Okay. We've talked a little bit about customers. We've talked about customers segments. We've talked about value propositions. Now, let's talk a little bit about product-market fit. It's at the heart of the business model. The aim of a start up, as we said before, is defined product market fit. And just to recapitulate what we said last time, a product or service that provides one or more value propositions to a customer segment. You would probably call it product customer segment fit, but that's a mouthful. We'll just call it product market fit and it's the heart of a business model. Without product market fit, you don't have a business. What venture investors like myself try to back are companies that have, or look like they might have, a strong product-market fit, and that's the goal of the activity that we're doing for the next 11 weeks. There's two ways to find a product-market fit. There's the old-fashioned way which is pretty bad. And there's a new way that we think is better. The bad old way to find a product-market fit is this. Called product development. You build a product, you build the whole product first and you then try to find some customers for it. But what's wrong with that model? What's wrong with that model is building a product is very expensive. It's time consuming. It requires a lot of resources. You're spending all your dollars up front and most of the risk which is are there customers who were going to want it? Is there a product market fit? It is the back? So more startups fail from lack of customers than from any other cause. So why not find out about the customers at the front rather than finding out about the customers at the back and why not spend your money at the back instead of spending your money at the front? The bad way to product-market fit for my generation was probably example of a company called WebVan. WebVan had a scheme, which was that people would buy their groceries from large warehouses, and have them delivered by trucks to their home. It's something that's gotten a little bit of popularity nowadays, with Peapod, and some other services, but the company's plan was that everybody would buy their groceries this way, the same way they bought books from Amazon. WebVan built out the entire infrastructure of huge warehouses, huge delivery fleets, huge fulfillment systems, and huge supply chains. All in advance of having any customers. Guess what? They got to the finish line, they started trying to acquire customers, and they found out that nobody really wanted it that much. They had spent, I think that was an excess of $100 million building out this plan. Their investors essentially lost all their money and the company never delivered on its promise. This exemplifies the bad way to find the market product fit. Is there a better way? Sure, why not? Why don't we start with all the risk upfront and all the dollars at the back, and work a company that way? So first find out what customers want. If you go to your potential customers and you say to them, what's troubling you? What are you needs? What are your problems? What can I help you with? And then you build a product that satisfies their needs. And by the way, you don't build the biggest product that would satisfy all their need, you build the smallest product that will satisfy the least of their needs, but only some of them that it will get them started, give them a sweet taste. We call that the minimum viable product. So you start in a front, you ask customers what they want, what there needs and problems are you then build a minimum viable product that solves those needs. And you offered then to them and find out how to sell it to them. So you take the risk at the front. The main risk being that there won't be anybody that wants what you're offering for sale. And you spend the dollars, which is figuring out how to sell it to them at the back. Much better way to build defined product-market fit. The major risks are eliminated first. You're ahead of the game, what's not to like? Well, it turns out this is a very hard thing for people to do. Because it requires letting your babies languish. If you build a product or a service, if you're an entrepreneur. If you have that beating in your breast, you love what you've made. You want everyone to love it as much as you do. You want to get it out there. You want everyone to love your baby and kiss it and say how great it is. And you just can't stand hearing that it's ugly. And so this demands that you go out and you find out what's ugly about your baby in advance of actually getting the baby. That's a big mouthful for some people to swallow. But compare the advantages, all the saved money and all the saved money and all the saved tears so that these advantages are a little ego. And I think you'll see that this is a better way. The key thing that you're looking for is something that your customers must have. Must have versus nice to have is a fundamental distinction that you're going to have to become quite familiar with if you're going to make a success of customer development. Here's a quote from Quora. Quora asked the question what's the difference between must have and nice to have? And Quora said next time your site goes down for whatever reason, if your customers start calling and emailing in a panic, you got product market fit. So these customers are so desperate to get what your website is offering that if it's down, they'll come and harass you. That's product market fit. That's must-have. Another quote from Quora. If you get calls from folks, along the line, I was referred to you by x, y and z because your product does mumble. Those folks are showing product-market fit, and you're seeing product-market fit there. They're calling you up, they don't know you from Adam, and the reason they're calling you up is because someone told them that your product does mumble, and mumble is something that they must have. Finally, the definition we use a lot is, imagine your customers, will take out their wallets and offer you money for x? If they'll offer you money for x, that's product-market fit. So the goal of customer development is to find a minimum viable product that your customers will take out their wallet and offer to pay for on the spot. If you've done that, then you have achieved product-market fit. How do you find out about customers? Well the number one rule of business model development is, get out of the building. This is a sort of mantra of Steve Blank and the whole customer development movement. The truth isn't in there with you guys. The truth isn't in there where you're building your product. The truth isn't in the circle of people who are the founders of your startup, who are the brain trust. The truth is out there with the customers, they're the ones who know. They know whether they want what you've got or not. They are the ones who are going to take out their wallets or not. They are the ones who you're taking the risk on. It makes sense to get out of the building, find out what they think and not substitute your own wishes and thoughts for the conclusions that you reach by talking to customers. So the main points here are the product market fit is the main point of a business model. A better way to find it is don't develop the product up front, develop the customers up front. Don't go about for the customers that once you built the product. Build a product that then goes out and finds the customers. You want customers who must have what you've got. That's product market fit. They take out their wallets to pay for it. And the way to find out about this whole thing, how the whole business works, is to get out of the building. Thank you.
