There are a lot of good discussions on the importance of and the path to product-market fit. What gets drowned amid all the focus on product-market fit is what happens after product-market fit, once you achieve the coveted product-market fit. Because getting to product-market fit does not suspend all your challenges afterward. Rather it is just the beginning.
The real challenges of building a company begin after product-market fit. Now you need to find a path to scale, get to more customers, build a distribution channel, and so on. This is where many startups lose their way. Instead of defining their most important priorities, they get distracted.
Once you see after months or years of hard work that you have product/market fit, it can make you especially buoyant and mislead you. You can think that since you now have the product/market fit, your business will grow itself and you can operate with relative freedom to try multiple things. This mentality usually results in prior mentioned distractions. Companies try new products, and new ideas without a solid strategic direction and get complacent.
In an interview with Elad Gil, featured in his excellent book High Growth Handbook, Marc Andreessen, cofounder and general partner of the venture capital firm Andreessen Horowitz, offers an excellent insight into setting priorities for startups post product/market fit stage.
He points out two priorities for a company that has reached product-market fit:
Once you have the product-market fit, your job is to design strategies, models, and distribution to win market share. Many startups get distracted once they reach product-market fit. Many founders mistakenly take product-market fit as the key challenge. But it rarely is.
The main challenge begins after you achieve product-market fit. You now have to win market share before the competition comes in. Because once a product works in a market, it inevitably attracts more competition. Winning the market is important not only for ensuring the success of your product but also for getting resources to invest in future products. But winning market share is not easy. Mr. Andreessen explains in High Growth Handbook:
“Once there’s product/market fit, then the main thing becomes taking the market—which is to say, figuring out how to get the product to the entire market, how to get a dominant market share; because most tech markets tend to end up with one company with most of the market share. And that company tends to be all the value that gets created in that sector, from a return standpoint. That company also tends to have all the resources to do everything else that they want to do, including build new products.
So winning the market is the big thing. The thing that is so essential that people need to understand is that the world is a really big place. The good news is that markets are bigger than ever. There are more consumers on the internet than ever before. There are more businesses that use software than ever before. There are more sectors of the economy where this stuff all matters. And so the markets are bigger than before.
But that means that the challenge of building an organization, a model, and a distribution capability that can actually get the product to all the customers is an intense challenge. And of course the personality type of the technical founder who creates a breakthrough product, they don’t necessarily intuitively understand that the next part involves taking down the market.
That’s number one.”
The second priority comes once you have built a dominant position in the market with your first product and according to Mr. Andreessen it is to create a new product.
The logic is clear. Once you scale your first product to a market-dominant position, you’ll reach a point where there will not be much room for growth. To that end, in order to continue your growth momentum, you will need to find another product. Moreover, if you are not innovating constantly, your chance of getting displaced by competition is always real. Tech is a market that is in constant flux. New products go out of the market as fast as they come. So getting to the next product is critical.
The second aspect of this is that once you reach a dominant market position, you’ll have the resources to invest in a new product. As Mr. Andreessen puts it: “That company also tends to have all the resources to do everything else that they want to do, including building new products.”
Moreover, once you scale a product you develop critical market understanding and knowledge about how distribution, model, and other aspects of the operation work. In some cases, you can use the same distribution model and channels to distribute your next product. Many successful tech companies have used distribution power to create a competitive advantage in the market. So the next priority should be getting to the next product. Mr. Andreessen explains:
“Number two is getting to the next product. We are in a product cycle business. Which is to say that every product in tech becomes obsolete, and they become obsolete pretty quickly. If all you do is take your current product to market and win the market, and you don’t do anything else—if you don’t keep innovating—your product will go stale. And somebody will come out with a better product and displace you. So you do need to get to the next product.”
But getting to the next product is not simple. Mr. Andreessen puts it this way:
“Of course that’s a punishingly hard thing to do. It was hard enough to get to the first one, and to come up with the second one is often even harder.”
But he then offers hope and two potential way out. One, since you have a dominant market share, you have resources to invest and you should invest more in R&D. The second option is M&A. Mr. Andreessen goes on:
“Although the consistency between these two tasks is this: If you do take the market, you tend to have the financial resources to be able to invest heavily in R&D. And you also develop M&A currency, so you can then go buy the second product if you have to. It gives you another option to get to the second product.”
High Growth Handbook: Scaling Startups from 10 to 10,000 People by Elad Gil is an excellent read in its entirety. While there are a lot of good books on how to get started as an entrepreneur, high-quality books on operation, growth, and management are relatively rare. To that end, High Growth Handbook is a pure gem. In this article, I used just a small part of one interview from the book. The book offers a ton of unique and practical insights into operations and growth. Highly recommended.
Originally published on 7 August 2022. Updated on 22 March 2023.