2 September 2019
"If we can raise the general understanding of Product-Market Fit we’d succeed in lowering the startup failure rate."
“I often hear the term Product-Market Fit, and 98% of the time it’s used incorrectly” Michael Seibel, Co-founder of Twitch and CEO of Y Combinator.
Through freely available podcasts anyone can listen to thought leader conversations from the heart of Silicon Valley. There is a lot of wisdom for founders (and investors) to be found in these conversations, and the above quote is a great example.
Myths and misconceptions left unchecked ultimately contribute to startup failure rates. The myths and misunderstandings surrounding Product-Market Fit are particularly critical to address because Product-Market Fit is a key goal for virtually every startup. Without reaching Product-Market Fit you’re unlikely to have a business worth growing, at least not from the standpoint of a savvy startup investor.
Product-Market Fit is the combination of a very well-defined market and a very well-designed product that “fits” the market and facilitates a hyper growth business. As Alex Osterwalder has said, “Simply having a product that customers love and are buying isn’t enough”. Simply investing in better sales and marketing for a product that customers love and are buying isn’t enough. It typically requires ongoing customer experience design changes, and an ongoing redefinition of your target customers.
According to respected Venture Capitalist Tomasz Tunguz, in 2018 the median US Series A SaaS startup had an ARR of $1.8m with a 230% annual growth rate. That’s a high bar. According to CB insights, only 46% of companies that raise seed investment will go on to raise Series A. One reason for the high failure rate at this point in the startup pipeline is lack of focus on achieving true Product-Market Fit which is Michael Seibel’s point.
If we can raise the general understanding of Product-Market Fit we’d succeed in lowering the startup failure rate.
If you want a better understanding the definition of Product-Market Fit, read Marc Andreessen’s Post “On product Market Fit”.
Author Kirk Drage is an Entrepreneur in Residence at the Innovation & Collaboration Centre.
