Product Market Fit:
Part #1 – Misconceptions & Addiction
As a founder, CEO, executive leader, or investor in a startup, having a good ‘product-market fit’ means that you’ve identified a potentially strong market need for a product or service with a critical mass of early adopters. By using primary research – i.e., one-on-one interviews, web and email-surveys, feedback and more – you’ve gauged and, to the extent possible, confirmed those prospective customers’ interest in purchases, applications and actual day-to-day use of that product or service.
Product market fit is a concept that stems from customer perception and demand. Therefore it’s a malleable notion and not an incontrovertible or fixed fact.
Product-market fit is invariably a requirement for initial, major and sustained funding. It keeps founders in the game and CEOs engaged, and for executive leaders it opens up opportunities to creatively build operating plans. It can sometimes play a spoiler role because it leads investors into believing that their investment is an absolute sure thing, a guaranteed success. All startup participants literally bank on exits or liquidity events to yield returns for themselves and their families. Being involved in exit events also adds valuable cache to these individuals’ careers as entrepreneurs and investors. Product-market fit is addictive; it gives people the satisfaction and reward of getting things just right so all the pieces fall into place. If you find it once, you want to find it again and again.
But finding product-market fit is an elusive thing. While company officers and investors often hold misconceptions, potential customers by contrast have greater clarity around real needs, requirements and considerations.
I believe there is no perfect product-market fit, but one can get close. More about that in Part Two of this series.
Here are some of the big misconceptions versus the realities of product-market fit:
Misconception. Once you have it:
It’s totally obvious & discernible
It’s logical
It’s unlosable
It’s exclusive
It’s lasting or persistent
Reality:
Sometimes (often, actually) it’s subtle
Sometimes it’s weird and often illogical
Competition can take it away
Competition can share it
It can disappear after a period of time
I think of product-market fit as organic in nature. It can be fundamentally a disruptive innovation force – but that should not imply in any way that it’s easy to get.
Here are two examples of product/service-market fit that have resulted in organic and disruptive success.
Uber started in March 2009 in San Francisco, and Lyft came along in June of 2012. They were among the first technology companies to offer ride-sharing services. Their modern, more convenient services competed with less convenient, traditional taxi services. Utilizing a mobile app that provides both riders and drivers with great benefits is a subtle and illogical approach to an age-old transportation and service challenge. The on-demand ride services model has spawned lots competition even though two companies still dominate. (Did you know that there are at least eleven alternatives to Uber and Lyft in various cities? They include Alto, Arcade City, Arro, Curb, Flywheel, HopSkipDrive, Scoop, Via, Waave, Waze Carpool and Wingz.)
Another example is Slack, a group chat tool for businesses, that started out life as a role-playing video game (RPG). The original company was Tiny Speck and the original product name was Glitch. Tiny Speck received angel funding of $1.5 million in 2009, followed by Series A funding of $5 million in 2010 from Accel and Andreessen Horowitz. A Series B round of $10.7 million was raised in 2011.
Slack was a hack (dev-speak for put together quickly) by the dev team as their internal communications tool. The team soon realized that the market had plenty of role-playing games, but there was no product like Slack that facilitated communications around projects and software development. So, they pivoted away from game creation. Slack’s value proposition was articulated by Stewart Butterfield, the founder, who said: “We Don’t Sell Saddles Here”.
From its inception, Slack was a user-centric company that acknowledged a handful of competitors, a “muddled history of superficially similar tools” and set out to “define a new market”. Ironically, during initial software development, Butterfield used Twitter – which today appears as an Internet-based version of Slack – to gather comments and exchange DMs with beta testers in order to query potential customers and get feedback about the product. Slack launched publicly in February 2014, engaging 8,000 daily active users (DAUs) on launch day and building to 15,000 DAUs by the second week. Slack’s DUA numbers continued to rise rapidly – 1.1 million by June 2015, 12 million DAUs in 2020, to more than 75 million today.
Slack shows how a company can successfully pivot away from its original product vision and pursue a better, more lucrative opportunity. There is a long history of enterprise messaging products – including AOL, Yahoo Instant Messenger, and ICQ. By contrast, Slack behaves like a social media app, has the best user interface and very good integrations with other apps (e.g., Google Calendar, Zoom and 2000 others). It also has a mobile app that works just as well as the desktop version.
With Slack. product-market fit occurred “at home” as opposed to traveling to a customer. It’s unlikely – even illogical – to expect that you’ll find a monster product and idea for a public company in a pivot after building an RPG. But innovation and disruption will find a way. While competition for huge companies such as Microsoft may not be a big factor today, those companies should never underestimate how much the bright light of success can grow dimmer over time.
With Uber, Slack, and many other successful B2C and B2B companies, getting product-market fit right is always a challenging and fascinating pursuit in business. It’s so exhilarating, in fact, that for those lucky and driven enough to achieve it, it becomes addictive. After their initial success, entrepreneurs throw their energies into trying to repeat the process over and over again.