Product managers: Is product-market fit enough?

According to Wikipedia, Product-market fit is defined as the degree to which a product satisfies the market need. It has been highlighted as the key reason for the success of many startups and products.

Marc Andreesen, who originally coined ‘Product/Market Fit’ in his post “The Only Thing That Matters”: gives us a vivid description of what a product-market fit feels like. Customers are buying the product just as fast as you can make it. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can and so on.

However when we examine Signal: An app focused on privacy, product-market fit does not give us the complete picture. This app has a great product-market fit and a good user base, yet it has not seen the growth in the likes of its competitor Whatsapp.

With the growing debate on privacy, the ever-increasing demand for data privacy, the recent debate on Whatsapp privacy policy, and support from Tech leaders like Elon Musk and Jack Dorsey. Signal should have seen tremendous growth, yet the majority of people are reluctant to switch from its competitor Whatsapp.

This behavior could easily be explained: The prospect of people joining alternative networks that most of their friends aren’t already using is low, regardless of whether it offers significantly improved functionality. This is the network economy in action, Whatsapp overtime has built such a vast network of users, it has become virtually impossible for any other product to replace it.

Network economy is one of the business strategies that has given leverage to companies like Facebook, Twitter, and Tik-Tok to deter competitions in the market place. It turns out business strategy really does matter. Along with product-market fit, a sound business strategy for the product will lead to success in the long run.

Hamilton Helmer’s in his book 7 Powers: The Foundations of Business Strategy has shared his experience after working with over 200 clients as a strategy consultant, including Netflix, Spotify, and Adobe. He has developed a comprehensive business strategy toolset to help companies create a competitive advantage in the marketplace. I would like to share 3 business strategies from his book.

• Scale Economies: A business in which per unit cost declines as production volume increases. Companies like intel which have set up manufacturing units have greatly reduced the per-unit cost of its products. This creates a huge barrier to entry for any competitor in the market.
• Network economies: The business in which the value of the service to each user increases as the network grows as in the case of Whatsapp, LinkedIn, and Snapchat.
• Switching cost: The business in which the customer incurs a value loss from switching to an alternative supplier for additional purchases. Implementation of software solutions by companies like SAP is expensive not only in terms of dollars but also in creating unique workflows and training which makes switching to another product expensive.

I hope this has been a useful introduction to business strategies and will help you develop frameworks to create a competitive advantage in the market. I would encourage you to read 7 Powers: The Foundations of Business Strategy to get an in-depth understanding of these strategies and more.

Please reach out to me on LinkedIn or Twitter if you have questions or want to discuss your thoughts.