Steps to Determine Product Market Fit
The truth about startups is that many times, they don’t simply start out as successful. It might take a certain team, a certain hire, a certain idea – and the whole company might pivot. This often works in Silicon Valley, where in many cases, investments are made based on the quality of the team, rather than a particular business concept. Of course, this doesn’t mean that companies completely shift their focus, but it might mean that they find that their customers or consumers gravitate towards a part of their business that they didn’t expect, or even anticipate, to be integral.
Alan Kay speaks about how many startups should be concerned about invention, or imagining a future world and its needs, and coming back to the present in order to provide solutions. Peter Reinhardt, of Segment, actually wholeheartedly disagrees with this concept for startups, and believes that while this is a great approach to research, it is actually not the best way for a company to be successful. He even goes on to say that he bets that no real successful company has been founded this way.
It is obvious that startup founders and their teams should look to the future – but Reinhardt contends that their focus should be on what customers actually really want now, rather than imagining a vision for the future. The truth is that too many startup founders are trying to build a product that may be needed for the future, but they make a critical mistake by not communicating with consumers and realizing that they might not be interested currently. Of course, without interest, a startup cannot survive at all. It doesn’t matter how “futuristic” the company is, if they are not solving a real problem, and that is Reinhardt’s point.
This is where product market fit comes in – something that Peter Reinhardt has extensive experience with. Believe it or not, his business, Segment, was in trouble. In fact, he speaks about the personal toll that it took on him, as it led to him losing weight and being hospitalized for panic attacks. It can be emotionally painful for a founder to spend money, while realizing that customers aren’t excited or connecting with your platform the way that you had imagined. It can be taxing in every way, to realize that you may have been wrong about your particular vision. This is why product market fit is so important. You can have the most amazing vision and perspective in your mind, but it only translates into success when customers are flocking to your product, service, or platform, because they know that it solves a very real problem that they have. It is important that a founder and his or her team are not convincing themselves that an idea is the right one, when in reality, there simply isn’t the massive demand for it that investors and the team expected. It can, understandably, lead to a large morale problem with many startups that they cannot recover from.
The truth is that 80% of startups fail at finding good product fit. As a result, the team is trying to weather the storm, while not realizing that the problem isn’t the funding, the team, or the strategy – it’s the fact that they haven’t found a valid customer problem to solve that will translate to financial success. There are statistics that show that your chances of success improve tremendously after you find a solid product fit, while they essentially remain the same if you attempt a second chance without solving this glaring issue. There is this idea by Jason Lumpkin, who speaks about how zero to one million in revenue is impossible, ten million to a hundred million revenue is improbable, but ten million to a hundred million in revenue is inevitable. The idea is simple – that if your product fit doesn’t translate to the market, it simply isn’t going anywhere, but if you have ten million in revenue, you clearly are solving a particular problem. The concept is also that pre-10 million dollars, it’s hard to attract the kind of people that are capable of growing the company.
Segment Is a Great Lesson in Product Market Fit
Segment is a great lesson in product market fit because they actually began as an education tool. This means that the Segment team were trying to get professors to incorporate their tool in the classroom. They had “envisioned the future of the classroom”, and believed that it would be digital. They then got funding and approached MIT professors to test out the product. Students weren’t interested in their product at all, as a laptop was a distraction, and the students did everything but use the tool. This, obviously, was very embarrassing for Segment.
In hindsight, when Segment would get professors to agree to test out the product for several lectures at MIT, Reinhardt believed that this means that there was some idle interest. It is now his belief that it was basically done out of pity, and that essentially, Segment was trying to bully their way into being relevant. It was a visit with Paul Graham at YC where they really realized their situation – that they had spent a half a million dollars, and essentially had nothing to show for it.
Segment, luckily, was able to pivot. They realized that the “classroom of the future” wasn’t where Segment was going to focus, and they realized this, essentially, by accident. They found out that their open-source library is what users really were interested in. In fact, they started realizing that their metrics were changing – and that people were actually interested in this, much more so than the previous iteration of their product. They started to realize that a few inquiries asking about the product ISN’T product market fit, it is simply idle interest, and all of the work that they had done surrounding idle interest, was somewhat silly. They realized that people were using their service for one aspect, and decided to focus on that.
Ultimately, Segment was reborn as a way for businesses to send and consolidate data to all sorts of analytics and marketing tools. Of course, this couldn’t be more different from what they had initially set out to do, but they finally found their good product fit. In fact, after establishing the right landing page on Hackernews, the amount of interest stunned them. They were now able to see how different idle interest was, compared to an actual good product fit. People were trying to get in touch with the company in any way they could, and very excited about it. In fact, there were customers that wanted all sorts of new features. Reinhardt points out that this is what true product fit feels like – a rush of adrenaline, and it feels as though the market is dragging you along, rather than you searching for your market. The Dropbox founders describe finding product market fit as “stepping on a landmine”: you suddenly realize that the idea not only clicks, but that it has the potential to be wildly successful. It no longer is about attempting to woo customers, but about how to satisfy all of the people that are already interested in what you have to offer.
It took some time but Segment found its foothold, and as a result, the road to success became a lot easier. We all have great ideas and sometimes those great ideas lead to funding and an accomplished executive team, but it all means nothing if the customers don’t want it. That’s why finding a good product fit is such a major step for startups, and why so many fail without it.
- A startup’s vision may be unique, and futuristic – but it might not solve problems in the here and now. As long as that is the case, the startup will struggle.
- Idle interest is nothing like finding good product market fit. People may agree to test your product or service, but you cannot use this to convince yourself that there is a market.
- It’s important to maintain morale while finding good product market fit. No one likes realizing that they need to change their direction tremendously, or that the market isn’t there for their service. However, it’s important to regroup and redirect your energy.
- When product market fit happens, you’ll know. It won’t be something you have to inquire about – because everyone will be inquiring about your service first. The market will win, and will drag you into the spotlight – because you finally have found the problem that you were meant to solve, and now have to figure out how to solve that problem the best way possible, and solve adjacent problems, and then grow your business accordingly.