The most important factor is not an excellent team, nor a solid product, but the market and PMF (Product-Market Fit).
Written by: Marc Andreessen
Translated by: Geek Translator
Abstract: This article is derived from a series of blogs written by a16z and Marc Andreessen, the founder of Netscape, in 2007, primarily addressing topics related to entrepreneurs and VCs. In this blog, Marc Andreessen points out from his own experiences and observations that the most important factor for a startup team’s success is not the team or the product, but the market, or more specifically, PMF (Product-Market Fit).
Since Marc Andreessen is a successful serial entrepreneur with significant achievements in the internet and venture capital industries, we find his insights quite persuasive. Therefore, we have translated this blog into Chinese, hoping to provide some inspiration for many entrepreneurs.
Main Text: This article discusses the only thing that matters for a startup. But first, we need to understand some theoretical foundations: if you observe a large number of startups, say 30 to 40 or even more, trying to eliminate randomness and look for patterns, you will find two obvious facts:
The First Obvious Fact:
There is a huge variance in the success levels of startups—some companies succeed incredibly, some are highly successful, many barely succeed, and a significant number fail outright.
The Second Obvious Fact:
The three core elements of startups—team, product, and market—vary greatly in terms of level and quality.
In any startup, team members can be exceptionally talented or have significant flaws; some companies produce products that are engineering masterpieces, while others create barely usable ones; and the market in which the company operates can be thriving or in decline.
Thus, we begin to ponder: What factors are most correlated with entrepreneurial success—team, product, or market? Or more directly, what is the determining factor for success? For those studying startup failures, what is the most dangerous: a poor team, a weak product, or an undesirable market?
Let’s first define a few key terms:
Team Quality: How well the CEO, executives, engineers, and other core members can seize opportunities. When evaluating a team, I focus more on execution than experience, as the history of the tech industry is filled with cases of inexperienced individuals forming teams and achieving great success.
Product Quality: How appealing the product is to real users. Is the product user-friendly? Is it feature-rich? Does it run smoothly? Is it easy to scale? How polished is it? Does it have defects?
Market Size: Refers to the number of potential customers/users the product faces and its growth rate (assuming profitability is feasible after scaling, i.e., customer acquisition costs are lower than the revenue generated by customers).
Some may question my classification: "How good can a product be if no one needs it?" In other words, isn’t product quality determined by its appeal to many customers?
The answer is no. Product quality and market size are completely different concepts. A classic example of this is that many software applications are developed for operating systems that hardly anyone uses. You could ask programmers who have developed for the BeOS, Amiga, OS/2, or NeXT application markets, "What is the difference between 'excellent products' and 'large markets'?"
Prioritizing Team, Product, and Market
So, if you ask entrepreneurs or VCs which is most important for a startup team—team, product, or market—many will say team. This is an obvious answer, partly because: In the early stages of a company, you know more about its team background and less about the product and market—because the product is not yet complete, and the market is often not fully explored.
Additionally, the education we receive emphasizes that "people are the most important asset." At least in the U.S., the value placed on people is deeply ingrained in our culture, including self-esteem education programs in high school and the mention of "life, liberty, and the pursuit of happiness" in the Declaration of Independence. Therefore, the answer "the team is the most important" sounds "very correct."
But if you ask some engineers, they might say the product is most important. In the tech industry, the product is indeed central; the mission of a startup is to invent a product that customers buy and use. Apple and Google are among the most successful companies today because they make the best products. Without a product, there is no company. Imagine having an excellent team but no product, or having a potentially huge market but no product—what would such a company become?
But personally, I hold a third view—I believe the market is the most important factor in a startup's success or failure. Why? Because in a large market—a market with many real potential customers—the market will drive the product to stand out from the startup. The market has demand, and it will be met as long as the first viable product appears. This product does not need to be exceptional; it just needs to be usable. The market does not care how excellent the team is, as long as the team can deliver a basic usable product.
In other words, customers will actively seek out the product, and your main goal is just to meet customer demand and deliver the product. Even in a potentially huge market, the level of the team can improve spontaneously. Specific cases can be referenced in the search engine, online auction platform, and router markets.
Conversely, in a poor market, even if you have the best product in the world and an absolutely excellent team, you will still fail. You will waste years looking for customers that do not exist, your excellent team will eventually become demoralized and resign, and your startup will go bankrupt. Specific cases can be referenced in the video conferencing, workflow software, and micropayment markets.
