Product/ market fit
The story of Peter Reinhardt, the chairman of Segment startup, shows very well how to look for a product that just sells itself.
Today, Segment employs 150 people, but the beginning wasn’t so easy. It started out with 4 founders who were looking for their business idea.
They had heads full of great visions. But the market brutally verifies ideas – it only matters what customers like. They always have the last word.
This entry is about so called “product/market fit”. Speaking more clearly, it means finding a product which “fits’ the market. It comes across customers’ needs and just sells itself.
Statistics show that about 80% of startups aren’t able to find the products that would be well-received by the market. <Four out of five ideas turn out to be missed. This doesn’t mean that those startups didn’t find a certain problem that could be solved. Of course they find lots of them. But as it turns out, nobody really cares about those.
What’s interesting, founders of companies that didn’t manage to create a proper product at their first time, don’t really find it easier the second time. After first failure, chances are not much higher later – only about 34%.
It can be emotionally hard. Taking responsibility for a startup and facing the hard truth that the idea “doesn’t catch on” can be knackering. After his first failures, Peter Reinhardt went to the hospital 2 times because of panic attacks. By the by, he even lost on weight.
Why? A few months after the investors had invested 600 thousand dollars in their early ideas, the team already spent 500 thousand dollars from the amount and then realized nobody wanted to buy their product. The feeling of disappointing someone’s hopes can be really hard to handle.
A tremendous pressure appears – what’s that thing that will sell? How to find it? What will people buy? Our mind tends to play tricks on us then, on one hand creating visions of products that would conquer the world, and on the other hand creating bad scenarios with everything already invented and nothing new to think of.
The story of Peter Reinhardt and his team started in 2011. They wanted to create a product for the education market.
They noticed, that during lectures, students often didn’t really understand what the professor was saying. They came up with the idea to create a program that would enable students to push a button any time during the lecture. Doing so would mean that the student didn’t understand something at some moment. The program saved the tenor of a lecture and later showed a professor the moments when students marked the content as unclear.
Tests were carried out at Rhode Island School of Design. They convinced a few professors to use the tool during their lectures. It was quite elaborate – several hundred thousand lines of code with the possibility to comment, insert notes and many more.
Does the fact that a few professors agreed to use the tool mean that they reached their “product/market fit”?
Well, the professors didn’t really want to use it. It’s hard to say what those who agreed had in mind, but they didn’t look very happy to find out that such tool existed.
The situation was even worse when you looked at the students’ reactions. Instead of using their tools, they were doing this:
Nobody was really interested in the lecture, much less using their program.
Then they have completely changed their course of action. Instead of creating a product at first, and then selling it, they decided to develop their second product with the help of potential customers.
They decided to create a product for business, an analytical tool for companies, like Google Analytics or Mixpanel.
They started meeting various companies and asking them what they needed. People were willingly fixing appointments, in order to speak about the tools that they were using and the things that they lacked.
Having one failure to their name, they thought that any kind of interest coming from their clients was their “product/market fit”. People finally wanted to meet them and talk with them.
The whole team started to believe that was it. If they add X and Y to their product, they will strike a gold. They will reach their goals in a short time from now.
In December, 2012, they realized that something was not right. Their product wasn’t selling. After spending 500 thousand dollars it turned out, that it had to be thrown out to the bin.
Those companies were already using tools like Mixpanel and Google Analytics and weren’t interested in implementing other solutions – even if they could have new, useful features.
At that moment, Peter Reinhardt’s friend recalled about a small program that they had created a year before. They then understood that Mixpanel or Google Analytics looked different and did different things, but they were working on the same data. They decided to write a program that would automatically send all information to every tool of that kind, giving results from which only those interesting for the client could be chosen. They created a data integrator.
The program had like 580 lines of code, was written in one day, and was shared for free on the Internet by Peter Reinhardt’s team. They decided that they could use it for conversations with other companies. They knew that clients didn’t want another analytical tool. They started mentioning that small program which enabled people to send data to various, already-existing tools in order to get interesting results.
It turned out that everybody loved it.
Suddenly everything changed.
Half million dollars and thousands of lines of code appeared useless beside a program written in one day. Until then, they were convincing their clients that their analytical tool was great and that it was hard to live without it. After that change, the clients were coming to them with requests to add another integration, even telling them what was still needed.
They figured it out. Product/market fit isn’t simply other people’s attention. “Ok, nice idea, I like it”. No, product/market fit is “Wait, wait – what did you say? Are you able to do it? I want it today!”.
They created a website where they informed other people about their product. Lots of them signed up, praising those pieces of integration that they had already done, writing that they needed another ten – even for the next day.
Simple attention turned into desire. The founders of Dropbox compare this moment to stepping on a land mine – you can’t miss it.
This is how a new era of Segment’s development started. In October, 2015, they got 27 million dollars from investors for further development.
Their great visions about how analytics should look like appeared useless. The market quickly verifies such ideas.
People liked a small program which was originally 580 lines long, and eventually brought millions of dollars of revenue.
How to do it yourself? Most often, you won’t be able to create such product in your home or office. You have to go out, talk, analyze, seek problems. Real problems, that people aren’t able to handle. Something that people would think about “Wow, you are able to do it? I want it”.
When business is just starting, it’s important to listen to your customers telling you about their problems rather than telling them about your product. They are the most important people because those are their problems that we want to solve. It’s not easy to accept the fact that what we created won’t sell. But if it’s going to happen, let it happen as fast as possible. And by the way, it’s really good to hear from the client what we should focus on.