Issue #7 – Talking about Product-Market Fit

/ maxOS

Original link: https://maxoxo.me/issue-7-product-market-fit/

Originally, I planned to systematically write about Product-Market Fit in this issue. During this period, I read dozens of related articles and several books about this concept, as well as Podcasts by Andy Rachleff and other VCs. I still have a systematic understanding of this concept, and the deeper I go into the details, the more I find that there are many topics worth exploring, so this time I will talk about Product-Market Fit in a scattered way.

Andy Rachleff on Coining the Term Product-Market Fit

Andy Rachleff is the co-founder and Executive Chairman of Wealthfron. The concept of Product-Market Fit was originally proposed by Andy Rachleff. In the Podcast, he said that he first learned this concept from Don Valentine, the founder of Sequoia Capital. The concept was subsequently refined in Steve Blank’s The Four Steps to the Epiphany and Eric Rise’s The Lean Startup.

In “Lean Startup”, Eric mentioned two important assumptions:

  1. value assumption
  2. growth assumption

Part of the job of a product manager is to raise “requirements” or write “requirements documents”, but what is a requirement? The explanation I agree with is “requirements are assumptions to be verified 1 “, so raising requirements is actually putting forward “hypotheses”, and “requirements documents” are actually “experimental plans”. The “value hypothesis” proposed by Eric is actually used to verify whether this product can solve the pain points of the target audience, that is, whether there is a Product-Market Fit. After the value hypothesis has been successfully verified, the verification of the growth hypothesis will then enter.

In the stage of verifying the value hypothesis, Andy Rachleff mentioned that “Do not go to big market” and should focus on “niche market” first. Steve also mentioned a similar point of view. He suggested that “startup companies should consider the needs of a small number of customers first, and avoid extensive cultivation and low income. 2 “

The Never Ending Road To Product Market Fit

Focusing on the niche market is actually controlling the variables of the “value assumption” to a minimum. In this article by Brian Balfour, a core point is that a product does not have only one Product-Market Fit, but a series of Product-Markets Fit, the reason is that the growth of the product is actually the expansion of the “market”. And every time you enter a new market, you need to verify Product-Market Fit, but for a new product, I prefer to call the first time Product-Market Fit, and the subsequent ones are Feature-Market Fit, because There is no need to verify whether the market needs this product, but whether the new Feature can open up a new market.

A new market means new questions, and new questions require new answers. For existing products, this answer is a feature/requirement, and each requirement needs to be verified.

This actually leads to another point of view of mine, because if a product wants to grow, enter new markets, and solve new problems, it needs to launch new features, so any product will inevitably become more and more complex. In the last newsletter , OpenView mentioned several PLG product design principles “Build for flexibility”. Flexibility is actually complexity, especially for B-to-B products. As the customer base changes to big customers , the needs of customers will be more changeable, and the upstream and downstream products used by different enterprise customers are different, so the products that need to be connected to the products are also different; the work processes of enterprises are different, and the products also need to adapt to the work flow of various enterprises. But it is this complexity that allows products to solve more and more problems, and the “market” they face is getting wider and wider.

How to Know If You’ve Got Product Market Fit

Product-Market Fit As for growth, it is like a foundation for a tall building, so the next question is how to know that a product has Product-Market Fit. Most of the time when people describe Product-Market Fit, they are subjective. Drew Houston, CEO of Dropbox, described PMF like this:

Product-Market Fit feels like setpping on the landmine. 3

Product-Market Fit is like stepping on a landmine, you’ll know it when you step on it.

Another method mentioned by Andy Rachleff is that when your product is demoed to target customers, if the customer does not immediately ask “When is our next meeting? What is our next step? How are we going to make progress on this ?” That means your product does not have Product-Market Fit.

Intuit’s Co-founder Scott Cook judges by “surprise/surprise”. Intuit’s internal innovation projects always do some user research, focus groups or grayscale testing, etc. Scott always asks “Through these analyzes, what are the benefits?” What a surprise discovery” The so-called “surprise” is some reactions that are not at all what you expected, positive or negative.

“You need to savor that surprise and really try to understand it, because that could be the seeds of a great new business.” 4

Sean Ellis proposed in “Hacking Growth” that NPS can be used to judge whether a product has a Product-Market Fit. The method is to ask users through a questionnaire “If you can’t use this product one day, will you be disappointed?” , users can give feedback: 1. Very disappointed; 2. A little disappointed; 3. Neutral; 4. Not disappointed. If 40% of customers choose Very Disappointed, then your product has a Product-Market Fit.

