One of the most important criteria that we look for in a startup is product market fit, which Marc Andreesen describes as “being in a good market with a product that can satisfy that market.” There’s no magic set of benchmarks that startups meet when they have product-market fit, but the signs are clear to anyone familiar with the industry. Startups with product-market fit are able to scale almost effortlessly, through word-of-mouth or inbound sales.
Often, these startups are raising money because they don’t have the resources to serve the customers that are clamoring for their product. Product-market fit is an essential part of any successful startup, but many startups don’t ever find it. Let’s break down product market fit, and how startups achieve it.
The first thing a startup searching for product-market fit needs is a good product. The only way to achieve the high growth that startups need is having a product that satisfies a customer’s needs so well that they can’t help but tell their friends about it. In the early stages of a startup, satisfied customers are often the most fervent evangelists.
The essential ingredient in a product is scalability. Great startups build products to be scalable from the ground up. That way, when they’re ready to raise funds, every dollar pours fuel on the fire of growth, rather than trying to restructure the product for scalability too late.
Many startups forget that part of product-market fit is having a good market to grow into. What makes a good market? First, a good market has to be big enough to be meaningful. If capturing a large percentage of the market will not provide large returns, most investors will not be interested. Second, a good market has to be ripe for disruption. If the space is already saturated with similar solutions, or it is difficult to enter the market due to initial costs or stringent regulations, then it may not be a good market to attack. Customer discovery is essential in identifying the market that will want to consume the product or service in exchange for meaningful value for the startup.
One type of startup that we’re wary of is the “solution looking for a problem.” Many times, startups still looking for product-market fit have an incredible technology, but they’re not sure how to apply it. This is especially common with new and emerging technologies like AI/ML and blockchain. Even if a startup has a great product that is robust and scalable, and found a huge market to disrupt, their solution still has to be better than the existing solution. Putting advanced AI in your ice cream maker may sound cool, but it may not be the best solution.
Product-market fit is not something that most great companies start off with. It’s almost never a single “Eureka!” moment. Instead, finding product-market fit is a long, iterative process that may take months or years. But once a startup finds it, they’ve taken the first step towards success.