Michael Seibel, Y Combinator Partner, on knowing when you've found product market fit and when to keep looking.
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I often talk to founders who believe they’ve found product/market fit when they haven’t. This is a huge problem because they start hiring people, increasing burn, and optimizing their product before they’ve actually discovered what needs to be built.
I’m writing this post to help you understand when you’ve really found product/market fit.
To start, read Marc Andreessen’s “On product/market fit for startups”. It has been the single most influential post for me as an entrepreneur and was the first time I ever read the term.
Here’s how Andreessen defines product/market fit:
The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can.
To put this another way, you have reached product/market fit when you are overwhelmed with usage—usually to the point where you can’t even make major changes to your product because you are swamped just keeping it up and running.
Founders often try to signal they’ve reached product/market by pointing to their number of employees or a major round of funding. What I look for is a frantic founding team trying to deal with ever-growing numbers of happy, loyal, and ideally paying customers. Until then, stay lean, keep burn low, and resemble a Navy SEAL team instead of an Army battalion.
Finding product market fit = focusing on the market first
Founders often hold too tightly onto solutions and too loosely onto problems. The problem, i.e. the market, is the real opportunity. Your unique and special v1 idea on how to solve that problem is usually wrong and only through launching, talking to customers, and iterating will you actually find a product that reaches product market fit. Founder genius is most often expressed in choosing the right problem to solve. As Andreessen wrote, “the market pulls product out of the startup”.
At Sequoia, they talk about finding customers who “have their hair on fire”. As a founder, I never took the time to really understand what that meant and I thought it was just an investor marketing saying. Now, when I talk to founders I extend the metaphor to illustrate it more clearly. If your friend was standing next to you and their hair was on fire, that fire would be the only thing they really cared about in this world. It wouldn’t matter if they were hungry, just suffered a bad breakup, or were running late to a meeting—they’d prioritize putting the fire out. If you handed them a hose—the perfect product/solution—they would put the fire out immediately and go on their way. If you handed them a brick they would still grab it and try to hit themselves on the head to put out the fire. You need to find problems so dire that users are willing try half-baked, v1, imperfect solutions.
At YC, we encourage founders to build MVPs (minimum viable products). In a good market, an MVP is all you need to get your initial customers in the door, interacting with you, and offering the feedback that will inform your v2, v3, and v4. The advantage that small companies have over big ones is that they can move fast, deal with problems by having unusually good customer service, and their customers expect less. So to find product market fit, choose a market where users have a real, meaningful problem, launch quickly, and listen to your users.
Once you’ve actually reached product/market fit—congratulations—you can begin optimizing your core product, hiring specialists to increase your efficiency, and make strategic investments. Also, you’ve made it further than most startups ever dream.