12 Things about Product-Market Fit

 

The product/market fit (PMF) concept was developed and named by Andy Rachleff (who is currently the CEO and co-founder of Wealthfront, and is a co-founder of Benchmark Capital). The core of Rachleff’s idea for PMF was based on his analysis of the investing style of the pioneering venture capitalist and Sequoia founder Don Valentine.

Why market matters more than anything

#1 “Give me a giant market — always.” “Arthur Rock is the representative of: you find a great entrepreneur and you back him. My position has always been: you find a great market and you build multiple companies in that market.” “Our view has always, preferably, been: give us a technical problem, give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff. Do I like to do that with terrific people? Sure. Are we unwilling to invest in companies that don’t have them? Sure. We invested in Apple when Steve Jobs was about eighteen or nineteen years old — not only didn’t he go to Harvard Business School, he didn’t go to any school.” Don Valentine

One way to look at venture capital investing and creating a valuable business is as an effort to build a stool with three legs: people, markets, and innovative products. All three legs are required for success, but different venture capitalists and entrepreneurs emphasize and weight each of the three core elements differently at different times. While Valentine believed that yes, of course you need decent people, “the marketplace comes first, because you can’t change that, but you can change the people” (according to Pitch Johnson, who was a venture capital industry pioneer at the same time Valentine was developing his investing style).

A famous example of changing people was when the Cisco board of directors replaced the then-husband-and-wife team who founded the company. In other cases, new team members are brought in to supply new skills instead of replacing people; Eric Schmidt being recruited to Google is a famous example of that approach.

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