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- F**K Product-Market Fit
Andy Rachleff, co-founder of Benchmark Capital and Wealthfront, coined the term “Product-Market Fit”. Marc Andreessen popularised it.
In a nutshell, it’s a simple equation:
If a startup can screw something up, they will.
Not that they're not very good, it's just that they're under-resourced.
The only way [a startup] can succeed is if the market pull for the product is so strong that it overcomes the ineptitude of the startup.
I put a name to that of “product-market fit”.
And, as Marc Andreesen eloquently expanded on this:
The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.
In a great market — a market with lots of real potential customers — the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.
The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
In other words, a startup’s primary prerogative is to develop a perceivably viable product that is so compelling a large market will “pull” the product out of the startup.
This “pull effect” is so powerful it outweighs relative under-resourcing and general startup chaos, to the degree that it can grow at venture scale.
The premise of this equation is something I vehemently agree with.
So, why do I say “F**K Product-Market Fit?”
It’s the words “product” and “market”. They are often taken too literally and breed flawed thinking.
I see so many startups chasing these words. It’s like chasing a ghost. Something that doesn’t exist.
Truth be told, I have done it myself. It’s painful.
What do I mean? Let’s break down my problem with each word:
🛍️ Product
Prospects don’t buy products. They buy propositions. Value propositions.
A product is ‘just’ a vehicle to deliver a value proposition.
For example, I don’t buy a car empirically because it is a car. I buy a car because of its value proposition: going from A to B conveniently in comfort.
That may seem nuanced, but mindset orientation drives dramatically different outcomes.
Focussing on product instead of proposition is a death sentence for pre “product-market fit” startups.
How so?
Product-minded startups chop, change, and add to their product like a LEGO kit.
They hope that a fresh design, a tweak, or one more feature will make all the difference so prospects come flooding in. It’s comfortable tinkering that philosophically starts from the position of “here’s what we can build” or asking prospects “what do you want?”
Usually, this ends up down one of two pathways, neither of which are venture-scale compatible:
Building something nobody really wants
The ‘better wars’ — a race to the bottom competing with competitors on price and benefits (margin).
Conversely, proposition-minded startups focus on how desperate the needs and desires of the prospect are towards a specific problem and work backwards from that.
If the prospect isn’t desperate to solve the problem, they won’t be desperate to adopt a value proposition that solves it.
Desperation is the fuel of sustainable venture-scale growth.
Value proposition questions to consider:
🔍 Are prospects trying to obtain similar value now?
💰 If so, to what degree of effort and investment?
❤️ Is the value aligned with core motivations?
📈 What is the delta between where they are now and where they want to or could be?
🤑 What is the perceived ROI from solving this problem relative to solving competing problems?
Once desperation has been validated, it’s a matter of building a product that serves as a vehicle to deliver the desired value proposition.
Perception vs. Reality
Another important dimension to a proposition-mindset vs. product-mindset is that it focuses attention on not just ‘the reality’ of what the product is, but how it is perceived by prospects.
A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product.
Identifying a compelling value hypothesis is what I call finding product/market fit.
A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product.
In other words: how you communicate your value proposition holistically through the product, through sales, through marketing, etc, will determine how it is positioned in the minds of prospects.
To think of it as a rigid ‘product’ often leads to default positioning, shutting off avenues of framing the proposition favourably.
Consider this: Play-Doh (under a different name) was originally a cleaning product that removed coal soot from wallpaper. As that use case became less needed in society, the company that manufactured it repositioned it as a fun modelling toy for kids.
The ‘p’ in PMF, therefore, should be ‘proposition’.
🏪 Market
Prospects buy value propositions. Markets don’t buy anything.
The word 'market' in the acronyms TAM, SAM, SOM breed flawed thinking. Like there's a heap of revenue you can plugin into with the right API and siphon off a meaningful $ share — “if we get just 5% of the XYZ market we’ll have a billion dollar company”.
