The real product-market fit

One, it's intellectually convenient too. Okay. I think that a lot of founders are really excited at the prospect of company building. Uh-huh. And they think that company building is what creates success. And by company building I mean like hiring employees and having a great culture and you know, getting an office and having management and so on and so forth.

And they are not real with themselves that like the real challenge is to solve the problem. Yeah. And the company building happens for the most part after you figure out how to solve the problem, not before. I hear this term product market fit so often and I have to tell you like 98% of the time it's used incorrectly.

And like what's so frustrating is that like people almost act like it's an undefined or like flexibly defined term and it's like totally not. It's like saying that like, oh yeah, like green, blue, yellow, we could call all those orange. Yeah. Like it's okay. Like we'll just call them orange. It's different for every company. Yeah. Yeah.

Exactly. It's like it's your interpretation of it. It's like, no. Not. It's just like that's not the case. Like there's a defined term. Just like make up another term if you wanna mean something else. Yeah.

Yeah. So I think the most common way it's mistaken is like, it's weird because it sounds so close but it's not. It's I built the thing that customers want. Right. And like what's hilarious is like product market fit is what happens after you built the things that customers want.

It turns out the only way you know you've built something that customers want is because they're using it in an explosive and destructive way. And like people wanna separate these two concepts. It's like so amazing. It's like so like, you can see intellectually why it's just so much easier to be able to look at your thing and say this is what customers want. Right.

And not have to really have any customers. Oh, yeah. Totally. It's easier to say that. And so, man, people really just wanna separate those two things out and it's like if you are not getting explosive usage, you do not have what customers want. Yeah. Or there aren't that many customers in which case you don't have a big business. No.

And so I think the the awful reality is like the vast majority of founders, the vast majority of YC founders even never find product market fit ever. I'd argue that like more acquisitions than you might know are of companies that did not find product market fit. Once you find product market fit, I almost say it's like it's your company to fuck up.

Like, it's almost like this is gonna work unless you screw it up. Whereas like pre product market fit, there's all this stuff you need to do to even see if there can be something there Right. And you really don't know. Post product market fit, it's like if you execute, you get there. Pre product market fit, you can execute great and never have anything.

And and moreover, you can still have customers. You can still have growth. Yep. If you're pre product Yes. Yes. Yes. Yes. It's not like when I go from zero customers to one customer Yeah.

Have not hit product market fit. Like, I think that Mark does a good job of defining it because it's experiential. Right. I think if you try to define it any other way people would find loopholes. I mean they clearly have already found loopholes but like Yeah. Yeah. It's like is the growth killing you?

Like if if I were to extract what the meaning of this sentence is like, is the growth almost killing you? Yeah. And is it profitable? Like people always wanna forget the second one. Right? Like money is piling up in the chenke That is by definition profit. Yes. Yeah.

Like literally, there are so many companies who are like, the growth is killing us. Right. And I'm like, oh, oh, show me, explain it. And they're like, and they're scaling negative margins. Exactly. They're saying, hey Craig, how about you pay 75¢ and I give you a dollar worth of value. Yeah.

Craig, make that trade 17 times an hour. Yeah. Easy. I love that the PV quote where it's like they figure it out before you. Yeah. Figured it out. Well, because you're just burning VC money or your own money. Yes.

Yeah. The customer.

the customer is a nose for those types of deals. It's like because if you have the problem, like, really understand the the the value of the solution. So what's funny to me is that, you know, oftentimes founders will wanna try to reduce this. Like, the I get this question so often. It's like, should I optimize for growth? Should I optimize for retention? Or should I optimize for profitability?

And my answer is always the same. Yes. Like like Yeah. Yeah. What makes you think that building a successful company is a single variable problem? Like like, how could that be the case? Yeah. It's clearly not the case.

Clearly, that's the in the in the venture paradigm. Yes. Yes. Yes. For for a tech startup, yes. It's clearly not the case. Like there's clearly multiple variables here. And, you know, one of the things we try to talk to people, we we often, if you're charging your customer, we try to talk to you about revenue.

Yeah. And the reason why is that, like, in many cases like revenue that you keep is as close as we can get to a single metric, but like even that is not perfect. You really wanna know like what's your, what percentage of your revenue are you losing every month? You really wanna know, like, how much does it cost you to get that revenue?

Like, you really wanna know, like, how satisfied are your customers? Like like, you need to know those other stats to really know. And so yeah. Product market fit, like I wish more comfortable. It's like like I talk about pre product market fit as just being in the suck. It's just like you're just in the river of crap and you're not enjoying your life. Yeah.

