Sixteen years ago, in June 2007, Marc Andreessen wrote a blog post titled “The only thing that matters.” It was the first use of the term “product/market fit” – which is what Marc declared is the only thing that matters.
These days, product/market fit is a term you hear constantly in the tech startup ecosystem. Every company is looking for product/market fit.
Except they really should be looking for market/product fit.
That may seem like a nuance, but it’s not. Product/market fit implies that you build a product, and then find a market that demands it. After nearly a decade of helping companies successfully launch radically new ideas, I’ve come to learn that startups can gain traction sooner by identifying and creating a market first, then building the product that market needs. In other words, market/product fit.
Andreessen Got It Right… Almost
Marc’s article isn’t wrong – in fact, it’s fantastically right in many ways, and perfectly describes why category design is such a powerful strategic discipline. He starts out by noting that there are three key elements to a startup: team, product and market. He goes on to break down the relative importance of each to a startup’s success.
A lot of VCs will say that the team is the key element – that a great team will figure out how to build a great product that addresses a great market. But it’s not unheard of for a great team to build a great product that can’t find a market. In the late-1990s, Dean Kamen put together a brilliant team to build breakthrough technology that became the Segway, introduced in 2001. The self-balancing scooter wowed everyone. Then it turned out there was practically no market for it, aside from mall cops and city tours. The Segway showed that a great product doesn’t necessarily create a market.
Marc’s article points out another scenario from the late -1990s, regarding personal computer operating systems – a market segment then totally dominated by Microsoft’s Windows. “Here’s the classic scenario: the world’s best software application for an operating system nobody runs. Just ask any software developer targeting the market for BeOS, Amiga, OS/2, or NeXT applications what the difference is between a great product and a big market.”
So, Marc deduces that the single most important factor in a startup’s success or failure is the market. Which is what every category designer knows. When a big and hungry market spots a product it needs, the market literally sucks the product out of the company that makes it.
“The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product,” Marc wrote. “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.”
But here’s where Marc stopped short: He didn’t suggest that there’s anything a company’s leaders can do about the market.
His article implies that the market is either there or not there, and that a company’s main job should be to build a product that will be demanded by a significant market. Hence “product/market fit” – either you build a product and search for a market that demands it, or you see a big market and build a product to satisfy it.
Develop the Market First, Then Build the Product
Market/product fit is a more proactive way of thinking about that. If the market is the single most important factor in a startup’s success, then why wouldn’t a startup begin by developing a market?
It’s absolutely possible to do. Markets don’t just exist or appear out of thin air. Someone creates them. Tesla single-handedly created a market for electric cars – before Tesla, there was no space in people’s minds for electric cars. No family had a conversation 20 years ago about whether to buy a gas or electric car. Now there is a giant market – one that every automaker can sell into.
Apple created a market for tablets – something almost no one wanted before the iPad.
White Claw created a market for hard seltzer. Now there are whole supermarket shelves for hard seltzers. They weren’t there a decade ago.
A market is, in fact, a space in people’s minds. If a company builds a product for a space that doesn’t exist, the product won’t sell. A great product might open such a space and create a great market, but it also might not – so why leave it to chance?
Category Design Creates New Markets
Category design is one way for a company to engineer a new market. The process starts with identifying an important “missing” – something the world needs, even if the world doesn’t yet know it needs it. There might not yet be a space in people’s minds for such a “missing,” but it’s possible to create that space through education, messaging, advertising and PR. Doing so requires clearly articulating the space so that target customers can see it – and demand a product that addresses it.
In short: identify the market category; engineer the category; market the category. Too few companies think that way. But the ones that do develop a market that will demand their products.
By thinking that way, something else magical happens: when a company so clearly understands and engineers a new space, it deeply understands what product to build to satisfy that space. In our experience, sometimes the right product to build turns out not to be the product the company started out building, but seeing the space makes it obvious how to change the product so it fits into a lucrative new market.
A company that does all of that achieves market/product fit. It’s an outside-in strategy – build the market, then build the product.
Again, Marc was absolutely right about the market being the key to everything. But the most savvy company leaders won’t leave the market to chance. They’ll build their own.
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