HOW TO LAUNCH A TECH STARTUP IN 2016
Part 5: Iterating Toward Product Market Fit
Coder-preneur Marc Andreessen was barely out of college when he developed Netscape, the world’s first modern web browser. With his networth quickly skyrocketing into the hundreds of millions, Andreessen went on to launch several other important internet companies, and co-found what is arguably Silicon Valley’s single most influential venture capital firm, Andreessen Horowitz. He currently sits on the board of directors of Facebook, eBay, HP, and Oculus VR (among many others), and advises younger, greener entrepreneurs (Mark Zuckerberg, for example) who are developing great things in this world.
After working with hundreds of startups as a VC, and watching their life-cycles as they grew and stalled, succeeded and died, Andreessen started to notice an interesting pattern. When it came to the success or failure of a startup, things like how good the team was or how well made the product was didn’t matter nearly as much as how well the product satisfied the needs of a hungry market. He called this vital metric “Product Market Fit” (PMF), and boldly declared that it was the only thing that mattered for a new startup. This declaration has since sent waves through the tech community, and influenced the thinking of many of the most successful startups over the past few years.
THE IMPORTANCE OF PRODUCT MARKET FIT
“Startups need to get to “Product/Market Fit” or die trying.” — Andrew Chen
“Make something people want.” — Motto of Y Combinator
“The only thing that matters is getting to product/market fit. Lots of startups fail before product/market fit ever happens. My contention, in fact, is that they fail because they never get to product/market fit. The life of any startup can be divided into two parts: before product/market fit (call this “BPMF”) and after product/market fit(“APMF”). When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.” — Mark Andreessen
Essentially, what these Silicon Valley veterans are saying is that if you don’t have a high degree of PMF, you don’t have a business. If your product doesn’t closely fit the demand of a hungry market, you’re going to have a very hard time making any kind of profit from your company. Creating something that people don’t really need — and then having to constantly spend money to convince them that they need it — is not an ideal situation for any company to be in (to say the least).
When you do have a high degree of PMF, on the other hand, you’ll have a hard time not making a profit from your company. The market will demand your product. The people need what you are selling, so they will come to you. This is the beginning of a successful business.
HOW TO GET TO PRODUCT MARKET FIT
When you’re BPMF, you need to do everything you can in order to get to Product/Market Fit. The basic process is simple (though not necessarily easy): Build-Measure-Learn-Repeat.
- BUILD a Minimum Viable Product (MVP) to test your idea, and see if people are willing to pay for it.
- MEASURE the response you get to your MVP.
- LEARN, based on that response, what to do next. If you got a great response to your MVP, keep going in that direction. If you got a weak or negative response, go in a different direction.
- REPEAT this process until you find something that a lot of people are enthusiastic about and willing to pay for.
Through this iterative process of trial and error, you will eventually develop something that has a high-degree of Product/Market Fit. For that reason, it’s important to go into this process with the mindset of not falling in love with your ideas, but rather with your business as a whole.
Trying to scale your company when you’re still BPMF will lead to burning through a lot of money and potential customers. You’ll basically be throwing money into advertising, which people will brush off as “something I don’t need.” This can actually do more harm than good for your company in the long run, as you are alienating a large portion of your potential customer base.
Scaling your company after Product/Market Fit, on the other hand, can lead to massive growth and windfall profits; if people really need your product, they will not only become customers but they’ll refer their friends as well. Therefore, it’s vital to wait until you’ve got PMF before starting to scale your company.
This raises an important question for anyone who dreams of scaling a startup into a billion-dollar empire: “How will I know when I’ve reached Product/Market Fit?” This is the topic of next week’s article: Knowing When To Scale.