Author: Marc Andreessen; Source: a16z; Translation: Fat Buddha Mantou
“Most people are stuck in opportunities that can only grow linearly, but don’t lose the watermelon while picking up the sesame seeds, you should focus on achieving exponential growth.”
— Sam Altman
When we take a longer-term view of the current situation, perhaps we can better distinguish between trivial noise and focus on what is most important in the coming years.
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This content is a “relic” from 2007 by Marc Andreessen, the founder of a16z, and is still worth reading and pondering. It mentions that startups cannot do without Product Market Fit (PMF) — the match between a product and its market.
In other words, the higher the degree to which a product meets specific market needs, the easier it is to succeed. Andreessen divides PMF into two stages: Before PMF and After PMF. Before PMF, the entrepreneurial team focuses on finding PMF; After PMF, the team focuses on scaling up to meet market demand.
Based on this, beyond the scope of this content, it is worth considering whether Founder Market Fit (FMF) — the match between founders and the market — is equally important. For any super individual, finding PMF that aligns with oneself is more conducive to achieving exponential growth.
Below is the original text by Marc Andreessen:
This article mainly discusses the one important thing for startups.
First, let’s look at some theories:
If you observe thirty or forty or even more startups, excluding purely accidental successes, two obvious facts stand out:
1. The huge difference in the degree of success: some startups are extremely successful, some are very successful, some are moderately successful, and quite a few fail completely; 2. The quality and qualities of the three core elements — team, product, and market — vary greatly among each startup.
In these given startups, teams range from excellent to obviously flawed, products range from engineering masterpieces to barely usable, and markets range from thriving to sluggish.
Therefore, you start to think — what factors are most relevant to success? Team, product, or market? Or more specifically, what determines success? What is most dangerous for us, who are concerned about startup failures? Is it a bad team, an average product, or a poor market?
First, let’s clarify some concepts.
The ability of a startup team can be defined as the adaptability of the CEO, senior executives, engineers, and other key employees to the opportunities they face.
When you face a startup, ask yourself, can this team fully leverage the opportunities they face? I focus on effectiveness rather than experience because there are plenty of examples in the history of the technology industry that prove that startups formed by inexperienced people can also achieve great success.
The quality of a startup company’s product can be defined as how deeply it impresses a customer or user who actually uses it: how easy it is to use? How rich in functionality? How fast is it? How scalable is it? How complete is it? Are there many (or few) problems?
The size of the startup company’s market refers to the number of customers/users of the product and the rate at which it grows. (In this discussion, we assume that you can achieve economies of scale — that is, the cost of acquiring a customer is not higher than the revenue generated by that customer.)
Some people have objected to my classification with the following argument: “If no one wants the product, how can it be of high quality?” In other words, isn’t the quality of a product defined by its attractiveness to a large number of customers?
No, product quality and market size are completely different concepts.
Here’s a classic example: the world’s best software application is only used on an operating system that no one runs. Any software developer targeting the BeOS, Amiga, OS/2, or NeXT application markets will tell you that there is a huge difference between an outstanding product and a huge market.
So:
If you ask an entrepreneur or venture capitalist: which is more important, the team, the product, or the market? Many people will say the team. This answer is obvious, in part because in the early stages of a business, you know more about the team than about a product that has not yet been built or a market that has not yet been developed.
In addition, we have all grown up with slogans like “people are the most important asset” (at least in the United States), and the idea of valuing people runs through our culture, whether it’s self-esteem projects in high school or the Declaration of Independence emphasizing the unalienable rights to life, liberty, and the pursuit of happiness, all of which make the answer “the team is the most important” seem very correct.
And who would be willing to argue that “people are not important”?
On the other hand, if you ask engineers, many will say it’s the product. This is a product business, and startups create products that customers buy and use. Apple and Google are the most outstanding companies today because they make the best products. Without a product, there is no company. Try having an outstanding team but no product, or a booming market but a lack of products. What are you doing? Go back and focus on developing products.
Personally, I would choose the third position — I believe the market is the most important factor in the success or failure of a startup company.
Why?
In a great market — a market with a large number of potential customers — the market will pull the product out of the startup.
The market needs to be satisfied, and as long as the first viable product appears, the market will be satisfied.
This product doesn’t have to be outstanding, it just needs to be usable. In addition, the market doesn’t care if the team is excellent, as long as they can produce a viable product.
In short, customers will be lining up to buy your product; the main task is actually answering phone calls and replying to emails from everyone who wants to buy the product.
If there is a great market, the team can achieve rapid upgrades as easily as turning over one’s hand.
This is the story of search keyword advertising, internet auctions, and TCP/IP routers.
In contrast, in a bad market, even with the best product in the world and an absolutely top-notch team, you will still fail.
You will spend years and effort searching for nonexistent customers to buy your amazing product, and your excellent team will eventually become frustrated and leave, leading to the collapse of your startup.
