Startup-Market Fit (SMF)

Startup-Market Fit (SMF)
By: Salem Washeely
Product-market fit is a concept that introduces the startup into its first step to success and growth. It is as defined by Marc Andreessen “Product/market fit means being in a good market with a product that can satisfy that market.”(1)
This concept solidified the importance of creating a product that satisfies a need for the customers and solve a pain that otherwise would continue to exist. Product-market fit became a corner stone of any startup pitch in order to convince a potential investor. There are many articles written on further details of this concept like this one by Tren Griffin where he elaborated more on it and clarified different misconceptions around it.
Although product market fit explained how startup can realize success early on, but I believe it only covers the period until the startup kicks off and start growing. However, in my opinion it fails to predict what is going to be the outcome after the initial fit. It might be intended to do so in the beginning, but I see it in times used as a sole measure to predict success of an investment over a long holding period.
CBinsights published a research on 232 Startup Failure Post-Mortems and laid off different reasons for each one from the opinion of stakeholders, users, management, …, etc. If you look into those different failure cases, most of them have been through several funding rounds in their lifetime and passed through the product-market fit validation stage.
There is a story here written by Ziad Ismail (CPO @ Convoy) on startups failing after the product market fit and the concept of these startups commonly have product-economic misfit. He gave an example of Groupon where its market cap fell from $12.7B at IPO to $2.3B now (a drop of 5.6x in 6 years).
Alfred Lin (Partner @ Sequoia) mentioned in the video below “in min. 17.00” introduced another concept of founder-market fit where founders need to have the passion and the vision in addition to the willpower to pursue this vision.
https://www.youtube.com/watch?v=sp-PZTC1ghg
All these concepts go beyond on what startups need to succeed besides product-market fit. The concept I am introducing here mainly serves as aggregating criterions already mentioned plus ones I am adding to come up with what investors look for in a startups to invest in. This blog is not written to criticize the concept of PMF at all, but rather aggregate other success factors with it to come up with a concept paints a picture of a successful startup for the long run.
The chart below explains to entrepreneurs as well as early stage investors the concept of startup-market fit and how it is necessary to realize required returns in a shorter period of time by investing in startups that master it from inception rather than relying mainly on product market fit alone and later in its life think about other aspects of taking the startup to further growth & success. Although it means more efforts on entrepreneurs and could be a distraction from focusing on launching the product, but it definitely will save double or triple the effort to do it later.

Startup-Market Fit “SMF” to me is where a startup manages to stick in a market and for long. It succeeds in grasping a considerable market share and maintain it for long through magnificent product/service. Building in the startups how to logically predict any move in the market and how to benefit from it/fight it is the high level overview of SMF. Any startup, in my opinion, has to to be equipped with two main characteristics in order to have the right market fit:
• An entrepreneur with
o The right sense, assessment & judgment of the problem they are solving. That does not necessarily has to come with a past professional experience in the same field but rather has to come from living the pain of the existing problem and being aware of its causes and all stakeholders involved in it.
o Drawing a realistic vision and roadmap to realize this vision for the startup. The startup has to live this vision and plan every day and implement it in every action it does. The execution mechanism might change and worse the the startup might need to pivot and come up with a new product, but the vision has to be the one driving it. Part of the roadmap has to be around economics. Startups by definition are businesses but in for a different mission than traditional businesses. Businesses exists to make profit and maximize financial benefits to owners. If we all agree on that, it means that startups eventually need to abide by economical rules and the economics of startups have to make sense. Although startups are there to disrupt industries or sectors or markets but they are still businesses. The right business model for win-win situation for startup & customers is a key component of the roadmap too.
o Having or building the right skills needed to execute this vision including sales, technical and other necessary skills for the vision realization. Some skills might be “outsourceable” but strengthening all activities within the value chain is a key thing to close any loophole and eventually fail to realize the vision.
• A product that is
o Built to serve a market that is there as long as anyone can imagine. The market has to absorb the product in a way that it can not go back to the old systems or products.
o Introduced in the right time where the market is ready to shift and necessary infrastructure for this shift is there. Once timing has been perfected, ecosystem will start to form around the provided product which creates further growth and market penetration.
The combination of a fully equipped entrepreneur with the right product both serving the fit market will absolutely make an everlasting impact. A startups with this SMF will stand against any competition in the future where competitors go for the low hanging fruit (and tendency of copycats to appear after product market fit is visible) while it continues its road to satisfying its vision.