- The author discusses the concept of product market fit and how many founders mistakenly believe they have achieved it when they haven't.
- Product market fit is defined as when customers are buying the product or using it at a fast rate, and money is accumulating in the company's account.
- Many founders confuse product market fit with building a successful company, but they are separate concepts.
- The author argues that the majority of founders, even those in YC, never find product market fit.
- Once product market fit is achieved, the company is more likely to succeed if it executes well.
- Optimizing for growth, retention, and profitability are all important factors in building a successful company.
- Revenue is a key metric to consider, but it is not the only one.
- Pre-product market fit is described as being in a difficult stage, and founders should be comfortable with failure during this time.
- The author provides examples of companies that had significant growth but still did not have product market fit.
- Having a repeatable engine for growth and the ability to monetize effectively are important factors in achieving product market fit.

- Twitch was the breakthrough for the company, providing more users, money, and retention
- The technology problems were solved at Justin.TV, but it was not sufficient for success
- It took 6 years to realize that Twitch was what the customer base wanted
- The success of Twitch came quickly because everything else was already in place
- Silly little things like webcams being built into laptops made a difference
- If they had talked to their users more, they could have reached success sooner
- Learning when to quit is important, but some companies take a long time to succeed
- Putting in the time and grinding it out can lead to success

Michael Seibel is a partner and the CEO of YC. He cofounded Justin.tv, which was in the winter 2007 batch and Socialcam, which was in the winter 2012 batch. https://twitter.com/mwseibel

In this video Michael comments on his essay The Real Product Market Fit https://blog.ycombinator.com/the-real-product-market-fit/

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

***

Topics

00:00 - The Real Product Market Fit 

1:00 - Why do many founders think they have product market fit when they don’t?

5:45 - Building a successful company is not a single variable problem

7:30 - Socialcam didn’t hit product market fit

8:40 - Justin.tv had $1M in profit before reaching product market fit

12:30 - Some companies take a long time

I often talk to founders who believe they've found product market fit when they haven't.

This is a huge problem because they start hiring people, increasing burn, and optimizing their product before they've actually discovered what needs to be built.

I'm writing this post to help you understand when you've really found product market fit.

To start, read Mark Andreessen's On Product Market Fit for Startups.

It has been the single most influential post for me as an entrepreneur and was the first time I ever read the term.

The customers are buying the product just as fast as you can make it, or usage is growing just as fast as you can add more servers.

Money from customers is piling up in your company checking account.

You're hiring sales and customer support staff as fast as you can.

So why do most people think they're there when they're not?

I think that a lot of founders are really excited at the prospect of company building.

And they think that company building is what creates success.

And by company building I mean like hiring employees and having great culture and 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.

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 98% of the time it's used incorrectly.

And what's so frustrating is that people almost act like it's an undefined or flexibly defined term, And it's totally not.

It's like saying that, oh yeah, green, blue, yellow, we could call all of those orange.

Make up another term if you want to mean something else.

So I think the most common way it's mistaken is like, it's weird because it sounds so close, but it's not.

And what's hilarious is product market fit is what happens after you've 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 people want to separate these 2 concepts.

It's just so much easier to be able to look at your thing and say, this is what customers want, and not have to really have any customers.

And so, man, people really just want to separate those 2 things out.

And it's like, if you are not getting explosive usage, you do not have what customers want.

Or, there aren't that many customers, in which case you don't have a big business.

And so, I think the awful reality is the vast majority of founders, the vast majority of YC founders even, never find product market fit, ever.

I would argue that 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.

It's almost like, this is going to work unless you screw it up.

Whereas pre-product market fit, there's all this stuff you need to do to even see if there can be something there 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.

Leewy And moreover, you can still have customers.

You can still have growth if you're pre-product.

It's not like when I go from 0 customers to 1 customer, I've not hit product market fit.

I think that Mark does a good job of defining it because it's experiential.

think if you tried to define it any other way, people would find loopholes.

I mean, they clearly have already found loopholes, but it's like, is the growth killing you?

Like, If I were to extract what the meaning of this sentence is, is the growth almost killing you?

People always want to forget the second 1, right?

Literally, there are so many companies who are like, the growth is killing us.

They're saying, hey Craig, how about you pay 75 cents and I give you a dollar worth of value.

