Behind the Grind: Lessons from a Product Leader, Episode 5 – Does the Product Even Matter?
June 7, 2022
Estimated Reading Time: 5 minutes
If you believe that every great product company begins with a fantastic, category-defining, world-changing idea for a revolutionary experience or value proposition that will change the world if executed, you’d be mistaken.
Zoom into that early phase and what you’ll notice about most startups is they’re still searching for the elusive Product-Market Fit (PMF) – the literal Holy Grail of 0->1 product development – and while doing so, they usually only have a finite amount of things at their disposal:
- A team that is grinding all day, every day
- Some cash in the bank, maybe
- Gut instinct as to where it may exist
- Some anecdotal evidence and some data pointing in its general direction, assuming it exists
- Their unwavering conviction that it exists and that they’ll find it
So, how much does the actual product even matter in the pre-PMF phase of a startup?
The answer I’ve come to believe is that while the market is critical to understand, the product is merely an implementation detail at this stage in the product lifecycle.
The product does not matter. Yet.
Let’s take a trip back to Episode 1 of this series and recall the primary goal of a Startup: to find Product-Market Fit. Heading over at Episode 2, we demonstrated that the best startups apply rigorous, high-velocity experimentation and “The Scientific Method” to most efficiently identify where PMF may exist. Combining these concepts, we see that the “product” at this pre-PMF stage is mostly a converter, transforming the inputs of insights, work, money, and time into the output of bankable, actionable insights about the actual product experience that can scale to impact your target market. Not to mention lead to asymmetrically positive outcomes for the founders and early team members in the process.
Viewing the product as a vehicle, how do we know if the company building the product will go anywhere exciting or lucrative? This is the $64 million question for the early-stage investor community – those investors who typically put the first check into a startup with barely more than a name and some people referring to themselves as “Founders.”
When deciding whether to make a bet on an early-stage team as one of their first investors, this is the equation that goes through my head:
80% is the team exciting + 20% is the market exciting > 95% the opportunity I see
In Episode 3, we covered exactly what makes an amazing startup team, so I won’t spend too much time on that here.
But, what about the 20% on the market? For that, let’s dive in.
Markets Are Initially More Important Than Products
Mission, strategy, and approach to experimentation: a good startup should have no challenge articulating these at any given point in time, even in the pre-PMF phase of its journey (see Episode 4 for more on how to actually do this). The mission is, by definition, in service to some set of people in the world, which we often colloquially reference as “the market.”
- How big is it?
- How penetrable is it?
- How much value can be created for it?
These are what matters most about the market, and as a friend and expert marketer once told me, “You can’t deliver a ten times better experience in a market you don’t understand, and those are the only experiences that actually end up mattering long-term.”
The work required to achieve PMF is to understand and deliver for your market in ways others have not unlocked. And it will likely take multiple product strategies and loads of experimentation to find the product experience that unlocks this magic. In pre-PMF, your investments should be geared toward gaining a comprehensive and nuanced understanding of your market quickly and efficiently.
How big is it?
This is usually described as the TAM or Total Addressable Market in startup pitch decks. This is just an unnecessarily complex way of saying, “if we can find the right product experience for our mission, how big can it actually get?” While the starting market size is essential to understand because it forces you to define your target audience, it’s mostly there to make sure that you’re aiming to do something significant and not something that will affect “50.234 million people” (it’s laughable to assume you can even assess this at this point). I use the TAM to indicate how focused the team is on a specific market and whether that market is big enough to be worth all of our collective time and effort, and that’s about it.
It’s also important to recognize that many startups invent TAMs that have never existed before (we tend to call these “category-defining companies”). Recently, the new CEO of Peloton, Barry McCarthy, had this to say about Peloton’s TAM in an interview with the NY Times:
Q: Lots of analysts have said that everyone who pants a Peloton already bought one. How big is the TAM, or the total addressable market?
A: You can’t possibly know what the TAM is. You’re in the middle of inventing the TAM.
Personally, I never look at the math on a TAM slide; I just try to understand the most basic interpretation of how big this can be (“all developers in the world,” “all restaurants in the US,” “all golf fans in North America”) and decide whether that’s a big enough to take a bet on.
How penetrable is it?
All markets are entrenched to some degree – either through very strong product inertia, having an aversion or even distrust of new technology, regulatory capture, etc. – so it’s imperative to think through not just how big a market is but how you will access it. Unfortunately, I find this to be one of the most significant gaps in early-stage product thinking: for every overdeveloped product, there’s an underdeveloped thought on distribution. And remember, product and distribution are two sides of the same coin – you can’t have one without the other, and importantly, you can’t achieve PMF without both coming together.
How much value can be created for it?
The third prong in a solid market analysis for an early-stage product is about the delta in value you can offer IF you find that magic, difference-making product experience. If we know it’s a big enough market, and we know we can access it, then we also need to know that what we can do for it is meaningful enough to change behaviour, improve lives, and overall make things better for our users.
Bringing It All Together
At the earliest stages of a 0->1 product, you can’t see much, but you can see whether you have the right team and if they’re going after the right market for them and one that sorely needs an injection of product innovation stat. This requires us to zoom out from the specific product experience in-market today and to look at the broader mission and strategy for which that product may or may not be the right one.
Next time, we’ll cover how to bring together everything we’ve covered in Episodes 1-5 so far so you can start to sell your vision to the world.
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