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Deep Dive: 10 principles for finding product/market fit
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“The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.
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.
And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.
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.”
In today’s deep dive, I’ve compiled 10 principles for finding product/market fit some of the world’s greatest founders and investors:
Launch the product first and learn from its adoption (Jack Dorsey & David Sacks)
Start with a small, intense fire (Paul Graham)
Action creates information (Brian Armstrong)
Treat your idea as a series of untested hypotheses (Steve Blank)
Measure your product/market fit score (Rahul Vohra)
Focus on retention and frequency of use, not absolute user growth (Sam Altman)
Figure out what’s holding unhappy users back (Paul Buchheit)
Do things that don’t scale (Brian Chesky & Paul Graham)
Start with a small market (Peter Thiel)
Keep your burn rate low and kill bad ideas fast (Kevin Systrom)
#1 Launch the product first and learn from its adoption
In his blog post Product First, David Sacks explains that the founding of Square—described by Jack Dorsey in the clip below—resembled his own experience at PayPal.
Most people think startups begin with brilliant insight and the founders have it all figured out from the beginning. But startups are messier than that. As David describes in the blog post:
“Founders usually start with a product idea. They know users will like it but may be a bit hazy on the exact market, buyer, or business model. Those details get filled in over time. By launching the product first and learning from its adoption, founders discover the market insight, then build the organization they need to operationalize it.”
This is exactly what happened at Square. As Jack explains:
“When we started, we thought we were just building a piece of hardware to enable people to plug into their phone and swipe a credit card. And then as we talked with people and dug in some more, we found a consistent theme: many of them weren’t even allowed to process credit cards.”
David noticed that both Square and PayPal followed three steps:
Create the product hook: “the starting point was to conceive of a simple product that would create tangible value.” For PayPal, this was the ability to ‘email money.’
Discover the market insight: “the market is discovered as a result of seeing who uses the product and why.” PayPal stumbled upon eBay sellers who were unable or unwilling to go through the lengthly underwriting process to accept payments.
Operationalize the insight: “Once [Square] discovered the theme of access, it had the ‘north star’ to continually expand its offerings”.
As David summarizes:
“The company starts with a product hook to grab users and a distribution trick to find them, pays attention to the organic use of the product to discover the market insight, then leans into that insight to build the company.”
#2 Start with a small, intense fire
In the clip below, Y Combinator founder Paul Graham explains that the secret to finding product/market fit and growing really fast is starting with a “small, intense fire.”
“You’ve got to find people who want what you’re making A LOT. And that's necessarily going to be a small number at first. But that's ok. That’s how these giant things get started… You don’t have to do any better than Apple and Facebook.”
Apple started by selling just 500 Apple I computers. Today Apple is the largest company in the world.
"You have to know who those first users are and how you're going to get them. Then you're going to sit down and just have a party with those first few users and focus entirely on them and making them super super happy."
He gives another example of a startup in a Y Combinator batch with a beta group of just one user: Sam Altman.
This startup was building a new mobile email client and their goal was to just make Sam happy. Sam uses email a lot on the go, knows all of the other email client options, and is super demanding.
So they knew that if they could build a product that made Sam happy, odds are it would make lots of other people happy too.
"One of the things we tell startups in these extreme cases where they can make just one user happy is to act like a consultant. Act like Sam has hired you to make an email app just for him. All you have to do is make Sam happy--it can say 'Sam Altman' at the top of the screen. That's ok! Just so long as Sam would feel bummed if you stopped working on it. That's the test."
#3 Action creates information
Coinbase cofounder & CEO Brian Armstrong shares the following advice in the clip below:
“If you’re pre-product/market fit, the best advice that I have from that period is: action produces information. Just keep doing stuff.”
He borrows this from Paul Graham who said: “Startups are like sharks. If they stop swimming they die.’”
“Even if you’re not sure what to do, just do anything. Because when you do it, it’ll produce some information—people liked it, they didn’t, etc.”
Brian shares that there were many times in the early days of Coinbase when he just shipped something rather than debate it endlessly:
“And there were a couple of times where the minute I shipped it, I knew we built it wrong. But I now had an idea of what to do next. And I only would’ve had that idea by actually going through the exercise of building it.”
He concludes:
“My other favorite analogy for this is that it’s like you’re at the base of a mountain that’s shrouded in fog. You’re looking up at the mountain and trying to figure out how to get up there, but you can only see three or four steps ahead because the fog is so thick. So you have to just take steps into the unknown. And when you take three steps, another three steps will be revealed ahead of you. And sometimes you’ll end up on some local maxima and have to retrace your steps… But most people in life don’t take the steps into the unknown because it’s scary.”
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