Product ＞ Strategy ＞ Business Model
I think the article is great, but I'm not sure about a few particular industry segments. For example, in SaaS, it often may make sense to actually charge for software up-front before even having product-market fit to see if there's even any viability in making it a business in addition to experimenting with pricing. Often times, the drop-off experienced in going from a completely freemium product to a priced one is fatal and gives you inaccurate data about the market's reception to your product.
In consumer web, the product -> strategy -> business model approach makes complete sense, but I'm unsure if it carries over to most things in B2B.
Typical, a VC telling you not to worry about making money. The funny thing is that VCs don't care if a business makes money, only if other VCs will pour millions of dollars into it. A company with a real business model is less valuable to them because it eventually won't need further investment, and more importantly, won't need a tech giant to buy it. Most SV companies are just huge (legal) pump and dump schemes. If a company is capable of standing on its own feet without perpetually breastfeeding off investors, then the chances of an exit go down, and the chances of an investor seeing his/her money again in the short term are greatly reduced.
I think business model, strategy, and product are all equally important. You can make a lot of money by making an awesome product and getting a large exit without ever seeing a cent of revenue, but to me sustainable growth based on a real business model is much more rewarding. Maybe I'm just old fashioned, but the more abstract "value" is, the closer your economy comes to crashing as you're essentially creating value out of nothing.
>> Once you find product market fit and start thinking about business model, I suggest you take a step back and work with your team (and investors) to develop a crisp and well formed strategy for your business.
"and investors"? This is what annoys me about the VC world. They talk like this but, from what I can tell few VCs will invest in you unless you have product market fit already.
This article and concept makes no sense.
"moving to business model before finding product market fit can be the worst thing for your business" What??
Product-market fit is a fundamental part of the business model. Determining who your customers are, and why they would buy from you, is what you do when discovering your business model. You cannot separate it out. BTW strategy is such a vague concept that I don't know how it is even in the discussion.
Guessing, building an MVP first, throwing it against the wall to see if it sticks, before having a concept of what your business consists of, is what is/was broken about the startup culture. And, please stop this "but Twitter did it" nonsense. Unless "getting lucky" IS your strategy.
Dropbox' strategy is becoming the permanent storage for all of our data. But its business model (charging by GBs) discourages the user from using Dropbox for all of their files. For many users, the business model necessarily limits their assimilation of the product.
Flickr wants to be the place where people discover and share amazing photos. But they charge their most engaged users extra money for storage, discouraging them from adding the very content which makes the product valuable to new users.
Metered billing is like a usage tax. Taxes discourage behaviors. Don't discourage your users from taking the very actions which make your product valuable.
Thoughtful post Fred, thank you.
It's odd - but I don't really conceptualise working on these as separate things any more.
While product-market fit might be the kernel, strategy & business model come along for the ride. They all co-evolve together. In many cases the p-m fit, strategy and business model are so intertwined that it just makes no sense to develop one before the other. Tweaks to the product affect our BM, tweaks to the BM affect how we think about the product, those tweaks to the product may drive the strategy in a different direction, and so on.
I guess the hidden context here is that this is sound advice for certain kinds of B2C startups that are leaning towards, or capable of, VC scale investment. There you're not really leaving the business model to last. You have an initial business model of "get investment", and then you can transition to something more sustainable. Absolutely nailing that pm fit and strategic vision without the distraction of trying to produce a viable business model from the start probably makes sense.
For the average bootstrapper or new product team - not so much. Because without some sort of income stream earlier on product development cannot continue.
Here is my version:
Customers > Product > Founders > VCI've been into strategy for 15+ years.
In my humble opinion this Product > Strategy > Business Model is suitable for the current bunch of feature start-ups that aspire to be acquired by big cos.
If you want to do it right, then it is the other way around.
1. You check the market you want to compete/be in.
2. Then you understand which business models work and which don't and why. You choose several to start with.
3. Then you define your strategy, i.e. What do I need to do to disrupt current market leaders?
4. Then you develop product(s) that fit your strategy and business models.
So if you want to do smth serious the right sequence is Market > Business Models > Strategy > Product(s)
Figuring out your product before you've started on your strategy and business model is the classic technical entrepreneur's mistake. I've done it myself. The only possible reason I can see to do this is that from the VC's point of view, it might shift more risk onto the entrepreneur.
More effective, not to mention lower risk (for the entrepreneur) is the lean/MVC model described in Running Lean and elsewhere.
Fail early, not after you've spent years perfecting a product that doesn't have a profitable market.
How does one get to product? My business knowledge mostly consists of selling myself (to employers) and services (to clients). Building a product seems significantly harder.
The logic here seems flawed.
Say, for example, that my "product" is to transfer $1000 to your bank account for every page you view on my site.
Undoubtedly the market will love this "product". However, whatever the strategy, the business model has to get more than $1000 per page view. This seems impossible.
The point being, you can't simply create a product that no conceivable business model can support.
I'm struggling to really understand what Fred is saying when he talks about 'strategy'. He mentions Amazon, but can somebody give the example where Amazon's strategy was distinct from it's business model? I assume he's talking the early days before AWS was a major part of their business.
How do you achieve product market fit without validating your business model?
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This post should be prefaced with the fact that this model of thinking may only apply to venture-backed consumer Internet companies...
Very well articulated. The order of things is also the order of precedence.
Seems to me like a somewhat empty bag of words. My general interpretation is "walk before you run"; I don't see the need for working hard to find a rule that applies everywhere. The obvious point is that you probably need to have something substantial (market wants your product, fans clamoring on HN, you have a few initial clients, you make some money.. something) before thinking bigger.
If we have to impose a timeline, though, I would say that all 3 elements (market fit, strategy, biz model) have to be considered together, all the time in the leaders' heads (and officially recognized once in a while). Please remember that there is only a single digit (or so) number of Twitter-like stories in the world. Just think of the numerous times that kind of linear thinking (forget about biz. model - let's just pour money into this thing for a long time, or, let's build this cool product without a strategy although I don't even know what cool means without a strategy) approach has failed. In those rare cases, you probably still think about the biz model, as in "it doesn't yet exist but will exist likely in one of X forms once we reach status Y".
I might have a different definition of strategy, but you need some kind of strategy, which at a high level might even just mean "approach", to be able to do anything, including validating an initial market fit. Even starting small, testing/iterating and seeking market fit and later switching gears itself is a form of high level strategy. A ship without a direction gets nowhere, even if you're a small ship in a really-well charted sea.
Unless, of course, he means by product-market fit "an idea for a product/service that the market wants", which would be just about the first thing to do in any business, as championed by the likes of the book "Four Steps to the Epiphany". I suspect those bootstrapping (to at least some degree) would likely know this from deeper in their hearts than others who've had an easier time with plenty of funding upfront. Everything else by definition has the workings of a strategy, whether you admit it or not. If you're not explicit about it though, you're just letting the waves take you places you hope will be good.
Edit: The issue I take is that the article puts strategy into a step in the timeline or process, whereas I believe it needs to be everywhere, all the time. You can't have product-market fit without strategy AND/ORD you can't build a solid, sustainable business without thinking about strategy/market-needs/biz model and probably more at the same time, holistically throughout your existence. It's not just that "don't forget about strategy before biz model!!". Jumping to biz model without having a strategy is impossible - it just means your strategy implicitly is to "grab the money in the best way you see possible right now", without charting a longer term objective.
I translated informally into Chinese: http://geek.csdn.net/news/detail/1290