Yeah, Craig make that trade 17 times an hour.

No, I love that, the PV quote, where it's like they figure it out before you.

Well, because you're just Burning VC money or your own money.

The customer is a nose for those types of deals.

you have the problem, you really understand the value of the solution.

So what's funny to me is that Oftentimes founders will want to try to reduce this.

What makes you think that building a successful company is a single variable problem?

For a tech startup, yes, it's clearly not the case.

And 1 of the things we try to talk to people, we often, if you're charging a customer, we try to talk to you about revenue.

And the reason why is that in many cases, revenue that you keep is as close as we can get to a single metric, but even that is not perfect.

You really want to know what percentage of your revenue are you losing every month?

You really want to know like how much does it cost you to get that revenue?

Like you really want to know like how satisfied are your customers?

Like you need to know those other stats to really know.

And so yeah, product market fit, like I wish more comfortable, like I talk about pre-product market fit as just being in the suck.

It's just like you're just in a river of crap and you're not enjoying your life.

And Unfortunately, I think that every startup, I almost imagine, this isn't the case, but I almost imagine that there's a predetermined amount of time you have to live there until you figure out how to get out.

And a lot of founders just want to cheat.

And a lot of founders just like, I want to get out by cheating.

I just want to pretend like I'm not in here and build a nice house.

Or I just want to do something that's really unprofitable so I can pretend to be out of here.

And it's just like, you can't pretend your way out of product market.

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

Social cam over the course of 4 months got 16 million downloads, got 1 eighth of every single person on Facebook to watch at least 1 video on our platform over the course of 3 to 4 months.

Wouldn't that be almost the definition of product marketing?

We shut off half the world to not couldn't use the product because we were like, we can't do it.

For our product, 1, we had no monetization.

We probably could have figured out monetization at that point, no monetization.

2, more importantly, we had horrible retention.

If you came and downloaded the app, the chances that you were using that app 10 days later was basically 0.

If you watched a video, the chances that you'd watch 5 more videos that week, very low.

And it was interesting because it was like, we had an exit, we had tons of growth, we for a while were top 5 in the app store.

I'd even argue, if you look back at Justin.TV, Justin.TV by, let's say, 2010.

By 2010, I'm not sure I have those dates right.

We made $8 million in revenue, $1 million in profit, with approximately 30 million monthly viewers on the product.

And the reason why, for the Justin.TV case, was that we didn't have a repeatable engine to create growth.

Like that 300 million-monthly Unix, we couldn't make that number go up.

And then the second thing was that unfortunately we had tons of copyrighted content on the site.

And so we weren't able to reliably monetize that over time.

It's funny because I can't imagine how many pitches that I gave trying to present that as a good business when in my heart I knew it wasn't a good business.

And it wasn't until we actually found Twitch and found gamers did we actually find something that had this repeatable machine that both spit out more users and more money and retention.

And what was so interesting is that we'd solved all the technology problems at Justin.TV.

Well, clearly the market does not care what you have behind the hood.

I mean, let's be clear, necessary but not sufficient.

could have done it without that stuff, but it was not sufficient at all.

It took 6 years for us to have a hint that that's what the customer base was.

Right, because in the suck period with Twitch as game streaming, how long did that go for?

It didn't go for very long because everything else was already, the table was set.

Yeah, we had people, we had all the technology we needed, We had money because we were running profitably.

So it was all, like all of the table was set and then bam, the food arrived.

Like everyone was seated, the table was set, bam, the food arrived, the meal happened.

But we were waiting at the table for like 6 years.

We built the table, set the table, we had the door open, we sent invites out, no 1 cared.

But if you started Twitch in 2006, it probably wouldn't have worked.

I don't think it would have worked in 2006.

I think looking back, Silly little things matter.

Webcams went from being something you had to buy extra to something that were built into every laptop.

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.

I think we could have gotten there by 2008, 2009.

Which is kind of a separate thing, probably a separate essay, but learning when you should have quit, maybe.

On the flip side though, man, there are still some companies who, like some companies take a long time.

There are some peers of ours who now are really doing well, but just took even longer than we did.

And so, man, if you're willing to put in the time and grind it out, every year


Speaker 0: The real product market fit. This was a good 1.

