Investor and co-founder of venture capital firm Andreessen Horowitz, Marc Andreessen has notably said, “The life of any startup can be divided into two parts — before product-market fit and after product-market fit.”
It is loosely defined as having a product that satisfies a good market in a compelling way. It is the first step towards having a successful venture. Also famed tech investors Ben Horowitz and Fred Wilson, believe that, “Once you achieve product-market fit, you can’t lose it.”
Product-market fit involves delivering more value than customers expect, and satisfying their needs in a compelling way. Without it, a high-growth rate is out of reach for your business, and traction doesn’t exist.
As a result, it becomes harder to get people to share your product (i.e., virality), or effectively use any other marketing channels that help to build traction (e.g., content marketing, SEO/SEM, etc.).
“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.”Marc Andreessen
In other words, as Sean Ellis, founder and CEO of GrowthHackers.com, points out, “Startups require a solid foundation of product-market fit before progressing up the pyramid and scaling the business.” Not knowing if your product or service provides what is treasured by customers is, of course, a prime way to lose time and money to a venture with no future.
Founder Stories: Achieving product-market fit
To get a better grasp on the practical application of product-market fit, let’s take a look at how founders achieved it rather quickly for their startups.
Ask why you ‘shouldn’t’ do it
When Hayes Drumwright launched Trace3, an Irvine, CA-based Information technology company, and managed service provider, he wanted to make sure that he was spending his time and money on something that was able to bring real value to customers. He pre-sold his concept to five potential clients first.
You can take a similar approach by explaining your concept to potential customers, without the hard sell. Then shut up. Only if they encourage you to pursue your idea, ask them to pay for the product. Not to invest, but to pay for it. Every answer except real money spent means they don’t truly need what you’re selling.
“Your job is to build a venture that will search for real value and ‘the truth’ of what your client really needs.” — Hayes Drumwright
Drumwright applied the same concept to another company he founded, POP which markets POPin–a knowledge sourcing platform and methodology that delivers prioritized insights, ideas, solutions and buy-in. He wanted to fail fast, but when he asked five clients to tell him why he shouldn’t do it, his approach (and track record) resulted in three different companies giving him $35,000 each based on the concept alone.
Sell it before you code it
Dmitry Dragilev took a similar approach for his company JustReachOut, a PR tool that helps startups build relationships with the press. Dragilev sold his product idea before writing a single line of code and aimed to get at least ten people sincerely committed as customers.
A simple landing page explaining the main benefits and your solution can be enough to reveal your concept. For Dmitry, this meant customers agreed to buy the product for approximately $50 a month.
One of the most exciting parts of the story is that when he never sold his product and its features initially. Instead, he asked for feedback about the idea. “I would continue these conversations throughout months to come as I started building the tool,” he recalls.
People love to share their feedback and opinions. He would use this initial feedback to do a soft launch with a handful of customers to test out his product and positioning.
Dmitry further explains, “I went to meetups, conferences, networking events, pitchfests, hackathons, random events at MIT and really anywhere I could find the types of folks who would buy JustReachOut. Whatever it took, I had to have 10 people who agreed to buy my service. As my good old friend Noah Kagan once put it: ‘If people are prepaying for airline tickets and hotel reservations and donating to Kickstarter campaigns why would they have a problem prepaying for JustReachOut?'”
How do you know when you’ve achieved it?
Founder Sean Ellis, the first marketing guy at Dropbox, has taken the abstract concept of product-market Fit and worked to create a precise metric that confirms whether you have achieved it. He created a simple survey for a product, asking current customers: “How would you feel if you could no longer use the product? Very disappointed, Somewhat disappointed, or Not disappointed.
In Ellis words, having at least 40% of surveyed customers say they would be “very disappointed,” is a good indicator that you have achieved product-market fit. Meaning, your product is a must-have in a particular market.
For context, Ellis adds, “Admittedly this threshold is a bit arbitrary, but I defined it after comparing results across nearly 100 startups. Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%. Of course, progressing beyond ‘early traction’ requires that these users represent a significant enough target market to build an exciting business.”
If your startup hasn’t reached product-market fit yet, it is critical to keep your burn low and focus all of your resources on improving the percentage of users that say they would be “very disappointed” without your product or service. Sometimes it is as simple as highlighting a more compelling product attribute in your marketing and branding efforts— but often it requires significant product revisions or possibly even hitting the restart button on your vision.
Angelo Sorbello is a serial entrepreneur and founder of Astrogrowth. In the past ten years, he has built and sold several online businesses. He currently works on and invests in companies that have a positive impact on humanity.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.