The only thing that matters is getting to product market fit. You can have the best product in the world and an absolutely killer team, and it doesn't matter. You're going to fail. There's so many ways to waste your time on things that don't matter, I think. Hey, everyone.

This episode is on product market fit. It's not something that I've actually covered, which now that I'm staring down the barrel of this at a start up is quite shocking, to be honest. So better late than never. And by the way, at the end of the episode, I'm gonna talk about this article that my friend Elliot sent me that talks a little bit about how AI changes product market fit a little bit. So let's start with Marc Andreessen.

So Marc Andreessen wrote this article in 2007, so almost twenty years ago. But I think it's still absolutely incredible. This post is all about the only thing that matters for a new startup. But first, some theory. If you look at a broad cross section of start ups, say 30 or 40 or more, enough to screen out the pure flukes and look for patterns, two obvious facts will jump out at you.

First obvious fact, there is an incredibly wide divergence of success. Some of these startups are insanely successful, some highly successful, many somewhat successful, and quite a few, of course, outright fail. The second obvious fact, there is an incredibly wide divergence of caliber and quality of the three core elements of each startup, team, product, and market. At any given startup, the team will range from outstanding to remarkably flawed. The product will range from a masterpiece of engineering to barely functional, and the market will range from booming to comatose.

And so you start to wonder what correlates the most to success, team, product, or market? Or more bluntly, what causes success? And for those of us who are students of start up failure, what is most dangerous? A bad team, a weak product, or a poor market? Let's start by defining terms.

The caliber of a start up team can be defined as the suitability of the CEO, senior staff, engineers, and other key staff relative to the opportunity in front of them. And then there is the product. The quality of a start up's product can be defined as how impressive the product is to one customer or user who actually uses it. How easy is the product to use? How feature rich is it?

How fast is it? How extensible is it? How polished is it? How many bugs does it have? Okay.

And then we have the third piece, market. The size of a start up's market is the number and growth rate of those customers or users for that product. And this is, I think, where some interesting stuff starts coming into this article. If you ask entrepreneurs or VCs which of team, product, or market is most important, many of them will say team. This is the obvious answer in part because in the beginning of a start up, you know a lot more about the team than you do the product, which hasn't been built yet, or the market, which hasn't been explored yet.

Plus, we've all been raised on slogans like people are our most important asset, at least in The US. I mean, we have that too in England. Pro people sentiments permeate our culture ranging from high school self esteem programs to the declaration of independence's inalienable rights to life, liberty, and the pursuit of happiness. So the answer that team is the most important feels right, and who wants to take the position that people don't matter? On the other hand, if you ask engineers, many will say products.

This is a product business. Startups invent products, customers buy and use products, blah blah blah blah blah. Personally, I'll take the third position, and this is Marc Andreessen. I'll assert that market is the most important factor in a startup's success or failure. Why?

In a great market, a market with lots of real potential customers, the market pulls product out of the start up. The market needs to be fulfilled, and the market will be fulfilled by the first viable product that comes along. The product doesn't need to be great. It has to basically just work. And the market doesn't care how good the team is as long as the team can produce that viable product.

In short, customers are knocking down your door to get the product. The main goal is to actually answer the phone and respond to all the emails from people who want to buy. And when you have a great market, the team is remarkably easy to upgrade on the fly. This is the story of search keyword advertising and Internet auctions and TCP IP routers. Conversely, 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. This is so this is interesting. This is the story of video conferencing and workflow software and micropayments. I mean, you know, some of those have have, certainly arguably succeeded.

But, again, this was written in 2007. When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens. You can obviously screw up 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 poor market will tend to equal failure. Markets matter most. And neither a stellar team nor a stell nor a fantastic product will redeem a bad market. Okay. So what?

Well, first question. Since team is the thing you have the most control over at the start and everyone wants to have a great team, what does a great team actually get you? Hopefully, a great team gets you at least an okay product, an ideally great product, but not always. Hopefully, a great team also gets you a great market, but I can also name you lots of examples of great teams that execute brilliantly against terrible markets and failed. Markets that don't exist don't care how smart you are.

In my experience, the most frequent case of great team paired with bad product and or terrible market is the second or third time entrepreneur whose first company was a huge success, people get cocky and slip up. Conversely, I can name you any number of weak teams whose start ups were highly successful due to explosively large markets for what they were doing. Scaling DevTools is sponsored by WorkOS. If things start going well, some of your customers are gonna start asking for enterprise features. Things like SSO, SCIM provisioning, role based access control.

You could spend ages tearing your hair out building these things yourself, or you could use WorkOS. Will, what do you guys do?

My name is Will Stewart, cofounder and CEO of Northlink. We're a self-service developer platform, and we help teams deploy their most critical workloads into their VPC.

And you guys use WorkOS?

We use WorkOS for our SAML and OIDC integrations. It's a pretty exceptional product. It makes everything regarding authentication pretty seamless, and, it's been instrumental for us to onboard our enterprise customers much faster. Building integrations with lots of different SAML providers is really challenging. We can do that for cloud providers.

