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EIA2016Turin - Anand Kulkarni. The Holy Grail of Product-Market Fit

The document discusses the importance of achieving product-market fit for startups. It describes how the author's startup went through multiple pivots before finding product-market fit and success. Some key points: - Startups often fail because they do not achieve product-market fit, meaning customers are not buying their product. - The author's startup went through years of building products customers did not want before finding an email-based virtual assistant service that customers were willing to pay for. - Achieving product-market fit allows startups to raise more funding and grow more rapidly through spending on customer acquisition. - Markets should be estimated in terms of total addressable market (TAM), serviceable

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Related topics:
Product-Market Fit•
THE HOLY GRAIL OF 
 CUSTOMER DEVELOPMENT PRODUCT MARKET FIT ANAND KULKARNI - CHIEF MENTOR - COFOUNDER @ LEADGENIUS
Twitter @EIA2016Turin
 #EIA2016Turin
@EIA2016Turin
 #EIA2016Turin Twitter @EIA_Anonymous
@EIA2016Turin
 #EIA2016Turin Twitter @EIA_Anonymous
@EIA2016Turin
 #EIA2016Turin Twitter @EIA_Anonymous
Who is this guy? - Forbes 30 under 30 entrepreneur - Former operations research PhD - National Science Foundation
 fellow at UC Berkeley - Raised $18M from investors:
 YC, A16Z, 500, Sierra, etc.
What we built - Sales technology startup - Social enterprise - Google, Box, hundreds of 
 customers (mid-market & enterprise) - ACV $50K, millions in revenue - 50 local employees, 
 500 global, 40 countries
What we built people businesses products services sales teams marketing teams business data people who need this data crowd of 500 work-at-home researchers crawlers
How'd we get here?
!!!! •  How can we help groups with minimal (technology) literacy participate in the crowdsourcing economy? Original Problem
Original Idea (2010) Let’s build a company that takes the easiest jobs from Amazon Mechanical Turk and makes them available to the poorest people in the 
 world through their cell phones!
Original Idea
User interviews Personas! Scenarios! The Process! Lo-fi prototyping User testing! High-fidelity prototypes!
Every single part of our original idea was wrong! •  There were not many image tagging jobs on Mechanical Turk •  The jobs were too hard for workers living in a slum in India •  The jobs were paid so low that we couldn’t make any money from them
Pivot (2010)! •  Instead of scraping Mechanical Turk, let’s charge customers directly to do data entry for them
Paper prototyping our new plan!
High-fidelity prototype (YC, Spring 2011)!
This idea was still wrong! •  Yes, you can get very poor people to do data entry on a mobile phone •  Why would you, though? BPO outsourcing is far better and less complicated. •  We built a system, but only found one paying customer for $600.
Pivot (Summer 2011)! “Mechanical Turk is really terrible – people hate to use it.”
 
 Let’s build the world’s best crowdsourcing platform – a replacement for Mechanical Turk!!
We built an awesome, sophisticated replacement for Mechanical Turk, starting with an API….!
…followed by a powerful interactive web application.!
Over a year, we added lots of great features to the product, and plenty of people were trying them out.!
Over a year, we added lots of great features to the product, and web users seemed to be trying them out.! The problem: we had nearly zero paying customers.!
It took us a year to realize:! -  Almost nobody uses Mechanical Turk (<$5M market)
 -  Mechanical Turk customers are cheap and don’t have much money, not recurring customers -  The people who want to outsource work aren’t software developers using APIs – they’re businesspeople
The problem! -  We had spent over a year building beautiful, highly effective products and ignoring the most important fact: 
 customers did not want to use them!
The Advice! Paul Graham! 
 ! ! 
 “You’re failing. Why don’t you try and actually make some money?”!
Final Pivot! Email-based virtual assistant, 
 MobileWorks Premier: 
 
 premier@mobileworks.com!
Final Pivot! “Just email us whatever work you need done (anything). We’ll find someone to make sure it gets done.”!
Our MVP (2012), 
 wufoo.com + Gmail!
2013 growth! Yet another change! ! (Focusing on selling to one specific vertical)! !
ACHIEVING PRODUCT MARKET FIT
Why do startups fail?
Why do startups fail?
Why do startups fail?
Why do startups really fail?
Why do startups really fail?
They don’t achieve Product-Market Fit Why do startups really fail?
This is an important idea. “The #1 Company- Killer is Lack of 
 a Market.” -Ben Horowitz,
This is an important idea. “The #1 Company- Killer is Lack of 
 a Market.” -Ben Horowitz, There’s just one mistake that kills startups – not making something users want. -Paul Graham, YC
How do you know you have
 product-market fit?
It’s simple:
 customers are buying what you’re selling. How do you know you have
 product-market fit?
It’s simple:
 customers are buying what you’re selling. How do you know you have
 product-market fit? You know where to 
 get more customers!
raise a little capital
 
 experiments
 
 customer development
 spending money slowly to learn as quickly as possible raise a lot of capital acquire customers fast
 clear connection of spending money to customer growth 
 spending money as fast as possible to grow customers as fast as possible before product market fit after product market fit
Before product-market fit raised $900K 7 people inconsistent revenue lots of experiments
After product-market fit raised $6M 30 people watched revenue
 grow rapidly
CUSTOMERS VS MARKETS
customer = someone who 
 pays you for the product 
 market = the big universe of customers that you plan to serve
Example: LeadGenius (B2B)
 
 Our customer is a head of sales running a B2B sales team of 10 or more people. 
 Our market is Fortune 5000 companies spending money on outbound sales.
Example: Shortcut 
 (ocean cargo marketplace)
 
