Product/market fit should be your first step when conceiving a new company. At the beginning of your entrepreneurial journey, the first question you must ask yourself is “what problem am I trying to solve?”. Every great company begins with a problem. Consumers or businesses might not even know they have a problem that needs solving, but every great entrepreneurial undertaking begins with that mindset.
What problem is out there just waiting to be fixed?
While that is a noble and necessary first step, it is by no means the most important. No, the most important comes next:
What’s our product/market fit (PMF)?
PMF can be loosely defined as “the degree to which a product satisfies a strong market demand.” It is the “first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).”
Just as important as the problem needing solving and the proposed solution thereof is the size of the market and the demand within that market. If you come up with a great idea to solve a problem 100 people have, that’s not the basis of a strong company (unless those 100 people are otherworldly wealthy, influential and powerful). If 100,000,000 people have a problem they don’t even realize, and you have a viable solution to solve it? That’s a large market. And, once they get their hands on your product, if they can’t fathom going without it again? That’s a strong market demand.
When you have achieved the holy trinity of solving a problem a lot of people have that they really want solved, you’re in the fast lane to success. I really can’t overstate enough how important PMF is. Andreessen Horowitz, legends of the venture capital game, have written extensively on the issue, going so far as to say your market matters more than your product:
“You can obviously screw up a great market — and that has been done, and not infrequently — but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure.” That’s why time spent building a business around the product alone is pointless: “Best case, it’s going to be a zombie. … in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter – you’re going to fail. You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.” The converse is also true. You can have an OK team and a buggy and incomplete product but if the market is great and you are the best product available success can happen both suddenly and quickly. That success won’t last unless those products are fixed, but at least the business has the beginnings of something wonderful.
It’s important to note PMF isn’t a magic tonic that will cure all your corporate woes. However, it is the most important ingredient in sustained entrepreneurial success. Without identifying a large market, your company will always have a limited ceiling. By not accurately grasping market demand, you can likewise end up on the wrong side of history. But, if you judge/project them correctly and pair those judgements/projections with a first or best-available product, you’re going to have an opportunity to do some pretty spectacular things.
Find your PMF and obsess over it. Pursue it. Protect it. It could very well make the difference between your astronomically successful business or your supernova of an implosion. The choice is up to you…