Why Product-Market Fit Is Not Enough
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Peppertap shutdown news sent shivers down the spines of many investors and peers. Zomato’s dramatic valuation markdown has surprised most. As a sharp contrast to 2015, hardly a day goes by when one does not hear of some startup woes. Founders of the failed or struggling startups cite various reasons for their struggles, including team mis-alignment, scaling without having organizational systems in place and targeting markets that were not big enough - resulting in high cash-burn and cumulative losses.
A common denominator to these myriad reasons seems to be our interpretation and implementation of contemporary startup methodologies.
In particular, I refer to the revered “product-market fit”, which is defined as the gauge of how well a product or service meets the market’s (read: customers’) needs. Before going any further, we must acknowledge the contribution of thought leaders like Marc Andreessen, Steve Blank, Ash Maurya and Alexander Osterwalder, who have brought serious business and customer-centricity in a tech-obsessed world of startups. I don’t think that the original proponents of the methodology meant it to be used in the narrow interpretation as is being done now.
The question for the faltering startups is not if they have found the right product-market fit. Instead, we must question if seeking a product-market fit is right for them! While product-market fit is a necessary condition for launching startups - it is not sufficient to survive and scale. Solely focusing on it to guide a startup journey is flawed because products (or, services as the case be) do not enter the market by themselves.
Beyond products - the might of an entire organization (complete with a sales engine, pricing strategy, distribution channels, marketing, logistics and customer service) is needed to introduce them in the market, and to build traction over time. Great product rarely become customers’ darlings by themselves – they need to be marketed within the context of a robust organization.So, instead of a product-centric fit, one needs to be determine how well the entire organizational machinery is geared-up to acquire customers, and to start generating revenues.
Hence, a business model-market fit may be more relevant. Even better, we should strive for an organization-revenue fit that will ensure that a value-adding product is being taken to the market through appropriate marketing, service and sales methods - which customers are comfortable paying for. In many startups, this facet of the startup maturity is unfortunately relegated to the “company building” stage; which is a late and an expensive way to pivot. This becomes even more relevant for startups with products or services with a low technology component.
As an observation of the current environment reveals, most startups are struggling not because they didn’t get the features of their product/services right, but because their organization was not setup to profitably manage and scale operations. So, instead of just products, we need to think about the context in which customers engage with the entire organization. And instead of just entering markets, let us think about staying and generating revenues.
(Observations and recommendations shared above are personal.)