The root cause of the failure are misconceptions about product market adjustment
Hi, I'm Ann.
I was one of the first investors in Lyft, Refinery29 and Xamarin. I've been on the Midas list for three years and was recently added to the New York Times' top 20 venture capitalists. In 2008, I co-founded Floodgate, one of the first seed-stage VC funds in Silicon Valley. Unlike most funds, we only invest in seeds. This makes us experts when it comes to finding a suitable product market and building a company with minimal profitability. Seed is fundamentally different from later stages, so we've made it more than a specialty: it's everything we do. Each of our partners sees thousands of companies each year before deciding to invest only in the top 3 or 4.
I have invested in the early stages of startups over the past 11 years. We saw how startups went right (Lyft, Refinery29, Twitch, Xamarin) and wrong. When I think about the failures, the cause is inevitably wrong ideas about the type of product market adjustment.
True Product-Market-Fit is a company that is at least viable
Before you try to scale your product with minimal viability, you should focus on cultivating your business with minimal viability, Make your value proposition clear, find your place in the broader ecosystem and develop a business model that pays off. In other words, real product-market fit is actually the magic moment when three elements click together:
To build a company with minimal profitability, these three elements must work together:
- People have to appreciate your product so that they are ready to pay for it. This value also determines how you pack your product into the world (freemium versus free to pay versus enterprise sales).
- Your business model and pricing must fit your ecosystem. You also need to generate enough sales volume and revenue to keep your business going.
- The value of your product must meet the requirements of the ecosystem and the ecosystem must accept your product.
Many entrepreneurs understand product marketability as the point at which a subset of customers love the properties of their product. This conceptualization is dangerous. Many failed companies have features that customers loved. Some even have several popular features! Great features make up only half a third of the entire puzzle. To create a company with a minimum of viability, a company needs all three elements: value proposition. business model and ecosystem – work in concert.
So founders pay attention to …
If you switch to “growth mode” while missing one of these elements, your company is on an unsafe foundation.
Founders who elaborate the latest tweet cycle on “The Secrets of Boosting A Series” and instead focus on the intricacies of their own business will find that adapting to the product market is a predictable and achievable phenomenon. On the other hand, founders who focus on growth ahead of time without knowing the basic ingredients of their viable business often lead to an addictive and destructive cycle around the wrong growth of their business and do not acquire optimal users who contribute to the destruction of their business.
Read an expanded version of this article about Extra Crunch.