None of this $ value exists as a 'market' — it exists as notional demand in the minds of a segmented group of customers and their specifically defined behaviours in aggregate.
Other words: the real value is the position that Play-Doh owns in the minds of prospects versus competing perceptions and priorities, not what prospects spend on Play-Doh and competing products in its category.
'Market' is an abstraction of this value and an imperfect measure of potential value creation, because it implicitly relies upon categorising the output ($ spend) of human perceptions and behaviours flawlessly.
Markets can suggest opportunities where there is none (e.g. Quibi). Markets can suggest no opportunity where there's a ton (e.g. Airbnb).
Ultimately, ‘markets’ are concepts created by company management and analysts to help pitch strategic plans to internal stakeholders and sell stock to investors.
It’s comfortable to talk about the ‘leisure market’, for example. But, prospects don’t buy the ‘leisure market’. They buy plane tickets, trips to Disneyland, PlayStation 5s, hiking boots, and skateboards.
Analysts will benchmark Disneyland against Universal Studios in the ‘amusement park market’, but what is going on in the mind of the prospect can be totally out of sync with this — “this year we bought a VR headset instead of going to Disneyland”.
Purchasing behaviour is not as neatly structured as we’d like to think.
Thinking in terms of ‘markets’ artificially creates neatness, which in turn can constrain value proposition development to operate within existing functional boundaries and competitive rules of engagement — instead of considering how those boundaries and rules can be viably broken.
Trying to ‘fit’ a product with a market means trying to sell to nobody. The NYSE doesn’t buy stock, institutional investors with perspectives do.
The only thing that matters is what is going on inside the minds of prospects. To create a perception of radical differentiated value inside there.
Ultimately, it’s a ‘top-down’ versus ‘bottom-up’ perspective. It’s the difference between looking for a ‘gap in the market’ vs. a ‘gap in the mind’.
Startups that struggle to find “product-market fit” will look at a market from the top down and seek to carve out a slice by targeting a gap in the market.
But, venture-scale opportunities don’t exist on a Statista chart or McKinsey report. Most gaps in the market are gaps for a reason. There’s no demand.
Conversely, startups that nail “product-market fit” start from the perspective of the prospect. They find a gap in the mind. This is where breakthrough insights are hidden from view.
Adoption Curve
Another issue I take with the word “market” is it abstracts away the adoption curve, implying that once a startup has achieved “product-market fit” it has a golden ticket to scale up within its market without further material adoption impediments.
In practice, a startup at any stage only has a certain degree of ‘mind-fit’ with customers. That is: value proposition compatibility with its cumulative retained cohorts up until that point.
Other words: a startup’s value proposition does not instantly resonate with a market. It ‘fits’ one mind at a time, by segmenting prospects into ICP/persona cohorts as it transitions through the adoption curve.
In the earliest stages, this is a handful of beta customers. At IPO, it’s thousands or millions.
Startups don’t achieve product-market fit, period. They achieve “proposition-mind fit for innovators” and then “proposition-mind fit for the early adopters” and then “proposition-mind fit for the early majority”, and so forth.
Even saying that is an uncomfortable generalisation.
In practice, each phase of the adoption curve has its own intra-phases. The mind profile of prospects at the beginning of the ‘early majority’ phase can look very different to the tail end.
Developing and matching the value proposition to the minds of prospects through each phase of the adoption curve — plus, defining what each phase exactly is in the given context — is one of the most critical challenges a startup faces.
PMF is not a magic elixir.
It signifies an important milestone that is necessary but not sufficient for success.
Once a company has PMF it still must find a sustainable growth model and create a moat against competitors.
The ‘m’ in PMF, therefore, should be ‘mind’.
So, yeah, f**k product-market fit. It should be ‘proposition-mind fit’.
Or, more acutely: ‘mind-proposition fit’. You always start with the mind. This is the essence of Positioning.
That’s it for today. I’ll be back in your inbox soon. 🤘
Martin
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