The Elements of Product Market Fit

By: Sean Maier, Senior Associate, WestRiver Group

“In a world of constant change, fundamentals are more important than ever."

- Jim Collins, Author

This is the second of a three installment education series by WestRiver Senior Associate Sean Maier.

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The previous installment of this series stated the importance of grounding oneself in the first principles of building a strong business. Amidst the palpable excitement radiating from the red-hot pace of AI innovation and investment, it would seem appropriate to expound on arguably the single most important principle and goal of any early-stage venture—finding product market fit.

Finding this is no easy feat and describing what exactly it is for some evokes a response akin to supreme court justice Potter Stewart on his test for obscenity: “I know it when I see it”. Fortunately for all of us, there’s Andy Rachleff, co-founder of Benchmark and co-founder and former CEO of Wealthfront, who pretty much wrote the book on understanding product market fit. Andy poses a simple question for entrepreneurs trying find product fit market fit to answer: “what do you uniquely do that people are desperate for?”.

Within this question are two of the core elements of product market fit: desperate customers and unique solutions. However, there is a third element that I believe is important and goes hand in hand with the other two: exceptional teams. Specifically, the onus is on the individuals sitting in the control room of the business to make the right decisions and establish product market fit or perish. While an exceptional team alone cannot guarantee a startup finds its product market fit, they will certainly be better equipped to navigate the journey.

These three elements are timeless and almost always at the center of any successful venture. If we combine some of Andy’s timeless wisdom with a bit of my own thinking, we can look more holistically on what these three elements truly mean - or don’t mean.

Desperate Customers…

• May not be a sexy, referenceable brand

• Are probably already spending money trying to solve the problem

• Are less likely to care that the solution isn’t perfect or comes from a startup

• Incredulously ask “where has this [solution] been all my life?”

• Don’t say maybe we’ll buy or don’t have the budget

• Don’t say we’d buy if it had feature XYZ

• Are willing to pay a lot of money for a solution

• Will use the solution whenever the problem arises, and may even use it for other problems

• Will throw a tantrum if you take away the solution

• Will self-catalyze organic user growth if you solve their problem

Unique solutions…

• Aren’t an incremental improvement on the status-quo

• Are often hard to build, replicate, and replace

• Are often a byproduct of significant change (IE technological advancement, regulation, etc.)

• Aren’t in search of a problem, they are aligned with a particular job to be done

• Are elegant and economical

• Satisfy and convert desperate customers into fans, ideally raving ones

• Have a highly durable moat that enables a “competitive advantage period”

Exceptional teams…

• Have a unique insight, the ability to exploit that insight, and know why now is the right time

• Deeply understand their customer’s job(s) to be done, its context, and alternative solutions

• Are focused, determined, hungry, adaptable, ambitious, inventive/first principles thinkers, persuasive, low-ego, high-character, long-term oriented, and wise capital allocators

• Understand the power of incentives

• Execute— because a vision without execution is just hallucination

• Embrace reality and seek ground truth

• Simplify everything

• Play to win

If an exceptional team is fortunate enough to build a unique solution (what) and find desperate customers (who), then there needs to be a viable business model (how). Except for the fabled Costco hotdog, you don’t sell your product below cost. This should go without saying, but many startups and their investors have fooled themselves into thinking it doesn’t matter. As Feynmen famously said “the first principle is not to fool yourself – and you are the easiest person to fool”.

If a startup’s product doesn’t make money, then it doesn’t have product market fit. If it does, then, and only then should it invest in efficient growth.