That's our job. But we don't wanna do that for, the other type of IDP. This is quite interesting because internal developer portal platform, and then there's the identity provider. So IDP has three different meanings, and we're internal developer platform, and WorkOS is IDP for authentication. But, yeah, it's a great product.

Thanks, WorkOS. Back to the episode. Okay. So then there's this part. He talks about can't great products sometimes create huge new markets.

Absolutely. This is a best case scenario, though. VMware is the most recent company to have done that. VMware's product was so profoundly transformative out of the gate that it catalyzed a whole new movement towards operating system virtualization, which turns out to be a monster market. But it seems like, you know, that's not the one that you should that's not the type you should probably go after.

If that's the thing that you're hoping for, sorry. This episode is not gonna be very helpful for you. Okay. So here he says, third question. As a startup founder, what should I do about all this?

Let's introduce Ratchleft's corollary of start up success. The only thing that matters is getting to product market fit. Product market fit means being in a good market with a product that can satisfy that market. You can always feel when a 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 service. 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 you've reporters are calling because they've heard about your hot new thing, and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School.

Lots of startups fail before product market fit ever happens. My contention, in fact, is that they fail because they never get to product market fit. Carried a step further, I believe that the life of any start up can be divided into two parts, before product market fit and after product market fit. When you are before product market fit, focus obsessively on getting to product market fit. Do whatever is required to get to product market fit, including changing out people, rewriting your products, 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 down to it, you can ignore almost everything else. I'm not suggesting that you do ignore everything else, just that judging from what I've seen in successful startups, you can. Whenever you see a successful startup, you see one that has reached product market fit and usually along the way screwed up all kinds of other things from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist, and the start up is still successful. Conversely, you see a surprising number of really well run start ups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought through plan, great interview processes, outstanding catered food, 30 inch monitors for all the programmers, top tier VCs on the board heading straight off a cliff due to not ever finding product market fit. Ironically, once a startup is successful and you ask the founders what made it successful, they will usually cite all kinds of things that had nothing to do with it.

People are terrible at understanding causation. But in almost every case, the cause was actually product market fit because, really, what else could it possibly be? Yeah. I think this article is just absolutely incredible. And maybe I've read it before, but it just shot me hit me like a jaw of lightning when I read it.

And, you know, we we've taken this absolutely on board and we have cancelled everything else that we're doing. The only thing we're doing is the only things we are doing are things that will help us get to product market fit. And, yeah, nothing matters like marketing even. Unless it's something that's directly pushing you to helping you find product market fit probably doesn't matter. And you know a lot of the time it will matter by the way but unless it does push that directly it's probably not worth it.

You know, all sorts of operational things don't matter. All lots of compliance stuff probably don't matter. There's so many ways to waste your time on things that don't matter, I think. The next thing that I found extremely helpful was this amazing interview with Michael Seibel, and I'm just gonna let some of it play.

The real product market fit. Yes. This was a good one. Not that the other ones aren't great. You're great.

You're great. You're

my best. Yeah.

Yeah. Alright. I often talk to founders who believe they 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 Marc Andreessen's on product market fit for startups. It has been the single most influential post for me as an entrepreneur and was the first and, 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 usage 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 to two. I think that a lot of founders are really excited at the prospect of company building. Uh-huh. And they think that company building is what creates success. And by company building, mean like hiring employees and having great culture and, you know, getting an office and having management and so on and so forth.

And 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% of the time it's used incorrectly.

And, like, what's so frustrating is that, like, people almost act like it's an undefined or, like, flexibly defined term. And it's, like, totally not. It's, saying that, like, oh, yeah. Like green, blue, yellow. We could call all of those orange.

Like, it's okay. Like, we'll just call them orange.

It's different for every company.

Yeah. Yeah. Exactly. It's like it's your interpretation of it. It's like, no.

It's not. It's just like that's not the case. Like, there's a defined term. Just like make up another term if you wanna mean something else.

Yeah.

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.

Right.

And, like, what's hilarious is, like, product market fit is what happens after you've built the things that customers want. It turns out the only way you know you've built something 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 wanna separate those two things out. And 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. No. And so I think the 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 fuck up. Like, it's almost like this is gonna work unless you screw it up.

Yeah.

Whereas, like, pre product market fit, there's all this stuff you need to do to even see if there can be something there Right. And you really don't know. Post product market fit, it's like if you execute, you get there. Pre product market fit, can execute great and never have anything.

And and moreover, you can still have customers. You can still have growth. Yep. If you're pre product.

Yes. Yes. Yes. Yes. It's not like when I go from zero customers to one customer, have not hit product marketing.

Like, I think the 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. Yeah.

It's like, is the growth killing you? Like, if if I were to extract what the meaning of this sentence is like, is the 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.

That is 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, oh, show me. Explain. And they're like and they're scaling negative margins.

