There’s a phrase that often gets thrown around Silicon Valley, entrepreneur meet-ups, and nowadays many online publications: Product Market Fit. Hardcore techies abbreviate it to PMF.
The essence of Product Market Fit describes a moment in time when a company’s offerings suits the demands of the end user. In other words, the 'Product Fits the Market.’ There may not be a decisive moment when this happens, as markets are ever-changing. The needs of customers naturally change over time as the world changes and as other offerings appear or disappear. The ‘job to be done’ of a product may not remain constant.
In fact, defining a market itself may not be easy! Everyone seems to have different opinions about what constitutes a market. If you take LearningLeaders for example, we may have our offerings exist in multiple markets at once: the Public Speaking and Debate Courses market, the Competition Preparation market, the after-school activities market, the enrichment education market, and so forth.
Our markets are critical for us to learn about because, as Andy Rachleff, founder of Benchmark Capital, states, “The #1 company-killer is a lack of market.” Luckily for us, we seem to have established a certain position within a market that makes sense for our offerings! The questions then remain:
Have we achieved Product Market Fit? What do we do as the market shifts around us?
While I don’t believe there is a clear cut line between ‘Before Product Market Fit’ and ‘After Product Market Fit,’ I think we are sufficiently on the right track. Demand continues to grow through word of mouth marketing. Our experiences increasingly delight and inspire our customers (I argue best measured by our retention rates - around 80%) We cannot rely solely on a few numbers to bear out the data, though. Looking at other factors, including steady top-line revenue growth each year for the last 4 years, meaningful usage (as indicated by increasing numbers of students attending competition trips), and our current Net Promoter Score, 78.
A question I received more than once was: Didn’t LearningLeaders start with the product of Public Speaking and Debate first? So how is the market the most important? I think there is great debate to be had on both sides, not to mention the founding team and eventual complete team. Luck and timing also have huge parts in success or failure of companies. Though fundamentally I do agree with others when they say that the market might be the most important variable. I feel like explaining this bit out a little bit more with examples is necessary to fully be able to introduce how companies and LearningLeaders in particular may change over time due to the shifting nature of the market.
In my mind it’s valuable to understand what you fundamentally do and don’t have control over. Ultimately, you can change the product pretty easily (though it’s inconvenient to do so). You can edit the product and evolve the product to meet the needs of the market. You can also change the people on a team pretty easily (though it might be gut-wrenching to do so). You can also train people or add people who have skills your team is missing. But it is SUPER hard to change the market! Some of the best companies in the world are the exception that make the rule (Apple, De Beers, etc. who essentially invented or grew entirely new markets).
If a perfect team with a perfect idea meets a lousy market, they’re going to walk away having not made much of a difference. Perfect execution in a terrible market still doesn’t end well. If you are selling foie gras-flavoured dog food to poodles on the Upper East Side of Manhattan and your execution is on fire, you still don’t have great upside - the market is so small. If an inexperienced team with a solid idea meets a growing and accepting market, they have much more room to make mistakes and learn on the way. The market cuts you some slack. I’d argue this was LearningLeaders in the early days, though now fortunately we’ve bolstered the team considerably with amazing people to help the journey continue onwards!
Of course, the market itself doesn’t sit still - it’s like a river that’s constantly flowing with time. Jump in at any one point and you’ll find the changes soon apparent, although from the outside it just appears like the same old river. As the saying goes, “The same man never crosses the same river twice - for the river is not the same river and the man is not the same man.”
I’m a firm believer in this idea when it comes to the majority of products and markets - one year later if a product hasn’t changed at all, it might no longer maintain the same PMF. Even something like Coca-Cola or Pepsi which strike us as unchanging - they have changed formulas over the years (product) and their markets are shifting (towards emerging economies with, sad to say, potentially less awareness of the health risks of drinking sodas or users with the ability to pay for more healthy beverages).
Larger companies often lose sight of this - they become successful because they achieve great Product Market Fit, but over time, the market slowly shifts away from their core product portfolio and they are not fast enough to adapt to it. It’s rare that another company solely creates a new product to overtake an incumbent, but more common that slight shifts in the market allow for new products to enter and thus ‘eat the lunch’ of the incumbent company. Here are two examples:
Research in Motion (RIM) was famous for making the BlackBerry phone. They were known as the best phone in regards to security, which is why many bankers and lawyers and government officials used them. Over time, the security and encryption on other phones became stronger (though still not as strong as BlackBerry). RIM also knew that the BlackBerry could dominate the ‘mobile email’ market. RIM grew considerably on the back of these two characteristics though other phones, notably the iPhone, which hit the market in 2007, had all the same features.
Ultimately, the market for mobile phones evolved from simply a ‘work tool’ to a ‘life tool.’ RIM was not positioned for this at all - perhaps best displayed by lawyers and government officials often having a BlackBerry for work and another phone for their lives outside of work. The ‘CrackBerry’ story was beginning to see cracks itself as RIM didn’t foresee the market change to a consolidation of ‘jobs to be done’ into a single device, which is what most users wanted. As the App ecosystems developed further and more and more phones and brands hit the market that allowed users a single device, RIM was now playing catch-up. A few botched designs and late-to-market entry for the BlackBerry Storm and the BlackBerry 10 couldn’t save the company, which still operates but has never re-taken market leadership position.
In summary, the market shifted from wanting ‘just a work tool,’ to wanting ‘one device for work and play.’ RIM missed the transition.
Another example is Zoom overtaking Skype as the default videoconferencing solution. Zoom (which just went public on U.S. markets last month to much fanfare) has largely displaced Microsoft’s Skype as the goto solution for F500 companies. Zoom realized, perhaps at Microsoft’s expense, that the market and go-to-market channels of companies’ IT selections is shifting. Individuals are often now the force for modernization of IT for products that those individuals use, rather than CTOs. Zoom’s strategy is to get individuals to use their product first and invite colleagues. Colleagues then invite colleagues who invite colleagues and eventually the whole company has already tried the freemium model of Zoom. It’s then easier to request to senior management to convert the company’s video conferencing solution to Zoom. While many users say, “It just works!” about Zoom and cite that the product itself is superior to Skype, in my mind the vitality of the go-to-market strategy driven by the realization that individual users are now more in charge of their work tools was the biggest driver to market adoption. Read all about it in their S-1!
In summary, the market shifted from a ‘CTO-led’ technology purchasing system to a ‘worker-led’ technology purchasing system (now commonly referred to as ‘BYOD’ or ‘Bring Your Own Device’).
All in all, while we like to think that it is our amazing selves or the amazing products or experiences we create that define the success of a company, I’m more in the camp that the amazing markets allow for all of this to happen. Focus on market first to generate strong Product Market Fit.
Lose touch with the market and watch your Product Market Fit ebb.