This is the story of video conferencing, workflow software, and micro payments.
Andy Rachleff, who used to work at Benchmark Capital, summarized Rachleff’s law of entrepreneurial success for me:
The number one killer of a company is the lack of a market.
This is what Andy said:
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When a great team meets a bad market, the market wins;
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When a bad team meets a great market, the market wins;
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When a great team meets a great market, something special happens;
Of course, you can mess up a great market – this has happened and is not uncommon – but assuming the team has basic capabilities and the product is generally acceptable, a great market often equals success, while a bad market equals failure. The market is most important.
An excellent team or an outstanding product cannot save a bad market.
So the question is:
Question 1: The team is the factor that you have the most control over in the early stages of a startup. Everyone wants to have an excellent team, so what can an excellent team bring you?
It is hoped that an excellent team can bring you at least a decent product, preferably a great one.
However, I can give many examples of excellent teams completely messing up a product. It is really, really difficult to build a great product.
It is hoped that an excellent team can also bring you a great market, but I can also give many examples of outstanding teams executing extremely well in a bad market but ultimately failing. A nonexistent market doesn’t care how smart you are.
In my experience, the most common scenario is an excellent team paired with a bad product and/or a bad market. This often happens to entrepreneurs on their second or third startup, after their first company achieved tremendous success. People become too confident and then stumble. Now there is a highly anticipated, extremely successful software entrepreneur who burned about $80 million in venture capital in his latest startup, but apart from some news reports and a few test customers, there are almost no substantial results because the product he built has almost no market.
On the contrary, I can give many examples of teams that were weak but achieved great success in their startups due to the explosive growth of the market they were involved in.
Lastly, I quote Tim Shephard: “In the same market and product conditions, excellent teams always beat mediocre teams.”
Question 2: Can’t a great product create a huge new market?
Of course it can.
But that’s the best case scenario.
VMware is a recent company that accomplished this – VMware’s product profoundly changed the market from the beginning, giving rise to a new movement of operating system virtualization and ultimately creating a huge market.
Of course, in this case, the greatness of your team is not very important, as long as the team can develop the product to the basic quality level required by the market and basically push it to the market.
I’m not saying that compromising on team quality is necessary or that VMware’s team is not excellent – in fact, they are indeed outstanding. I’m just saying that if you can launch a transformative product like VMware’s, you will definitely succeed.
Other than that, I wouldn’t expect a product to create an entirely new market from scratch.
Question 3: As a founder of a startup, what should I do?
Let’s introduce the corollary of Rachleff’s Startup Success Rule:
The only thing that matters is achieving product-market fit (PMF).
Product-market fit means having a product that can meet a market demand in a good market.
When there is no product-market fit, you always feel that the value of the product is not obvious enough to customers; word-of-mouth is not spreading; user growth is slow; news coverage is somewhat “boring”; sales cycles are too long; many deals are not successfully closed.
When there is product-market fit, you can feel that customers are buying the product as fast as you can produce it, or the rate of user growth keeps up with the rate at which you add servers; customers’ money is piling up in the company’s bank account, and you are hiring sales and customer support as quickly as possible; reporters are coming to you because they have heard about your hot new product and want to interview you; you have a chance of winning the Entrepreneur of the Year Award; investment bankers are waiting at your doorstep, and so on.
Many startups fail before achieving product-market fit.
I believe that the reason they fail is because they never achieve product-market fit.
Furthermore, I believe that the lifecycle of any startup can be divided into two parts: Before Product-Market Fit (BPMF) and After Product-Market Fit (APMF).
When in the BPMF stage, the focus should be on achieving product-market fit.
Everything should be done with the goal of achieving product-market fit, including changing personnel, rewriting the product, entering different markets, saying “no” to customers when you don’t want to do something, saying “yes” to users when you don’t want to do something, raising highly dilutive venture capital in the fourth round – do whatever it takes.
When you focus on product-market fit, almost everything else can be ignored.
I’m not saying you should ignore everything else, but based on what I’ve seen in successful startups, I would advise you to do so.
Every successful startup is a company that has achieved product-market fit. In the process, they may mess up various things such as channel models, sales channel development strategies, marketing plans, media relations, compensation policies, and the relationship between the CEO and venture capitalists, but they still succeed.
On the other hand, you will see some startups that are managed very well in all aspects of operations. They have excellent human resources policies, outstanding sales models, meticulous market plans, and perfect interview processes. They provide excellent catering services and 30-inch monitors for all programmers. Their board of directors consists of top venture capitalists. However, they go straight to the cliff because they have never achieved product-market fit.
Ironically, once a startup succeeds, when you ask the founders what made it successful, they usually list various unrelated factors. It’s difficult for people to understand causality. But the actual reason in almost every case is achieving product-market fit.
Honestly, what other possibilities are there?
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