 Our customers are ship owners with spare capacity and individual manufacturers who want to transport cargo.
 Our market is the international short sea shipping market – everyone who is spending money on shipping freight.
Example: Carstomize  
 (machine learning for car configuration)
 
 Our customer is the head of marketing at car manufacturers. Our market is going to be the ten largest automakers in the world.
MARKET SIZE:
 TAM, SAM, SOM
What are TAM/SAM/SOM? These are different ways to estimate how much a startup could someday make.
TAM: TOTAL ADDRESSABLE MARKET
TAM: TOTAL ADDRESSABLE MARKET How much money could you make if absolutely every possible customer in the world used this product?
TAM: TOTAL ADDRESSABLE MARKET How much money is being spent on this problem globally today?
TAM: TOTAL ADDRESSABLE MARKET How much money is being spent on this problem globally today? “global shipping is a $400B market”
TAM: TOTAL ADDRESSABLE MARKET How much money is being spent on this problem globally today? “global shipping is a $400B market” “new car sales is a $570B market”
EXAMPLE: DOLLAR SHAVE CLUB Product: 
 Cheap mail-order 
 razors for men

EXAMPLE: DOLLAR SHAVE CLUB Product: 
 Cheap mail-order 
 razors for men
 TAM:
 Shave & razor industry

EXAMPLE: DOLLAR SHAVE CLUB Product: 
 Cheap mail-order 
 razors for men
 TAM:
 Shave & razor industry
 $34B global market!
EXAMPLE: DOLLAR SHAVE CLUB Product: 
 Cheap mail-order 
 razors for men
 TAM:
 Shave & razor industry
 $34B global market! includes: Fancy razors, store-bought razors, 
 mail-order razors
SAM: SERVICEABLE 
 ADDRESSABLE MARKET How much of that market can we serve with our specific product?
SAM: SERVICEABLE 
 ADDRESSABLE MARKET How much of that market can we serve with our specific product? “online truck sales are a $50B market” “short sea shipping is a $70B market”
EXAMPLE: DOLLAR SHAVE CLUB TAM was the full shaving industry.
 SAM is the size of the cheap/ disposable razor category – $10B. SAM is the smaller sector that you’ll go after.
SOM: SHARE OF MARKET How much revenue will we realistically be able to make in our
 first few years?
SOM: SHARE OF MARKET How much revenue will we realistically be able to make in our
 first few years? Bottom up analysis: value per customer X 
 number of customers we reach
EXAMPLE: DOLLAR SHAVE CLUB There are 90M US men over 21 (research)
 We’ll get 5M people to see our ads (strategy) 
 50% are men (average) 75% use disposable razors (research) 10% turn into customers after 
 seeing ads (experiments)
EXAMPLE: DOLLAR SHAVE CLUB 5M x 50% x 75% x 10%= 187,500 customers 187,500 customers x $60/year = $18M revenue $18M revenue / SAM of $10B 
 = 0.2% SOM
Remember… these are just estimates! You don’t need to be perfect.
 You’re trying to convince yourself and prove to investors that you have a viable business.
ESTIMATING MARKET SIZE + GETTING MARKET DATA
Estimating Market Sizes Google – 
 Gartner, Forrester, research agencies
 B2B & B2C TAM
Government 
 data Estimating Market Sizes US Census Industry Snapshots
 (B2B TAM/SOM)
6 million businesses in the US with >1 employee
 
 100,000 midsize businesses in the US with > 
 $10M revenue 
 Fortune 500, Fortune 5000, Global 2000 with multiple sub-organizations Estimating Market Sizes
Facebook (B2C) 
 Ample consumer data Market sizing information Good for SOM Also… you can use it directly when launching! Estimating Market Sizes
LinkedIn (B2B) 
 Ample business data Market sizing information Good for SOM estimates Estimating Market Sizes
PICKING YOUR MARKET
Startups need to serve big markets.
impact Startups need to serve big markets.
profitimpact Startups need to serve big markets.
no market + good technology = not a viable startup 
 (research)
small market + good product = small business
huge market + good product = maybe a big business 
 (good for startups)
Good businesses have competitors. 
 
 You will only get a small share of your TAM and SAM… 
 
 so they’d better be big! Remember
VCs like businesses that can scale up to $100M per year
 in revenue.
 That means you should target a total addressable market of 
 $1 billion or more. How big should your market be?
…but you can’t start big!
Startups need to launch in small 
 target markets.
Startups need to launch in small 
 target markets.
Dominate that 
 initial market. Grow. Get customers in a small initial market. Startups need to launch in small 
 target markets.
Your market will get progressively bigger over the course of your company.
BIG COMPANIES START WITH SMALL MARKETS.
BIG COMPANIES START WITH SMALL MARKETS. Harvard All colleges Everyone
BIG COMPANIES START WITH SMALL MARKETS. Books Merchandise Cloud
Good initial markets: - are underserved, feel the pain
 - are narrowly-defined and tractable by your team
 - let you find hardcore customers who love you!
Quotes “Build something a small number of people 
 want a large amount.” “When you have an idea for a startup, ask 
 yourself: who wants this right now? Who wants 
 this so much that they'll use it even when it's a 
 crappy version one made by a two-person 
 startup they've never heard of?” - Paul Graham, YC
Things to remember: - Your market will grow over time. - Think big and impressive when you’re setting your vision – aim for the biggest possible overall market. - Think small and doable when you're setting your initial market.
That’s it! Questions? anandk@berkeley.edu @polybot