Speaker 1: Not that the other ones aren't great. I try

Speaker 0: my best. I often talk to founders who believe they've found product market fit when they haven't. This is a huge problem because they start hiring people, increasing burn, and optimizing their product before they've actually discovered what needs to be built. I'm writing this post to help you understand when you've really found product market fit. To start, read Mark Andreessen's On Product Market Fit for Startups.

It has been the single most influential post for me as an entrepreneur and was the first time I ever read the term. Here's how he defines the term. The customers are buying the product just as fast as you can make it, or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can.

So why do most people think they're there when they're not?

Speaker 1: 1, it's intellectually convenient, too. I think that a lot of founders are really excited at the prospect of company building. And they think that company building is what creates success. And by company building I mean like hiring employees and having great culture and 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.

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 98% of the time it's used incorrectly. And what's so frustrating is that people almost act like it's an undefined or flexibly defined term, And it's totally not. It's like saying that, oh yeah, green, blue, yellow, we could call all of those orange. It's okay, we'll just call them orange.

Paul Woodward

Speaker 0: It's different for every company.

Speaker 1: Yeah, exactly. It's your interpretation of it. It's like, no, it's not. It's not the case. There's a defined term.

Make up another term if you want to mean something else. So I think the most common way it's mistaken is like, it's weird because it sounds so close, but it's not. I built the thing that customers want. And what's hilarious is product market fit is what happens after you've 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 people want to separate these 2 concepts. It's so amazing. 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, and not have to really have any customers. It's easier to say that.

And so, man, people really just want to separate those 2 things out. And it's like, if you are not getting explosive usage, you do not have what customers want. Or, there aren't that many customers, in which case you don't have a big business. And so, I think the awful reality is the vast majority of founders, the vast majority of YC founders even, never find product market fit, ever. I would argue that 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. It's almost like, this is going to work unless you screw it up. Whereas pre-product market fit, there's all this stuff you need to do to even see if there can be something there 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.

Speaker 0: Peter T. Leewy And moreover, you can still have customers. You can still have growth if you're pre-product.

Speaker 1: Kyle Newholm Yes, yes, yes. It's not like when I go from 0 customers to 1 customer, I've not hit product market fit. I think that Mark does a good job of defining it because it's experiential.

Speaker 0: I

Speaker 1: think if you tried to define it any other way, people would find loopholes. I mean, they clearly have already found loopholes, but it's like, is the growth killing you? Like, If I were to extract what the meaning of this sentence is, is the growth almost killing you? And is it profitable? People always want to forget the second 1, right?

Money is piling up in the Chenk account. Craig.

Speaker 0: That is by definition profit.

Speaker 1: Yes. Literally, there are so many companies who are like, the growth is killing us. And I'm like, oh, show me, explain. And they're scaling negative margins. They're saying, hey Craig, how about you pay 75 cents and I give you a dollar worth of value.

Yeah, Craig make that trade 17 times an hour.

Speaker 0: Easy. No, I love that, the PV quote, where it's like they figure it out before you. That you're giving them. Yeah. Oh, I just figured it out.

Well, because you're just Burning VC money or your own money. Paul Matzko,

Speaker 1: Jr.: Yes. The customer is a nose for those types of deals.

Speaker 0: Because if

Speaker 1: you have the problem, you really understand the value of the solution. So what's funny to me is that Oftentimes founders will want to try to reduce this. 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. What makes you think that building a successful company is a single variable problem? How could that be the case? It's clearly not the case.

Speaker 0: Especially in the venture paradigm.

Speaker 1: Yes, yes, yes. For a tech startup, yes, it's clearly not the case. There's clearly multiple variables here. And 1 of the things we try to talk to people, we often, if you're charging a customer, we try to talk to you about revenue. And the reason why is that in many cases, revenue that you keep is as close as we can get to a single metric, but even that is not perfect.

You really want to know what percentage of your revenue are you losing every month? You really want to know like how much does it cost you to get that revenue? Like you really want to know like how satisfied are your customers? Like you need to know those other stats to really know. And so yeah, product market fit, like I wish more comfortable, like I talk about pre-product market fit as just being in the suck.