Like and unfortunately, I think that you you every startup I almost imagine this isn't the case, but I almost imagine that there's like a predetermined amount of time you have to live there until you figure out how to get out. Yeah. And like a lot of founders just wanna cheat. And like a lot of founders just like, I wanna get out by cheating.

Like, I just wanna pretend like I'm not in here and like build a nice house. Or I just wanna like do something that's really unprofitable so I can pretend to be out of here. And it's just like, you you can't pretend your way out of product market fit. Like, it just Yeah. Does not work. You have to be comfortable.

You have to be so passionate about the people you're working with and or the problem that you're solving Mhmm. That you are comfortable failing at it for a while.

Did you guys hit it at Socialcam?

Absolutely not. So here's a perfect example. Socialcam over the course of four months got 16,000,000 downloads, got one eighth of every single person on Facebook to watch at least one video on our platform over the course of three to four months. Wouldn't that be like almost the definition of product market fit? We certainly were dying in the traffic.

We shut off like half the half the world to not couldn't use the product because we were like, we can't do it. Absolutely not. For our product one, we had no monetization. We probably could have figured out monetization but that point no monetization. Yeah. Two more importantly, we had horrible retention. Absolutely horrible retention.

Like if you came and downloaded the app the chances that you were using that app ten days later were basically zero. If you watched a video the chances that you'd watch it five more videos that week very low. And like it was interesting because it was like we had an exit. Yeah. We had tons of growth. We for a while were top five in the App Store yet not product market fit. Yeah.

I'd even argue, I mean if you look back at Justin TV, right? Justin TV by let's say February and let's think '10. So we start in 02/2006. By 02/2010, let me make sure I have those dates right. I think that's correct. Yeah. We made $8,000,000 in revenue. Mhmm.

1,000,000 in profit with approximately 30,000,000 monthly viewers on the product. And we were not at product market fit. Right. Yeah. And so it's like Yeah. The it is like it is hard like and and the reason why and and and for the Justin TV case was that we didn't have a repeatable engine to create growth. Like that 300,000,000 with the uniques, we couldn't make that number go up.

And then the second thing was that unfortunately we were we had tons of copper and content on the site. Yeah. And so it wasn't we weren't able to reliably monetize that over time. Right. And so it's like, it's funny because I can't imagine how many pitches that I gave trying to present that as a good business when like in my heart I knew it wasn't a good business. You know what I mean?

Like and like it wasn't until we actually found Twitch and found gamers did we actually find something that had this like repeatable machine that both spit out more users and more money and retention. And like what was so interesting is that like we'd solved all the technology problems at Justin TV. Oh, so well Like clearly the market does not care what you have behind the hood. No. No. No. No.

Like we had all the live video streaming chat with everything like No. Like that was I mean, let's be clear. Necessary but not sufficient. Yeah. Like we never could have done it without that stuff but it was not sufficient Yeah. At all. And like man, what that take? That took it took six years for us to have a hint that that's what the customer base was.

Right. Because then like the the suck period with Twitch as game streaming, how long did that go for before Not very long. Not very long. You know why? It was interesting. It didn't go for very long because everything else was already the table was set. You were kind of in place for the market. We had people, we had all the technology we needed, we had money because we were running profitably.

So like it was all like like all of the the table was set and then bam the food arrived. Like everyone was seated, every the table was set, bam, food arrived, the meal happened. But we were waiting at the table for like six years. Yeah, dude. Yeah. That's built the table, set the table up. We had the door open, we sent invites out, no one cared.

Because even at but like if you started Twitch in 02/2006, probably wouldn't have worked. Like You don't know. I don't think it would have worked in 02/2006. I think looking back, know, it's just silly little things matter. One of them was webcams. Yeah. Like webcams went from being something you had to buy extra Yeah. To something that were built into every laptop.

Like and it was like little things like that can change things. I think that though had we been talking to our users more, we could have gotten there sooner. Like, think we could have gotten there by, like, 02/2008, '2 thousand '9. But, you know, we.

didn't die. That was, you know Yeah. Didn't die, have another shot. That's a big takeaway. Yeah. Yeah. Which is kind of a separate thing, probably separate essay, but like learning when you should have quit maybe. Like some people do hold on to things.

Some people hold on to things. It's funny like I I see it two ways. Some people hold on to things.

On the flip side though, man, there are still some companies who like some companies take a long time. Yeah. There are some peers of ours who like now are really doing well but just took even longer than we did. And so, man, there there is a lot like if you're willing to put in the time and grind it out like Yeah. Every year you don't not die, like like your chances of being successful go up.

Yeah. And then some companies sell too early and they could have been so cool and then they die within big companies. Yeah. That happens too. People are trying to get paid. That happens too.