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What is Product/Market Fit

Product/Market Fit is a common concept in the startup world and one that SSII and our VC partners rigorously pitch to the startups we met.

The term has been widely adopted by the startup industry especially when innovation is involved; specifically, when it revolves around successful high-growth companies, it has not caught on to the rest of the business industries yet.

It deserves to be adopted more widely as its a useful concept to show the relationship between business, its products, and 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.

There are a number of definitions out there including those by Marc Anderssen, Sean Ellis, and Steve Blank. We prefer Marc Anderssen’s definition of product/market fit. A key criteria is how he emphasize or highlight the need to be in a ‘good market’. A common struggle that we see in the startups that we interact with is their constant struggle with finding and sizing the market that they are in.

Product/market fit means being in a good market with a product that can satisfy that market.

– Marc Anderssen

4 common myths about Product/Market Fit

Myth #1: Product market fit is always a discrete, big bang event

Some companies achieve primary product-market fit in one big bang. Most don’t. In fact, many find their market through partial fit, some false illusions of product-market fit and more importantly a lot of perseverance.

Weblogic was a good example. Back in the mid-90s, when the Internet is still in its infancy and Java was just making its way around, many questioned the need for it. By the time it got acquired, Weblogic had achieved product-market fit for a category of software called Java Application. The market for Java Application Server soon grew to be more than US$10B.

Similarly, back in 2017, Ofo deployed more than 10 million bicycles in 250 cities and 20 countries. The company was valued at up to US$2billion and has over 62.7 million monthly active users. By 2018, Ofo announced a massive reduction in operations including withdrawal from several countries entirely. Has Ofo achieved product-market fit? Is this the primary product-market fit? This does not seem to be a sustainable market?

What does Ofo need to do to be sustainable in this market? Today, Ofo has pivoted and betting on e-commerce.

Should Ofo stay lean during the early days? Good question, and there’s no formulaic answer.

Myth #2: It’s patently obvious when you have product-market fit

I am sure that Airbnb and CTrip knew when they achieved product-market fit, but it’s far murkier for most startups. How many customers (or site visits or monthly active uniques (MAU) or booked revenue dollars, etc.) must you have to prove the point?

There may also be multiple sub-markets, each of which needs its own product. Sometimes founders didn’t realize that they had achieved product-market fit. It’s usually not black and white.

Or how about a consumer product? For example, Apple’s first iPod shipped in November 2001. It took almost two years to sell its first million units. In contrast, Apple’s iPhone 3GS shipped June 2009 and shipped 1M units in 3 days. At what point is it obvious to Apple’s original iPod team that they’ve achieved product-market fit?

Myth #3: Once you achieve product-market fit, you can’t lose it.

爱屋吉屋 (iwujiwu), the startup that reaches unicorn status in just 273 days raised lots of money. Many believe the O2O play is the right direction to bring changes to the brick-and-mortar property agents market. 爱屋及屋 mythical rise suggests product-market fit has been found and achieved. However, by 2018, they had filed for bankruptcy. The truth is their business model is not able to sustain its operations.

The truth is they had started on the wrong footing of finding a problem to fit the ‘O2O solution’.

Today, with the crunch in venture capital globally, many startups had to rebuild completely and find new product-market fit in a different set of markets altogether.

Myth #4: Once you have product-market fit, you don’t have to sweat the competition.

It’s fine to stay lean if you are not quite sure that you have product-market fit and there are no competitors in your face every day. But the truth is, there are always competitors.

The best markets are usually the ones in which fierce competition exists. Because that is where the big opportunities are. How
long should you stay lean before attacking? Again, there is no formula that works across all cases.

Key takeaways

1. Finding a product-market fit is never about fitting the technology into a customer’s problem.

2. Founders need to understand that VCs prefer to invest in companies that have found product-market fit. This is significantly easier than predicting if the founders can find the fit. Founders have control over this by thinking through what they want to do and how they can achieve it. This will also help achieve founder-market-fit. One way is to ask for help and join an incubation program.

3. Finding a sizable market is hard work. Look beyond the local context that shapes your views.