Rachleff's Startup Success Principles
Andy Rachleff (former partner at Benchmark Capital) summarized the following points:
When an excellent team meets a poor market, the market wins.
When a poor team meets an excellent market, the market still wins.
When an excellent team meets an excellent market, miracles happen.
The market is the decisive factor for a startup's success or failure; a poor market cannot be salvaged by an excellent team or a great product. You might mess up a great market—this has happened before and is not uncommon—but assuming the team has basic capabilities and the product is acceptable, a great market often equals success, while a poor market often equals failure. Ultimately, the market is what matters most; neither an excellent team nor an outstanding product can save a poor market.
The question is, what should a startup team do? First, since the team is the factor you can control most at the beginning, and everyone wants to have an excellent team, what can an excellent team actually bring you? Perhaps an excellent team can bring you a decent product, ideally, an excellent product. However, I can cite many examples of excellent teams messing up products; in fact, creating an excellent product is really difficult.
You hope an excellent team can also bring you an excellent market—but I can also list many examples of excellent teams performing well in poor markets but ultimately failing. Nonexistent markets do not care how smart you are.
In my experience, the most common situation is when excellent teams combine with poor products/poor markets, particularly among second or third-time entrepreneurs who achieved great success in their first venture, leading the founders to become arrogant and make consecutive mistakes. Suppose there is a prominent, very successful software company entrepreneur who is investing about $80 million in his latest startup, but the result is that, apart from making the news or getting a few test customers, he has achieved almost nothing—because what he built has almost no market.
Conversely, many weaker teams have achieved great success due to the enormous scale of the market they are in. Finally, quoting Tim Shephard: "In the same market and product conditions, excellent teams will always beat mediocre teams."
Now we introduce the second question: Can excellent products create huge new markets? In some cases, yes, but this is rare. For example, VMWare is a recent company that did this—VMWare's product was transformative from the start, catalyzing a new movement in operating system virtualization, which ultimately formed a huge market.
Of course, in this case, how excellent your team is does not matter, as long as the team can ensure the product meets the basic quality required by the market and push it to market. I am not saying you should not focus on team quality, or that VMWare's team is not strong enough; I am saying that as long as you push a transformative product like VMWare to market, you will succeed, that’s all. Beyond that, I would not expect your product to create a new market from scratch.
The third question: As a founder of a startup, what should I do? Let’s introduce Rachleff's startup success inference: The only thing that matters is achieving product/market fit, or PMF. PMF means having a product that meets the market's needs under good market conditions.
When there is a product/market mismatch, customers do not derive enough value from the product, word of mouth does not spread, usage growth is slow, media reviews are somewhat "lackluster," the sales cycle is too long, and many deals cannot be completed.
When there is product/market fit, customers order as quickly as you can produce the product, and usage growth matches the speed at which you add servers. The money customers pay accumulates in your company’s account, and you hire salespeople as quickly as possible. Journalists call because they have heard about your hot product and want to talk to you. You start receiving the Harvard Business School's annual entrepreneur award, and VCs are watching your house, eager to invest in your company. But in reality, many startups fail before achieving product/market fit, and they fail because they never achieved PMF.
Furthermore, I believe the life of any startup can be divided into two parts: before product/market fit (referred to as "BPMF") and after product/market fit ("APMF"). When you are in BPMF, focus entirely on achieving PMF, doing everything possible to make the product/market fit, including changing team members, redoing the product, entering different markets, doing everything to dig for users, or raising more funds—whatever you need.
When you are truly engaged in the PMF process, you can ignore all other factors. Whenever you see a successful startup, you will see that it has achieved product/market fit—and in the process, it may have messed up other things, such as marketing plans, media relations, compensation policies, etc. But this does not hinder the success of that startup.
Conversely, you will see that many well-run startups have everything in place, with sound human resources policies, excellent sales models, thorough marketing plans, outstanding interview processes, delicious catering, 30-inch monitors for all programmers, and top VCs on the board, yet they fall off a cliff because they cannot find the PMF point.
Ironically, once a startup succeeds, when you ask the founders what made the company successful, they often list various things unrelated to success. People find it hard to understand the causal relationship, but in almost all cases, the reason is actually PMF. Otherwise, what else could it be?
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