The greatest challenge a startup faces is getting the first customers. Persuading people to part with money is a non-trivial exercise. It is an exchange – they will pay if they see value. For an entrepreneur, getting the “product-market fit” right is what will determine eventual success. While it is obvious that one must build what the market wants and will pay for (either with money or attention), not every product ‘fits’ what the market wants. Finding the early customers once the product is ready is what will prevent failure.
Here is what a16z (Andreessen Horowitz) has to say about product-market fit (quoting Andy Rachleff):
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. Companies often go through many iterations before they find product/market fit, if they ever do.
When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.
If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed. Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.
You often stumble into your product/market fit. Serendipity plays a role in finding product/market fit but the process to get to serendipity is incredibly consistent.
You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close.
I have failed many times in my life – in every case, I created a product (that I thought was great) which the market did not want. We see this mismatch around us all the time. Ads or promotions can attract an initial audience first, but they will not return if the product does not match their needs. Getting the first customers and demonstrating product-market fit is what will push an entrepreneurial venture along. As Eric Ries puts it: “The term product/market fit describes ‘the moment when a startup finally finds a widespread set of customers that resonate with its product’.”
There is no magic formula for getting product-market fit right. Even the best can get it wrong. And that is why so few products (and ventures) succeed. But get it right – and the prize is big! This is the thrill and excitement in the entrepreneurial journey.