Exactly. They're saying, hey, Craig. How about you pay 75¢ and I give you a dollar worth of value? And yeah. Craig make that trade 17 times an hour.

Yeah.

No. Easy. I love that the PV quote where it's like they figure it out before you. That you're yeah. Let's figure that.

And, well, because you're just burning VC money or your own money. Yes.

Yeah. The customer the customer is a nose for those

types of deals. It's like

because if you have the problem, like, you really understand the the the value of a solution. So what's funny to me is that, you know, oftentimes founders will wanna try to reduce this. Like the, 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? You can't pretend your way out of product market, but like it just does not work.

There's also this really good part. Founders often hold too tightly onto solutions and too loosely onto problems. The problem, I. The market, is the real opportunity. Your unique and special v one idea on how to solve that problem is usually wrong.

And only through launching, talking to customers, and iterating will you actually find a product that reaches product market fit. Founder genius is often expressed in choosing the right problem to solve. As Andreessen wrote, the market pulls product out of the startup. Then they have this analogy which is, just incredible. At Sequoia, they talk about finding customers who have their hair on fire.

As a founder, I never took the time to really understand what that meant, and I thought it was just an investor marketing saying. Now when I talk to founders, I extend the metaphor to illustrate it more clearly. If your friend was standing next to you and the hair was on fire, that fire would be the only thing they really cared about in this world. It wouldn't matter if they were hungry, just suffered a bad breakup, or were running late to a meeting. They'd prioritize putting the fire out.

And if you handed them a hose, perfect. They would put the fire out immediately and go on their way. That would be the perfect solution. If you handed them a brick, they would still grab it and try to hit themselves on the head to put out the fire. You need to find problems so dire that users are willing to try half baked v one imperfect solutions.

At YC, we encourage founders to build MVPs. In a good market, an MVP is all you need to get your initial customers in the door, interacting with you and offering the feedback that will inform your v two, v three, and v four. The advantage that small companies have over big ones is that they can move fast, deal with problems by having unusually good customer service, and their customers expect less. So to find product market fit, choose a market where users have real meaningful problems, launch quickly, and listen to your users. Once you've actually reached product market fit, congratulations.

You can begin optimizing your core product, hiring specialists to increase your efficiency, and making strategic investments. Also, you've made it further than most startups ever dream. I think this is just gold. And if you're like me, you probably have this kind of stuff a lot. But I'll tell you what we've done at LayerCode.

There's six of us, and we have now one core engineer pushing hard on the core platform where we do have customers. And then literally the entire rest of the company, the five other people, are now shipping kind of MVPs in teams of two every single week. And we're just trying to, like, validate the messaging or slight variation of the product to try to find something that really resonates where people feel where it really feels like we are solving like a hair on fire problem. And we're also talking to a lot of people building in voice to try to actually get a sense of where these are, but, you know, I think it's very hard to like, they talk here about, like, launching. Right?

Like, talking to someone, launching, and launching an MVP. And in a good market, the MVP is all you need. So I think if you kinda skip the step, it feels like the theory is not gonna work. It's like you need to we need to talk to people. We need to have some kind of hypothesis for the market, launch an MVP, and, and see how people react to it.

And if they they won that, then great. Double down. And, hopefully, that's, like, the pull. I think for for us as well, we were the way we were thinking about it is like and our reaction, and I would like to hear people's opinions on this and if you're listening. The way that we're thinking about it is we want to find the pull first before we we can't even focus necessarily on, like, product market fit because it's, like, down the road, but we at least need to find something where people give a damn about it.

So that's our goal at the moment is build, like, make layer code something that people really give a damn about. And it and that that would involve lots of launches and tweaks and stuff. Because I remember Subabase, for instance, I think no one really cared about it until it was, like, open source Firebase, and it wasn't necessarily that they changed the product. It was that suddenly that was a big problem for developers because they don't wanna get stuck locked into Firebase. And if it's open source, then they're not locked in.

And that's like a big problem. And but they didn't change the product. So it feels like, you know, our our product market we don't have product market fit, but maybe the product can be, like, repositioned or whatnot as well, which would be way easier. So we're trying that first, if we can't do that, then we will move outside of it. Yeah.

Anyway, so one more thing that my friend Elliot sent me is that product market fit is kinda changing a lot with AI. And in general, there is a, like, threshold for what people want. So, like, the brick would be like a low threshold, whereas if someone demands a hose, then that's a high threshold. But it typically evolves as the market matures, so people increase their expectations. And what this article explains is that actually AI is pushing that threshold for what people require sometimes like just exponentially through the roof where it just becomes like nothing will satisfy them anymore and your product market fit could just be completely imploded.

So you want things that will not inflect with AI and just collapse completely. So for example, like Chegg, the online homework reviewing tool, like their product market fit just collapsed because suddenly people didn't need like, AI was so good that, like, the requirement on what people would want for their homework review just was, like, so high that it's just dead, dead market. Okay. I hope you enjoyed this episode. Let me know what you think.