EIA2019Italy - Product-Market Fit - Jeff Abbott

Editor's Notes

• #5: Marc Andreessen (founder of Netscape and Andreessen Horowitz) defined the term as follows: .
• #6: Many people interpret product/market fit as creating a so called minimum viable product that addresses and solves a problem or need that exists. It deserves to be more widely understood, because it’s a useful Mental Model for the interplay between a business, it’s products, and it’s customers. Learning about Product/Market Fit will help you see the world differently, and inspire new ways to create value for your customers, and growth for your business
• #9: Every employee in the company should understand that they’re hunting for Product-Market Fit, and expect that it’s going to be a tough journey. It’s not a matter of linear progress — it’s a maze where you spend most of your time lost, never sure if you’re making progress or just eliminating an idea through invalidation. Ryan Holiday has a great comment on this: Product Market Fit is not some mythical status that happens accidentally. Companies work for it; they crawl toward it. They’re ready to throw out weeks or months of work because the evidence supports that decision. The services as their customers know them now are fundamentally different from what they were at launch — before they had Product Market Fit.Every member of the team has a role to play in finding it, from those who are building products to those that make strategic decisions or interact with customers. Today, it is the marketer’s job as much as anyone else’s to make sure Product Market Fit happens. […]But rather than waiting for it to happen magically or assuming that this is some other department’s job, marketers need to contribute to this process. Isolating who your customers are, figuring out their needs, designing a product that will blow their minds — these are marketing decisions, not just development and design choices.
• #11: You look at a startup and ask, will this team be able to optimally execute against their opportunity? I focus on effectiveness as opposed to experience, since the history of the tech industry is full of highly successful startups that were staffed primarily by people who had never "done it before".
• #12: How easy is the product to use? How feature rich is it? How fast is it? How extensible is it? How polished is it? How many (or rather, how few) bugs does it have?
• #13: (Let's assume for this discussion that you can make money at scale -- that the cost of acquiring a customer isn't higher than the revenue that customer will generate.)
• #22: The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product. In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy. And when you have a great market, the team is remarkably easy to upgrade on the fly. Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail. You'll break your pick for years trying to find customers who don't exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.
• #23: A large number of potential users- High growth in # of potential users- Ease of user acquisition and what the benefits are of targeting a good market: Leading with a great market helps you execute your product design in a simpler and cleaner way. The reason is that once you’ve picked a big market, you can take the time to figure out some user-centric attributes upon which to compete. The important part here is that you can usually pick some key things in which your product is different, but then default the rest of the product decisions. Product-market fit means that you’ve found a product and a market that wants it — but if that market is small, cheap, or shrinking… you still won’t have much of a company. Don’t just find a market — find a great market.
• #28: 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.
• #29: And that’s what traction is about. But what’s even more interesting about traction is that is not the rate at which you make money. But rather it’s about some of the leading indicators towards making money. For example, if I just look at a company like Starbucks and I look at their balance sheets, I can tell that they are growing because every quarter they’re making more money when I don’t know is how they are growing or why they are growing. When you start asking the “why” that is when you need to look carefully at other aspects of the business. For instance, you need to study customer behaviors, so that you can see what customers are doing in the store that may be contributing to the most money. And that’s where we come up with new campaigns or new policies or new experiments where we double down on those things that drive more money and then we see it the next quarter that goes up.
• #30: Mozilla minimal traction until 2004. Then in 2005, Firefox took off. Mozilla had built a fast, reliable browser right when IE was becoming unusable. If we had tried to hit the accelerator earlier, it wouldn’t have worked. “When you’re starting to blitzscale, it’s uncomfortable all of the time. You’re not doing anything well, just trying to keep the wings on the plane.”
• #31: Intro – today mission 1
• #34: A Familiar Pattern Here is how the story plays out over and over again for companies that can’t achieve Product-Economic Fit: Someone discovers an interesting opportunity which seems to resonate with many customers. If the company executes well, they hone the product and eventually start accelerating. Product-Market Fit! The metrics tell a great story with strong customer desire and growth rates. They claim that one of their advantages is the head-start that they have in the market. The company is hailed as a breakthrough. This is a great time to raise funding. The company may even start monetizing customers. They can achieve healthy margins as they are the first to product-market fit. The company is expected to have a very bright future. This is also the best time to sell. Others notice the traction and momentum of the company. If the product category has low barriers to entry, lots of companies follow the same path. Sometimes they are direct replicas and sometimes there is some slight differentiation. Competitors are now present and marketing and pitching against the company. It’s hard for customers to really tell the difference between the offerings. Maybe they sign-up for multiple. If there are low switching costs, price wars start and drive profit margins down. The company’s growth slows and profitability collapses and investors and press are surprised how this promising company lost its way. To fix things there might be a change of CEO, strategy and name. But the problem is not execution, it is Product-Economic Fit. It can take multiple years to play through these phases. What makes this particularly insidious is that the company is getting all the right signals along the way. Customer traction, customer desire, willingness to pay. Check, check, check. 
• #35: When you ask, that’s what is being said. But these are all equally relevant.
• #37: http://www.slideshare.net/angiechang/startup-pivots-angiechanggazaskygeeks Joint learning: Burbn 2000 at the start, LBS services became popular and GPS became more accurate –> wanted to create a location based service to meet new people who are around you. Proximity based social chatting. People didn’t start using it. But people were taking pictures and editing them, and instead of chatting they were communicating through edited images.  Realized an opportunity.  Instagram
• #38: The mistake though is that as you correctly defined in the Amazon case, they were essentially diversifying their business model and they were able to sustain the company at the expense of divisions within the company to build a very much stronger whole than the sum of the parts. To me then, it doesn’t make economic sense when you’re just growing for the sake of growth with no end of it ever turning into a profit. It becomes more of a speculative game, which is what a lot of the derivative assets and the debt markets are about. But you look at many companies, Skype being one of them that grew to a huge valuation and then got essentially sold for a very big loss and now it’s inside another company. It’s a bit like the hot potato game at some point and I’m not a huge fan of that. At some point, all companies need to turn profitable. Gennaro Cuofano: I was reading the financial prospectus of Uber and they point out that the reason why they’re putting so much effort on growth is that they’re trying to capture what they call the liquidity network effects, which means they try to grow their network at the point where they have the whole control over it. At that stage, they would be able to capture higher margins in the future, which we don’t know if this is going to be the case. And it is a quite risky strategy. What Reid Hoffman, co-founder of LinkedIn calls Blitzscaling or prioritizing on growth over all else. Ash Maurya: I use the word narrative currency is that if you look at any, any kind of derivative market where we have all the housing crisis, at least in the US here, people invented all kinds of terms and they all sounded very smart and intelligent and assumed they were true. It doesn’t mean they’re going to work in the long run. It’s a theory. I’m sure they could be right and they could also be wrong and the people were making the bets they are the ones who are going to pay. Gennaro Cuofano: Right. And the interesting part is that if they turn out to be wrong there will be people losing a lot of money, which is not the point of entrepreneurship. Because as you said at the beginning, entrepreneurs, usually, try to minimize risk, not actually to generate additional financial risks, because they are entrepreneurs and not bankers, nor financiers. Entrepreneurs are very practical people and they try to really launch businesses and minimize the risk.