Don’t be first to market. Be first to product/market fit
"Time after time, the winner is the first company to deliver the food the dogs want to eat.”
#45
Sorry this is late. Long day yesterday. Straight to business—so I considered talking about a couple of things today. Share of wallet, share of mind, moats, flywheels, network effects, merging with competitors, growth tactics, doing another piece on product-market fit or yet another piece on how your company needs to be solving a problem. But I think we should look at the most important one, which in my opinion, is P/MF. Yes. Almighty product/market fit. Apparently almost no one caught my corny “if you don’t PMF or you will BMF” joke. I don’t know what’s wrong with you guys🙄…but anyway, I hope this one was more straightforward.😂😂 What it is, why you need it and why you won’t go far if you don’t have it. Following extracts from some articles I’ve found to be useful in my own quest for P/MF.
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The term product/market fit describes ‘the moment when a startup finally finds a widespread set of customers that resonate with its product’.” Eric Ries
Various math tests have been devised in an attempt to quantify PMF, but they are proxies for something that is fundamentally like Justice Stewart’s famous definition of pornography: “I know it when I see it.” Even if there is a best practices test for whether PMF exists that does not mean that creating PMF can be reduced to a formula.
So what are considered some of the best tests for PMF? Rachleff writes that “You know you have fit if your product grows exponentially with no marketing. That is only possible if you have huge word of mouth. Word of mouth is only possible if you have delighted your customer.” Tying together the concepts, Rachleff also shares that entrepreneurs too often confuse product/market fit with growth in what Ries calls vanity metrics (“numbers or stats that look good on paper, but don’t really mean anything important”). So what does? Rachleff suggests Net Promoter Score (NPS) as a great tool to predict the magnitude of customer love for one’s product/service — ideally a score of 40 or higher “to know you’re on the right track.” However, while NPS is a pretty good proxy for likely fit, it is “not nearly as accurate as having market feedback in the form of purchases.” People vote with their dollars, after all.
“Getting product right means finding product/market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it.” Fred Wilson
One of the most common ways that startups die is “premature scaling,” a term first used by Steve Blank. A business is “scaling prematurely” if it is spending significant amounts of money on growth before it has discovered and developed PMF. Steve Blank describes one important reason why premature scaling can happen: “Ironically, one of the greatest risks … is high pressure expectations to make these first pass forecasts that subvert an honest Customer Development process. The temptation is to transform the vision of a large market into a solid corporate revenue forecast — before Customer Development even begins.” A study conducted by Startup Genome concluded:
“Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely… In our dataset we found that 70% of startups scaled prematurely along some dimension. While this number seemed high, this may go a long way towards explaining the 90% failure rate of startups.”
An entrepreneur quoted by the authors of the study said:
“Premature scaling is putting the cart before the proverbial horse…As an entrepreneur there’s always the temptation to grow the sales team at the first sign of revenue traction, but there is always the danger that this early traction is coming from the subset of the market that are early adopters and not the actual market itself. Additionally, too often I’ve seen startups ramp up sales before they’ve figured out the most efficient way to achieve profitability. A vicious cycle ensues wherein the more a company grows, the more it farther away from profitability it becomes.”
Viddy is often cited as an example of a company that died of premature scaling. For a period of time Viddy was able to use Facebook OpenGraph to grow its user base to millions of users before it ever had PMF. That mistake eventually meant the company was sold for very little and it faded away like the Cheshire Cat. Other business that suffered from premature scaling included Friendster, Orkut, and Digg. Groupon suffered from premature scaling but was able to pivot and save itself so far.
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Article List— What I’m reading (10 articles a day x 7 days x 4 weeks x 12 months = 3360 articles a year).
Private equity firms are raising billions to back African businesses but need to do more deals: Yes, last frontier vibes. Everyone trying to make they returns here. Well, and LatAm. Maybe a cross-border fund between Africa and LatAm? Or Africa and India? Aavishkar is leading the way on the latter. Good job.
inDriver expands into 10 cities across five African countries: Hmm, this is a model that could actually work. I need to deep it some more, but I would actually use a ride-hailing platform like this. When are they coming into Ghana again?
Cambridge Analytica Whistleblower: Google Boss’ Daughter Scrubbed From Guardian Exposé: Money…and influence solves all 🙂
Ghana now Africa’s largest gold producer, but reforms await: Bottom Line: The danger for Ghana is that continued gold price strength will make it tempting to ignore the need for economic diversification or mining code reform.
‘South Park’ Sarcastically Apologizes To China After Country Bans Show: 😂😂😂😂😂😂😂😂 Pity I stopped watching SP. Gotta get back to it.
Sex for Grades: undercover inside Nigerian and Ghanaian universities - BBC Africa Eye documentary: Shame on us men for letting this happening and not giving a voice to women. And to those of us who turn our heads when we see it happening and don’t defend our women, shame on us too. This kind of behavior from teachers is appalling. Shame on everyone. This is the full link to the video.
How thinking and acting local took Africa’s top-selling phone maker to a multibillion-dollar IPO: In case you didn’t see this yesterday, this is a MUST READ. Create products/ services to solve African problems. The market is big enough.
“Go-to-Market” must be on your mind from day one: You can put off monetization, but not thinking about monetization
Handshakes and Hashtags: Two Key Ingredients for Networking Success: Successful networking, whether online or off, requires that you demonstrate substance — domain expertise, credibility, etc. and sociability — that you’re enjoyable to be with. Too many forget the last part.
Podcast— What I’m listening to (1 podcast episode a day x 7 days x 4 weeks x 12 months = 336 podcast episodes). Broadening my experiences through others’ stories.
Dissect is back! Look, I didn’t appreciate music much before I listened to this podcast. But Dissect changed that. Dissect examines a single album per season, forensically dissecting the music, lyrics, and meaning of one song per episode. Season 5 dissects Kendrick Lamar’s Pulitzer Prize winning album, DAMN.
Book— 1 Chapter a day x 7 days x 4 weeks x 12 months = 336 chapters. Most books have 10-12 chapters, so 1 year = 28 to 33 books. And my book list is nearing 1000 books. Send help 🌚
Back reading the Merchants of Debt. How KKR became your favorite top 2 PE firms. And its not #2. (BTW these links are now to articles/ summaries on the books. Not links to Amazon anymore. S/o to Patricia for this suggestion.)
📱📱Twitter quote of the day
Start small. But remember that starting small doesn’t mean thinking small. Think BIG from the start!
Made it, lost it. Can back and flipped it. True hustlers always find a way. Right?? -@1996Biggs
Remember folks: “Until the lion learns to write, every story will glorify the hunter.”