Evergreen is a weekly collection of links to the best learning resources in business, collected by a group of managers, founders, and investors. We contribute resources about one topic each week, which are synthesized and shared in this Weekly Edition. The aim is to learn more efficiently through increased context and focus.
Remember, these are designed to feel like short books, you?re meant to meander and spend ~3 hours on this topic this week. Save some of these links and read them throughout the week. Immerse yourself in this topic and leave the week smarter than you started it!
Product/Market Fit is a common concept in the startup world. While widely applied in conversations around new high-growth companies, it doesn?t seem to have caught on in the rest of the business world yet.
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.
What is Product-Market Fit?
Because it?s such a new concept, there are a few overlapping definitions of Product-Market Fit. We should start with the definition from Marc Andreesen, who originally coined ?Product/Market Fit? in his post ?The Only Thing That Matters?:
Product/market fit means being in a good market with a product that can satisfy that market.
This is a rather vague definition, but it?s a start. What Andreesen says gives us a more vivid illustration of what Product/market fit really feels like:
You can always feel when product/market fit isn?t happening. 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.
And you can always feel product/market fit when it?s happening. The customers are buying the product just as fast as you can make it ? or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You?re hiring sales and customer support staff as fast as you can. Reporters are calling because they?ve heard about your hot new thing and they want to talk to you about it.
Marc Andreesen?s post on Product Market Fit is the most-recommended resource ever received on Evergreen. It was sent in separately by 6 people, including 2 Gregs: Greg Meyer, Greg Drach, Nitya Nambisan, Aaron Wolfson, and Jason Evanish.
When your customers spread your product
A complementary definition was found in Principles of Product Design, by Josh Porter, suggested by Tim Harsch. Josh?s idea of the level of dedication and excitement by customers is an indicator of Product/market fit:
Product/market fit is when people sell for you
Product market fit is a funny term, but here?s a concrete way to think about it. When people understand and use your product enough to recognize it?s value that?s a huge win. But when they begin to share their positive experience with others, when you can replicate the experience with every new user who your existing users tell, then you have product market fit on your hands. And when this occurs something magical happens. All of a sudden your customers become your salespeople.
Validation of the Value Hypothesis
The definition that feels the most precise and helpful I found in this post by Andy Rachleff, the CEO of Wealthfront, called Why you Should Find Product-Market Fit Before Sniffing Around for Venture Money. He paraphrases work by Eric Reis and Steve Blank to create this explanation:
A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. A growth hypothesis represents your best thinking about how you can scale the number of customers attracted to your product or service.
Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis addresses both the features and business model required to entice a customer to buy your product.
Worth noting on this definition is that there are likely multiple key assumptions to be validated, across product, pricing, and business models. Thanks to Joe Bayley for recommending this post by Andy Rachleff.
Myths about Product Market Fit
This post by Ben Horowitz called The Revenge of the Fat Guy (in reference to a debate with Fred Wilson), has insight that radically improves understanding of Product/market fit. In it, he outlines 4 common myths:
- Myth #1: Product market fit is always a discrete, big bang event
- Myth #2: It?s patently obvious when you have product market fit
- Myth #3: Once you achieve product market fit, you can?t lose it
- Myth #4: Once you have product-market fit, you don?t have to sweat the competition
If the definitions above left room for these myths to take hold ? read this post and dispel them, before they cause you and your business harm.
Itamar Goldminz, a reader and common contributor to Evergreen wrote this piece that uses the metaphor of resonance from Physics to describe Product-market fit:
A good analogy for finding PMF comes from Physics: finding resonance with your customers and getting on the same wavelength as them. Note that this can be accomplished both by changing your product and by changing your customers (market pivot). Changing your wavelength is a gradual, continuous process (anti-myth #1), you know when you?re close to being on the same wavelength but it?s hard to tell if you?re exactly there (anti-myth #2). Since both your product and your customers constantly change (wavelength), it?s easy to get out of sync again (anti-myth #3) and it?s clear that your actions don?t prevent others from getting on the same wavelength (anti-myth #4).
How to get Product-Market Fit
Knowing that we need to get to Product-Market Fit, and what it means to do so, the obvious question is ?How??. There is a unique path for every company (or there is failure), and these ways to look at the problem will help you find your way.
Everything is on the Table
Here is another idea from the godfather of Product/market fit, Marc Andreesen. It explains that everything is a possible lever to move your toward product/market fit, and might be changed in that pursuit.
Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don?t want to, telling customers yes when you don?t want to, raising that fourth round of highly dilutive venture capital ? whatever is required.
When you get right down to it, you can ignore almost everything else.
Changing teams, markets, products, names, and visions are all reasonable in pursuit of product-market fit. That?s the story of many companies: Instagram, Soylent, Anyperk, Twitter ? all radically changed course from their original plan to find Product-market fit.
Talk to your customers
Customer Development is a core skill to developing product-market fit. We?ve created a whole Edition of Evergreen on it, called How to Failure-proof your business with Customer Development.
Product-Market Fit is Everyone?s Job
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.
These excellent excerpts come from Ryan Holiday?s course on Growth Hacker Marketing, suggested by Vinish Garg.
All Markets are Not Created Equal
Andrew Chen has an underrated post about how to know when a consumer startup has hit Product/market fit. In it, he outlines what makes a ?good market?:
– 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.
How to Measure Product/Market Fit
As management legend Peter Drucker always says: ?What gets measured gets managed? ? so how to we measure this concept of Product/Market fit? How do we know if we?re getting closer, or if we have it?