The Sales Learning Curve

In this classic article, Mark Lesli further quantifies the measurement method of Product-Market Fit. Mark divides new product sales into 3 stages:

  1. The Initial Phase: The role of Sales at this stage is mainly to help the product team understand customers, feedback the voice of customers to the product, and help the team quickly improve the product to meet Product-Market Fit;
  2. The Transition Phase: Products at this stage already have Product-Market Fit, and the main task of Sales management is to establish a repeatable sales model (Repeatable sales model);
  3. The Execution Phase: This stage has just entered the expansion stage, recruiting as many sales as the budget allows.

In the first phase, although Mark didn’t say it directly, Andy Rachleff mentioned that the completion of The Initial Phase actually marks the product’s Product-Market Fit, and the completion of this phase marks the Sales yield (on average, each sales representative annual revenue brought in) equals the average cost per rep. The second stage is the transition period. The sign of the end of this stage is that Sales yield is equal to 2 times the average cost of each sales representative.

Mark did not take the cost of product development into account. Andy Rachleff has a point of view. In the verification stage, if the product has been produced, the verification stage should not invest too much cost in R&D. If your product is delayed If the market is not found, then change to another market, that is, if the verification fails this time, try again in another market. If a customer puts forward a new requirement during the experiment, although this requirement is related to the product, but it is not the core of this value hypothesis verification, then you should not do this requirement, because it will introduce a new hypothesis, verify What to do in the stage is to change the market, not to iterate the product. But if 100 people put forward this demand, should it be done, of course, because when you meet the needs of these 100 people, you are already changing the market.

I have concluded that there are two stages in verifying Product-Market Fit:

  1. Verifying the existence of a market: a qualitative approach;
  2. Verifying that a product meets the needs of the market: a quantitative approach.

The key to the first stage is actually to find the niche market. Steve Blank believes that the group of people in the niche market are called “angel customers” (corresponding to angel investment). They are willing to try new products and services. As long as the product can solve the problem, they will Also willing to pay and promote. If the market is based on the urgency of solving problems, there will be 5 types of people in the market:

  1. People who are not yet aware of the problem;
  2. people who are aware of the problem;
  3. Someone who actively seeks solutions;
  4. People who intend to solve problems by themselves;
  5. People who intend to purchase third-party products to solve problems;

Groups 4 and 5 are “angel customers”, for whom this question is urgent, you don’t need to educate them about the importance of this question, they already know, even know more than you, what they want is “answer” , the next thing to do is to use MVP to verify whether this “answer” is what they want.

But it is not always possible to accurately find “angel customers”. Segment.io did not have a product with Product-Market Fit when the investors’ money was about to be burned. They tested Product-Market Fit before the burn was over, so they made a Landing page for this idea and posted it on Hacker News, and then received a lot of emails asking when this product could be used. But at least they have a general portrait of the crowd (Persona). For Segment.io , the “angel customers” they conceived are developers, so this Landing page is also placed where developers often go. 3

Andy Rachleff has a point of view that I agree with very much. He said that the P in MVP does not necessarily refer to Product, but also Prototype. Segment.io actually does this. They do not have actual products, but are verified by Prototype up the market.

This actually answers the question “Is there a product first or a market first?”

I think the answer is already obvious, there must be a market before there is a product. For enterprises, the purpose is definitely not to produce products, but to transform products into commodities. In economics, commodities are defined as: “products that can satisfy human desires and needs.” Fit products”. It doesn’t matter whether there is a product or not, the market can exist, but if there is no market, the product cannot become a commodity, cannot participate in the transaction, and has no value.

HubSpot’s former VP Growth Brian Balfour even suggested that Product-Market Fit should be changed to Market-Product Fit 6 , as the famous investor Pitch Johnson said “the marketplace comes first 7 “.

Finally, a quote from Clayton Christensen (author of The Innovator’s Dilemma):

Questions are places in your mind where answers fit. If you haven’t asked the question, the answer has nowhere to go. It hits your mind and bounces right off. You have to ask the question – you have to want to know – in order to open up the space for the answer to fit. 8

In our minds, questions are home to answers. If you don’t ask questions, you don’t get answers. Even if someone gives you the “answer”, it won’t stay in your mind. You have to ask questions before you can get answers.

A product is to the market what an answer is to a question. Without a market, a product will have nowhere to go.

This article is transferred from: https://maxoxo.me/issue-7-product-market-fit/
This site is only for collection, and the copyright belongs to the original author.