It's just like you're just in a river of crap and you're not enjoying your life. And Unfortunately, I think that every startup, I almost imagine, this isn't the case, but I almost imagine that there's a predetermined amount of time you have to live there until you figure out how to get out. And a lot of founders just want to cheat. And a lot of founders just like, I want to get out by cheating. I just want to pretend like I'm not in here and build a nice house.

Or I just want to do something that's really unprofitable so I can pretend to be out of here. And it's just like, you can't pretend your way out of product market. It just 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 that you are comfortable failing at it for a while.

Speaker 0: Did you guys hit it at social cam?

Speaker 1: Absolutely not. So here's a perfect example. Social cam over the course of 4 months got 16 million downloads, got 1 eighth of every single person on Facebook to watch at least 1 video on our platform over the course of 3 to 4 months. Wouldn't that be almost the definition of product marketing? We certainly were dying in the traffic.

We shut off half the world to not couldn't use the product because we were like, we can't do it. Absolutely not. For our product, 1, we had no monetization. We probably could have figured out monetization at that point, no monetization. 2, more importantly, we had horrible retention.

Absolutely horrible retention. If you came and downloaded the app, the chances that you were using that app 10 days later was basically 0. If you watched a video, the chances that you'd watch 5 more videos that week, very low. And it was interesting because it was like, we had an exit, we had tons of growth, we for a while were top 5 in the app store. Yet not product market fit.

I'd even argue, if you look back at Justin.TV, Justin.TV by, let's say, 2010. So it started in 2006. By 2010, I'm not sure I have those dates right. I think that's correct. Yeah.

We made $8 million in revenue, $1 million in profit, with approximately 30 million monthly viewers on the product. And we were not a product market fit.

Speaker 0: Right.

Speaker 1: Yeah. And so it's like, yeah, it is hard. And the reason why, for the Justin.TV case, was that we didn't have a repeatable engine to create growth. Like that 300 million-monthly Unix, we couldn't make that number go up. And then the second thing was that unfortunately we had tons of copyrighted content on the site.

And so we weren't able to reliably monetize that over time. It's funny because I can't imagine how many pitches that I gave trying to present that as a good business when in my heart I knew it wasn't a good business. You know what I mean? And it wasn't until we actually found Twitch and found gamers did we actually find something that had this repeatable machine that both spit out more users and more money and retention. And what was so interesting is that we'd solved all the technology problems at Justin.TV.

Speaker 0: Peter. Well, clearly the market does not care what you have behind the hood.

Speaker 1: No, no, no, no. We had all the live video streaming, we

Speaker 0: had all the

Speaker 1: chat, we had everything. I mean, let's be clear, necessary but not sufficient.

Speaker 0: We never

Speaker 1: could have done it without that stuff, but it was not sufficient at all. And man, what did that take? It took 6 years for us to have a hint that that's what the customer base was. Craig.

Speaker 0: Right, because in the suck period with Twitch as game streaming, how long did that go for?

Speaker 1: Not very long. It was interesting. It didn't go for very long because everything else was already, the table was set.

Speaker 0: You were kind of in place.

Speaker 1: Yeah, we had people, we had all the technology we needed, We had money because we were running profitably. So it was all, like all of the table was set and then bam, the food arrived. Like everyone was seated, the table was set, bam, the food arrived, the meal happened. But we were waiting at the table for like 6 years.

Speaker 0: Yeah, dude. Yeah, that's so good. We built the table, set the table, we had the door open, we sent invites out, no 1 cared. But if you started Twitch in 2006, it probably wouldn't have worked. Paul Wittman You

Speaker 1: don't know. I don't think it would have worked in 2006. I think looking back, Silly little things matter. 1 of them was webcams. Webcams went from being something you had to buy extra to something that were built into every laptop.

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. I think we could have gotten there by 2008, 2009. But we didn't die. Didn't die, have another shot.

Speaker 0: It's a big takeaway. Yeah. Yeah. Which is kind of a separate thing, probably a separate essay, but learning when you should have quit, maybe. Some people do hold onto things.

Speaker 1: Some people hold onto things. It's funny, I see it 2 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. There are some peers of ours who now are really doing well, but just took even longer than we did.

And so, man, if you're willing to put in the time and grind it out, every year

Speaker 0: you you

See all Y Combinator transcripts on Youtube

The Real Product Market Fit by Michael Seibel