The Real Product Market Fit by Michael Seibel

The real product market fit. Yes, this was a good one. Not that the other ones aren't great. I often talk to founders who believe they've found product market fit when they haven't. This is a huge problem because they start hiring people, increasing burn, and optimizing their product before they've actually discovered what needs to be built. I'm writing this post to help you understand when you've really found product market fit.

To start, read Mark Andreessen's "On Product Market Fit" for startups. It has been the single most influential post for me as an entrepreneur, and it was the first time I ever read the term. Here's how he defines the term: the customers are buying the product just as fast as you can make it, or the 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.

So why do most people think they're there when they're not? One, it’s intellectually convenient. I think that a lot of founders are really excited at the prospect of company building, and they think that company building is what creates success. By company building, I mean hiring employees, having great culture, getting an office, and having management, and so on and so forth. They are not real with themselves that like the real challenge is to solve the problem. Yeah, and the company building happens for the most part after you figure out how to solve the problem, not before.

I hear this term "product market fit" so often, and I have to tell you like 98 percent of the time it's used incorrectly. What’s so frustrating is that people must act like it's an undefined or flexibly defined term, and it’s like totally not. It’s like saying that like, oh yeah, like green, blue, yellow, we could call all of those orange. It's okay, like we're just calling it orange; it's different for every company.

Yeah, yeah, exactly. It’s like it’s your interpretation of what it’s like. No, ah, this is like that’s not the case. Like this is a defined term. Obviously, make up another term if you want to mean something else. So I think the most common way it's mistaken is like it's weird because it sounds so close, but it's not. It’s, “I built the thing that customers want.” And like what's hilarious is like product market fit is what happens after you built the things that customers want.

It turns out the only way you know you've built the things that customers want is because they're using it in an explosive and destructive way. And like people want to separate these two concepts. It's like so amazing. It’s like so like you can see intellectually why it's just so much easier to be able to look at your thing and say this is what customers want, right, and not have to really have any customers.

Oh yeah, totally. It's easier to say that. And so man, people really just want to separate those two things out. It’s like if you are not getting explosive usage, you do not have what customers want, or there aren’t that many customers, in which case you don’t have a big business.

And so I think that the awful reality is like the vast majority of founders, the vast majority of YC founders even, never find product market fit ever. I argue that like more acquisitions than you might know are of companies that did not find product market fit. Once you find product market fit, I almost say it's like it's your company to screw up. It’s almost like this is gonna work unless you screw it up. Whereas like pre-product market fit, there’s all this stuff you need to do to even see if there can be something there, and you really don’t know.

Post product market fit, it’s like if you execute, you get there. Pre product market fit, you guys do great; I didn't never have anything. And moreover, you can still have customers; you can solve growth if you're pre-prod. Yes, yes, yes, yes! It’s not like when I go from zero customers to one customer, I'm not hypnotic market.

I think that Mark does a good job of defining it because it's experiential, right? I think if you tried to define it any other way, people would find loopholes. I mean, they clearly have already found loopholes. But like, yeah, it’s like, is the growth killing you? Like if I were to extract what the meaning of this sentence is: like is that growth almost killing you? Yeah, and is it profitable? Like people always want to forget the second one, right? Like money is piling up in the checking account, by definition profit.

Yeah, like literally there are so many companies who are like the growth is killing us, right? And I’m like, oh, show me. Explain. And they're scaling negative margins. Exactly! They’re saying, “Hey Craig, how about you pay 75 cents and I give you $1 worth of value, yeah? Make that trade 17 times an hour.” I love that, where it’s like they figure it out before you ‘cause you’re just burning VC money or your own money.

Yes, the customers have a nose for those types of deals because if you have the problem, like you really understand the value of the solution. So, what’s funny to me is that oftentimes founders will want to try to reduce this. Like the quote I get this question so often: it’s like should I optimize for growth, should I optimize for retention, or should I optimize for profitability? And my answer is always the same: yes!

Like what makes you think that building a successful company is a single variable problem? But how could that be the case? It’s clearly not the case, especially in the venture paradigm. Yes! Yes! Yes! For a tech startup, yes, it’s clearly not the case. Like there are clearly multiple variables here.

And you know one of the things we try to talk to people about if you're charging your customer? We try to talk to you about revenue. Yeah, and the reason why is that like in many cases like revenue that you keep is as close as we can get to a single metric. But like even that is not perfect. Like you really want to know like what percentage of revenue are you losing every month. You really want to know like how much does it cost you to get that revenue.

