12 Things about Product-Market Fit
“the marketplace comes first because you can’t change that….”
Don Valentine is right, if you have a good market, a lot of other things just roll downhill. That is the one major point about Product-Market fit that matters most. The market must be a good one. Since his comments, what has changed for the better?
Why market matters more than anything
#1 “Give me a giant market — always.” “Arthur Rock is the representative of: you find a great entrepreneur and you back him. My position has always been: you find a great market and you build multiple companies in that market.” “Our view has always, preferably, been: give us a technical problem, give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff. Do I like to do that with terrific people? Sure. Are we unwilling to invest in companies that don’t have them? Sure. We invested in Apple when Steve Jobs was about eighteen or nineteen years old — not only didn’t he go to Harvard Business School, he didn’t go to any school.” Don Valentine
Since he made these comments, a lot of technology capability has been invented that defines what the ‘market’ means. What Don Valentine ultimately wants is to quantify who is going to buy in that market.
I’m not talking about creating a total addressable market. That’s easy. I’m talking about quantifying how people think and why they make decisions – A list of actual buyers based on something far beyond clicks and cookies of yesterday. Sounds like Nirvana but we are getting close. It’s not their purchase history, not their demographics but how they think, not who they are and what they do in their real life and what are the emotional triggers to making a purchase decision. No, not a creative document for marketing but the quantified people traits people use to segment out the junk in their life vs what will help them. Ultimately, The customer has not control, what you have to do as a venture capitalist and business is correctly determining the underserved needs of people first – before you think about market.
“One way to look at venture capital investing and creating a valuable business is as an effort to build a stool with three legs: people, markets, and innovative products. All three legs are required for success, but different venture capitalists and entrepreneurs emphasize and weight each of the three core elements differently at different times. While Valentine believed that yes, of course, you need decent people, “the marketplace comes first because you can’t change that, but you can change the people” (according to Pitch Johnson, who was a venture capital industry pioneer at the same time Valentine was developing his investing style).”
Another important step that needs mentioning is quantifying who you hire that matches well against state of the organization relative to the underserved needs of the market. To better explain, think about an early stage company; it needs very creative people that are quite adaptable. Hiring specific to that stage in is important. Early adopters and techies need different types of people to serve them. Once you cross the chasm, the market and the people within the organization need to adapt. Its terrible to say ‘replace’ as these early-stage employees are likely to be the ones that prevent disruptive innovation from happening to the organization. Does their role change? Yes.
A famous example of changing people was when the Cisco board of directors replaced the then-husband-and-wife team who founded the company. In other cases, new team members are brought in to supply new skills instead of replacing people; Eric Schmidt being recruited to Google is a famous example of that approach.
It’s true that people served different stages in a company’s life cycle. There are the innovators that come first, that figure out the market and then after once you cross the chasm, you need more manager styles. I don’t know Cisco’s history but my guess would be they found a market and as they progressed further and further into later-stage type buyers, the company needed to morph with the compounded markets.
The original team maybe didn’t see the changes and stages of the market and the volume that would ensue. Understanding the market at a deep level tells you the different gear stages the company is going to be in.