This isn?t an easy question, and there?s no perfect answers, but there are three approximations that can guide your journey to Product/market fit.
Do your Customers Recommend you to Friends?
Net Promoter Score (NPS) is a simple survey, asking customers to rate from 1?10, ?How likely are you to recommend _____ to a friend or colleague?? Here?s a basic explanation of the Net Promoter score Metric, and how it is calculated.
A screenshot from Delighted?s Demo.
Services like Delighted automate the process of collecting and analyzing the data for you. I talked with my friend Caleb Elston, and set you up with a $100 credit to get you started. If you plan to try it, email email@example.com with the subject line ?Evergreen sent me? and they?ll take great care of you.
Do customers care if your company died tomorrow?
A complementary question to NPS, which is measuring how many customers love you, is this approach which measures how many customers would be distraught if they couldn?t have your product/service anymore.
This is an effective way to measure your value to them, and approximate the price you could extract or the leverage you have to push growth by asking your users to share or invite their friends.
How would you feel if you could no longer use [product]?
– Very disappointed
– Somewhat disappointed
– Not disappointed (it isn?t really that useful)
– N/A ? I no longer use [product]
If you find that over 40% of your users are saying that they would be ?very disappointed? without your product, there is a great chance you can build sustainable, scalable customer acquisition growth on this ?must have? product.
This post from Growth Hacker Sean Ellis was suggested by Tyler Hayes, and introduces a tool to send out this question called survey.io.
How Many Customers Leave & How Soon?
Alex Shultz, in his talk in the Lecture series How to Start a Startup at Stanford calls out his definition of Product-Market fit, which is based on churn and user retention:
Look at this curve, ?percent monthly active? versus ?number of days from acquisition?, if you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a viable business and you have product market fit for some subset of market.
This may require some context (and some research and math to figure out for your business), so check out this full talk to get the whole story:
This talk was also suggested by Tyler Hayes, who dominates resources for learning how to measure Product/market Fit. You rock, Tyler.
Extra Bonus Presentations
These two presentations, one from Andrew Chen and one from Jason Evanish, get into the process of arriving at Product-Market fit, and are worth clicking through to learn more.
Andrew Chen: Zero to Product/Market Fit Presentation
Jason Evanish: Getting to Product/Market Fit
If you enjoyed this, you?ll get more like it by joining Evergreen:
My Other Projects
Upcoming Book: The Almanack of Naval Ravikant
Mini-book: Career Advice for Uniquely Ambitious People
Personal Site: EJorgenson.com
Evergreen Lives on Donations
Evergreen requires time and money. If you find this project helpful, please consider buying me a coffee, or sending some Bitcoin.
BTC Wallet: 3KiLX3bjnpmb3a4YiBhm3vSNiV2Erxk1fX (If you?ve never used Crypto before, Coinbase is the easiest way to start.)
Thank you very much! ? ?
Massive appreciation for who suggested pieces of content (or wrote something new) for this Edition of Evergreen: Aaron Wolfson, Itamar Goldminz, Greg Meyer, Greg Drach, Nitya Nambisan, Jason Evanish, Tyler Hayes, Tim Harsch, Vinish Garg, Joe Bayley, Nabila Amarsy.
Many thanks for being a part of this project! Not every suggestion is able to make it to the final edit, but every single suggestion is read and appreciated.
As my Father always says: ?There?s always room for the best.? There?s always a better resource out there. These collections can always get better, and I hope that they do. If you can think of anything that was missed, I welcome you to share it.
To share your thoughts, improvements or additions: Email or Twitter.
If you liked this, check out other Editions of Evergreen:Building and Managing a Team:How to Find and Recruit the Team you NeedHow Not to Hire like a ClownshowCompensation Rules Everything Around MeWhy Employee Onboarding is holding you backHow to Boost Employee RetentionHow Performance Reviews are being ReinventedSecrets to Perfecting Organizational CommunicationHow to Manage Scale, and Operate in Scaling OrganizationsHow to Fire an EmployeeWhat you actually need to know about Company CultureHow to Interview Prospective HiresStrategy and Competitive Advantage:How to Master the Craft of StrategyCompetitive Advantage: How to Build a Winning BusinessThe Power of Network EffectsHow Cost Leadership Builds Powerful BusinessesWhy the Best Brands Stand OutScale as Competitive AdvantageBarriers to Entry are ConfusingFlywheel Effect: Meta-Competitive AdvantageBuilding the Business:How to get good business Ideas: Mental Alchemy of IdeationHow to Choose the Right Business IdeasProduct/Market Fit: What it really means & How to Measure itHow to Failure-proof your business with Customer DevelopmentHow Strategy and Psychology Work Together to Perfect Pricing The Most Important Equations in Business – CAC (Part 1)The Simple Math Behind Every Profitable Business – CLV (Part 2)How Psychology behind Word-of-Mouth WorksThe Secret Core of Every Successful Business–DistributionThe Most Important Lessons in SalesWhy Value Creation is the Foundation of BusinessWhy Value Capture is the most important idea you haven’t read aboutThe Misunderstood and Underestimated Genius of AdvertisingHow to be a Great Human:How to Start a New Job: Handling Career Transitions like a BossHow to Master the Discipline of Product ManagementThe Ancient Origins of Storytelling, and how to Apply ThemHow to Prioritize Using These 9 Mental ModelsI’ve also written about How & Why we started Evergreen:How a prototype’s failure created the next iterationMission & Method of EvergreenFollow me on Twitter: @EricJorgensonAnd Please… Join Evergreen.