Like you really want to know like how satisfied your customers are. Like you need to know those other stats to really know. And so, yeah, probably market fit. Like I wish more co-founders would say, like I talk about pre-product market fit as just being in the suck. It’s just like you’re just in the river of crap and you’re not enjoying your life.

Like, and unfortunately, I think that you—every startup—I almost imagine this isn’t the case, but I almost imagine that there’s like a predetermined amount of time you have to live there until you figure out how to get out. And like a lot of founders just want to cheat, and like a lot of founders just like, “I want to get out by cheating.” Like I just want to pretend like I'm not in here and like build a nice house, or I just want to like do something as we've done profitable, so I can tend to be out of here.

And it’s just like you can’t pretend your way out of product market failure; it does not work. You have to be comfortable; you have to be so passionate about the people you're working with and/or the problem that you're solving that you are comfortable failing at it for a while.

Did you guys hit it at Socialcam? Absolutely not. So here’s a perfect example: Socialcam over the course of four months got 16 million downloads, got one-eighth of every single person on Facebook to watch at least one video on our platform over the course of three to four months. Wouldn't that be like almost the definition of product market fit?

We certainly were dying in the traffic; we shut off like half the world! They could not use the product because we were like, “We can't do it!” Absolutely not for our product. One, we had no monetization. No, probably could have figured out monetization at that point; no monetization! Yeah!

Um, to more importantly, we had horrible retention; absolutely horrible retention. Like if you came and downloaded the app, the chances that you were using that app ten days later was basically zero. If you watched a video, the chances that you'd watch five more videos that week? Very low! And like it was interesting because it was like we had an exit; yeah, we had tons of growth; we for a while were top 5 in the App Store, yet not product market fit.

Yeah, I'd even argue—I mean if you look back at Justin.tv, right? Justin.tv by, let’s say 2010—she started in 2006. By 2010—make sure I have these dates right, I think that’s correct, yeah—we made $8 million in revenue, 1 million in profit, with approximately 30 million monthly viewers on the product, and we were not at product market fit!

Right? Yeah, and so it's like—yeah, this—it like it is hard. And the reason why—and in it for the Justin.tv case was that we didn’t have a repeatable engine to create growth. Like that 300 million monthly uniques, we couldn't make that number go up. And then the second thing was that, unfortunately, we had tons of copyright content on the site.

Yeah, and so it wasn’t—we weren't able to reliably monetize that over time. Right? And so it's like it’s funny because I can't imagine how many pitches that I gave to try and present that as a good business when like in my heart I knew it wasn’t a good business.

Yeah, and I mean like and like it wasn’t until we actually found Twitch and found gamers to actually find something that had this repeatable machine that both spit out more users and more money and retention. And like what was so interesting was that like we’d solved all the technology problems at Justin.tv.

Well, clearly the market does not care what you have behind the hood. No, no, no, no! Like we had all the live video streaming chat; we had everything! Like now, like that was—I mean, let’s be clear—necessary but not sufficient. But we never could have done it without that stuff, but it was not sufficient.

Yeah, at all! And like, man, what that took. That took six years for us to have a hint that that’s what the customer base was. Right? Because then like the suck period with Twitch as game streaming—how long did that go for? Before? Not fairly—not very long.

Oh no! Why? It was interesting; it didn’t go for very long because everything else was already—the table was set; you’re kind of in place. Yeah, we had people; we had all the technology we needed; we had money because we were running profitably. So like it was all like—all of the—the table was set, and then BAM! The food arrived!

Like everyone was seated; the table was set; BAM! The food arrived! The meal happened! Like we were waiting at the table for like Steven at—but like if you started Twitch in 2006, probably wouldn’t have worked.

You don’t know! I don’t think it would have worked in 2006. I think looking back, silly little things matter: one of them was webcams! Yeah, like webcams went from being something you had to buy extra to something that were built into every laptop.

Like—and it was like little things like that can change things. I think that, though, had we been talking to our users more, we could have gotten there sooner. Look, I think we could have gotten there by like 2008-2009. But, you know, yeah, we didn't die. That was, yeah, didn't die. I have another shot.

It's a big takeaway. Yeah, yeah! Which is kind of a separate thing, probably separate. I say, but like learning when you should have quit, maybe? Like some people do hold onto things—some hold on to things.

It’s funny; like I see it two ways: some people hold onto things. On the flip side, though, man, there are still some companies who—like some companies take a long time. Yeah, there are some peers of ours who like now are really doing well but just took even longer than we did.

And so, man, there is a—like if you're willing to put in the time and grind it out, like every year you don’t die, like your chances of being successful go up. Yeah! And then some companies sell too early and they could have been so cool, and then they die within big companies.

Yeah, so let's see about trying to get paid. That happens too.