The basic structure for growing a successful startup goes something like this: discover a problem and conceptualize a solution; develop a product and sell it to the right market; scale, scale, scale. The major make-or-break part of this formula comes in the middle section, or as it is commonly known: Product/Market Fit.
At its core, Product/Market Fit is a relatively simple concept: you need to make a product that a certain segment of society actually wants to buy, and you need to focus your efforts on selling it to those specific people, adjusting as necessary to have the best possible product sold to the best possible market for that product. This moment, where you have achieved Pareto optimality (the point where you cannot make one better without making the other worse) between your product and your market, is the moment you have achieved Product/Market Fit.
When building your business, nothing is sacred until you actually have achieved Product/Market Fit, and even once you have achieved Product/Market Fit, you must be prepared to do what it takes to maintain it. If you think you have identified a great market, but they aren’t totally in love with the current product, it may be time for a redesign, and maybe that redesign calls for further restructuring within the company, and so on. If your once-great market loses interest or dwindles for some other reason, you may need to seek out a new market, which in turn may call for product redesign. The long and short of it is that you must have Product/Market Fit for your startup to have any true value beyond a conceptual vision for its future. You need to fight to reach your Product/Market Fit equilibrium and adjust as necessary to stay at equilibrium, understanding that where you end up may look quite a bit different than where you began. Well-known entrepreneur, investor, and software engineer Marc Andreessen summarized this concept, saying: “The life of any startup can be divided into two parts – before Product/Market Fit and after Product/Market Fit…When you are BPMF, focus obsessively on getting to product/market fit.”
Imagine, for example, living in a city before the various taxi apps came into being – Uber, Lyft, etc. – and noticing that getting a cab could often be a frustrating proposition. In this case, you have identified the problem that getting a taxi can be annoying, and perhaps you have concluded that building an app is the right solution. Great! You are well on your way to founding Uber, but you have to be careful about how you enter the market if you want to succeed and last.
At this stage, it is important to consider how your product is going to provide a solution to the problem you have identified, what your larger market is, what the smaller segment of that market is that you will initially enter, and who your early adopters are. If your product concept for solving the taxi problem is to build an app that provides helicopters to people who need a lift, you almost certainly are going to be unable to find a realistic sub-market, stunting your growth into the greater transportation market. Instead of going with helicopters, Uber targeted a more realistic segment of the greater transportation market, focusing on luxury black cars that provided sleek, comfortable rides anywhere in the city with the touch of a button. This carefully thought out entrance to the market proved to be highly successful. Instead of starting too big and taking on the entire transportation industry or going too niche (helicopters), Uber checked off all the boxes in the right way with a very calculated approach:
Uber identified a very realistic portion of the transportation industry to cultivate as early adopters (people with money who would love being able to instantly call a fancy car for themselves) and focused their efforts on that demographic.
They created as flawless a consumer experience as possible, building a sleek and easy-to-use platform for consumers and providers that minimized any technological barriers to entry while ensuring that drivers were almost always available.
Once the targeted segment of the market was completely hooked, Uber moved on to incorporate more and more segments of the industry, from bigger SUVs to ride-sharing to more standard rides.
At Applico, this is a big part of our philosophy – don’t start so big or so small that you can’t achieve Product/Market Fit. Start focused on the right group with the right product, win over a segment of the market, and scale from there. The world is your oyster, so long as you are achieving Product/Market Fit with each new iteration of your product as you advance into new markets.
Filed under: Platform Innovation | Topics: platforms
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