At this year’s TechCrunch Disrupt, we assembled an all-star panel of venture capitalists working across the entire range of startup growth and got their insights on assessing product-market fit — a perennial and evergreen challenge for entrepreneurs at all levels of experience.
Human Ventures’ Heather Hartnett, Greylock’s David Thacker, and Felicis’ Victoria Treyger all shared their perspectives on what makes for good product-market fit, how to spot it and how to use it to your best advantage for both your business’ growth and for raising capital.
What to look for before there are even any metrics
Product-market fit gets easier to assess the further along in the company development process you are; it’s a lot simpler to figure out if what you’re offering is what your users want once you actually have users. But what about before that?
Especially for first-time founders, assessing product-market fit at a stage where it’s mostly anticipation can be as much art as science, but our panelists provided some advice about how to set yourself up for success.
Hartnett:
Our view of product-market fit is at the earliest, earliest stages, really at that point, you’re looking for metrics that are not even there yet, right? You’re looking for the earliest indicators that customers even want what your messaging and value prop is, and then you have a strong hypothesis about what that value is, and you have a strong hypothesis about how you can grow that value over time. And then it’s just a lot of experiments to figure out if you can even see some of those early indicators. You know, my father used to say, “You don’t have to tell a thirsty man that he needs water.” So we always just think about “What is that thing that you’re not trying to double sell?” But it’s the single sell that people really do want.
Thacker added that while it may seem counterintuitive, it actually behooves entrepreneurs to raise as much money as possible on a concept in order to have the right resources from which to find and maximize product-market fit.
Thacker:
One piece of advice [ … ] is to raise money before you start building the product, right? Because that’s when investors are most excited about the idea and the promise, especially if you’ve had a great team and you want to raise enough money. I’ve seen some founders — as a VC, this is gonna sound self-serving me saying this — but I’ve seen some founders that raise way too little capital in their pre-seed round or their seed round. And they don’t give themselves enough time or enough runway to experiment, because I’ve rarely seen a product come out of the gate where, magically day one, there’s this amazing product-market fit [ … ]
Even the most successful tech companies today, if you look at them, it was a pretty long journey for most of them to figure out what they need to do in their product to really get it to resonate with users, and which users it would resonate with. So my advice would be: Try to raise adequate funding to give yourself some runway for that, because one of the most challenging fundraising scenarios is where you raise some money, you haven’t really proven product-market fit, and you’re trying to get us to give more capital. And that can be a tough sell to investors.
Beyond raising money to power the journey of discovery of product-market fit, Treyger talked about the pre-indicators you might be able to find that would anticipate achieving it.
Treyger:
In the early days and the ideas phase, founders lean a little bit heavier into what’s happening in the world in macro and in your industry that really makes this problem. [Find] a very significant pain point and also lean into your own experience. Consistently, our best companies are ones where the founder identified the problem, while at company X.
For example, our company Sentilink, the founders were battling fraud at a firm and they identified this new type of synthetic fraud that the bureaus couldn’t even identify because of a variety of different factors. And so before they went and built the product, they actually painted the picture of this very real and serious pain point that had developed that didn’t even exist 20 years ago. [ … ] Think from that unique vantage point that you sit: What are customers telling you? What’s missing today?
Taking the pulse of the customer
The discussion also veered toward ways to find out what your customers want, beginning with the “net promoter score” (NPS) metric favored by many looking to rank the organic growth potential of their product.
Treyger:
I think NPS is pretty consistent. Obviously, NPS matters, but so does how you measure it. NPS can be manipulated. So some companies will add a measure of how disappointed would you be if this product went away. So that’s a good measure. I personally like the data better. And the data, you can see in the data how frequently the customers are using the product, how they’re referring it, the level of expansion. So yeah, NPS is good. But I also like looking at the hard data that goes along with it.
Asked about whether to perform or commission market research with your target audience and use that to drive product design, Thacker suggested that it’s worth considering as one tool in your arsenal.
Thacker:
I think market research is a tool, as is user research. But I wouldn’t let it guide your company too much. I think it’s much better to get something out there in front of customers, see how they react [and] iterate very quickly on that. And as a startup, your speed is your ultimate advantage — move as quickly as possible. I think the best founders are guided by intuition. Sometimes that research confirms their intuition, and sometimes they ignore the research and they go with their intuition.
And then I think the other thing that’s really important is to look at where the product’s working as you start to get data from users. Double down on the places where things are really working [ … ] One example from my past career: I used to work at LinkedIn, and for the first many years of LinkedIn, there was very little user engagement; we really hadn’t found product-market fit. We got millions of people to sign up for LinkedIn accounts, we had an amazing growth team. But once they signed up, they never came back to the site.
What we noticed was, there was a very small percentage of users that were highly and actively engaged. And it turns out, on some exploration, these were recruiters, and they were using LinkedIn to find talent, because LinkedIn was an amazing resource for that. So we really doubled down on that use case, we built a tool set just for those users, and that ended up becoming LinkedIn’s largest business.
So I think as you look across your data, the product may not work for everyone. But for the customers or users it is working for, figure out why and then really double down on those use cases.
Echoing Thacker’s comments around intuition, Hartnett shared that while metrics are definitely a signal, the key ingredient for early-stage investors is intuition and conviction.
Hartnett:
We do have a metrics playbook that gives a guide to benchmarking where you could be, but it’s so much of an art and not a science. And if you as a founder have that conviction, because you have that intuition that’s being validated, that’s so much more appealing to early-stage investors, in my opinion.
So don’t hesitate to lean into that and understand what’s really going to help you gain conviction yourself, because this is what you’re going to spend the next 10 years or 20 years of your life on. So don’t try to do it just to sell it to an investor, but really do it because that’s what’s happening.
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