We all know that if you produce the wrong product or service, your startup will quickly become a burnout. But how does one achieve product-market fit? The current viewpoint is iterative hypothesis testing. I agree and unabashedly disagree. In iterative hypothesis testing, you lay out all your assumptions, go out and (in)validate your assumption, tweak your assumptions, and try again. After some number of iterations, voilà you have iterated yourself into the perfect product for your market. In theory this works great. In practice 90% of funded startups fail.
Perhaps I’m an idiot, but I’d like to think that we could do better than 90% failure rate. I’m not suggesting a whole new paradigm. In fact I’m recommending a minor tweak (or iterative change) to the existing models.
A few decades ago most entrepreneurs hadn’t heard of lean startup or iterative hypothesis testing. Today, most startups (those that succeed and those that fail) adhere exclusively to this new paradigm. Iterative hypothesis testing follows an old evolutionary principal of optimization. The more rapidly a species (or product) goes through generations with mutation, the more suited that species will be to its environment – or market. Because the product that is best suited for its market wins, the lean startup wins out over the old-school method.
The old-school mentality was to predict the winning horse and make a series of bets contingent upon continued success. The team would set a series of targets, or stage gates, that the entrepreneur would have to reach before they could go onto the next target. If you accomplish task A, you can attempt task B. I’m not saying we should go back to “the good old days” because they were worse. I’m suggesting we should blend the old with the new to iterate more quickly towards product-market fit.
The Eject Button
The iterative hypothesis-testing model is awesomely efficient at helping entrepreneurs go from okay to better, or better to kick ass, or from kick ass to OMFG! Unfortunately, iterative hypothesis testing lacks an eject button. Ninety percent of all funded startups spin out and die a painful, costly death because they don’t know where the eject button is. Even experienced entrepreneurs regularly fail this way.
For most of the failed ninety percent, the signs of product-market misfit were there early on. Someone should have hit the eject button before burning through years of sweat and cash. The problem is that most entrepreneurs are told that perseverance and iteration will win out in the end. Just keep iterating, right? Wrong! Perseverance wins one in ten times. In that one in ten instance, perseverance is absolutely critical to evolving your product from an ugly duckling to a swan. In nine out of ten instances, perseverance wastes everyone’s time, money and mental health. In nine out of ten products, the ugly goes extinct. In nine out of ten instances, iteration alone doesn’t work.
Learn from Investors
Let’s take a few lessons from investors. Good investors never put their eggs in the first basket they see. They look at a large deal flow and pick the opportunities they just can’t say, “No” to. So why is it that good entrepreneurs invest five years or a decade on the first duckling they see? It’s insane. Entrepreneurs should capture as much deal flow as investors. Work on a hundred different business concepts in a hundred days (a stage gate) before you ever consider launching your next venture. Then start iterating the one concept with the best product-market fit right out of the gate.
There are several advantages to this tweaked iterative model. First, after considering a hundred products, you might have a better basis for judging your next product. If you choose the right concept, you’ll be able to launch your startup with less pivoting. Spending a few months up front could save you years of floundering/pivoting with an ugly duckling. Third, you can go to angel investors and say, “I considered one hundred products and chose the most powerful one to build an awesome startup around.” To me, that is a powerful message.
This theory is well founded. Go find any expert in optimization and ask them if you are more or less likely to converge on the absolute best-fit solution if you begin from one or multiple different starting points. Let’s use an evolutionary analogy to explain why it works. If you want a bird to catch mice (the opportunity), you could start with a duck (your product) and iterate generation after generation to breed the African crowned eagle (the most effective killer). Alternatively, you could try a hundred birds and find that the Golden eagle is already an awesome predator. Within only a few generations, you could breed the best-suited bird for slaying mice.
Let’s get back to reality – most of us aren’t interested in slaying mice. I’m suggesting we iterate the lean model, not replace it. Under every circumstance, you’ll want to follow the lean model. You should use hypothesis testing and agile processes to evolve your product to fit the market. It just works better than anything else. But given that you only have so much time, money and fortitude, why not start with the product that already fits best? Why start from a position of weakness? Why not set up your product for success.
- 3 tips for achieving product-market fit quickly: Understand your customers current needs and foresee future ones, Focus on one significant value proposition, and Build Credibility. –Will Caldwell via the Entrepreneur
- “You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.”-Eric Jorgensen
- In the best of both worlds, “A common goal of both lean product development and effective Stage-Gate management is to kill weak projects and to divert resources to stronger projects which maximize the value of the innovation pipeline.” –Gerard Ryan
Author: Jesse Lawrence
Founder and CEO of @Boulder_Bits also a Sci-fi lover, game theory strategist, and idea generator