But when a startup has found PMF – it really shows. It happens after the team has built something customers actually want. And the customers are not only wanting the product, they are now using it in an explosive and destructive way. The growth is so fast it is killing the startup. They cannot keep up with scaling the network, or shipping or onboarding new members of the team. Money from customers is piling up in the companies checking account. The company is so profitable, that money is piling up and the company does not know what to do with it. The customers are buying the product just as fast as the startup can make it. When reaching PMF a startup is just so overwhelmed with usage to the point where they cannot even make major changes to the product, because they just try keeping it up and running.
Not all startups have to reach PMF to be successful. In fact, Michael Seibel states, that most of the acquisitions you know are of companies that did not find PMF. It is possibly the exact reason why they are being acquired. But the most successful startups have never done so without reaching PMF. Nowadays the term gets thrown around a little much. The next time you hear it you know where it came from and what it was supposed to mean.
To find PMF, Seibel and Andreesen advice to choose a market where users have a real, meaningful problem, launch quickly, and listen to users. Finding PMF means focusing on the market first. Once a startup has found PMF “it is your company to fuck up”.
Until next week,