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- Benchmark founder Andy Rachleff on what most founders get wrong about product/market fit
Benchmark founder Andy Rachleff on what most founders get wrong about product/market fit
“When you’re starting a company, you need to develop a value hypothesis and then a growth hypothesis. The value hypothesis consists of the what, the who, and the how. What are you going to build? For whom is it relevant? And what’s the business model? That’s the how.”
Andy believes the core of product market fit is proving the value hypothesis. And the mistake most founders make is iterating on the “what” variable, which he defines as the inflection point in technology you’re building on:
“Great technology companies are created by virtue of an entrepreneur recognizing an inflection point in technology that allows them to build a new product.”
When Andy was building Wealthfront, this inflection point was brokerage APIs and ETFs.
It’s only once you’ve identified an inflection point in technology (the “what”), Andy argues, that you should begin to focus on the “who” (e.g. what’s the market?) and the “how” (e.g. what’s the business model?).
“You don’t start with a market and look for problems to which you can find a solution because that’s consensus, leads to mundane outcomes, and certainly doesn’t support venture capital. The great returns in venture capital have all come from people who have tried to do something non-consensus.”
The other product/market fit mistake Andy often sees founders make is spending too much money on advertising:
“The way that you really know you’ve found [product/market fit] is if you have exponential organic growth - if you have word of mouth. People only recommend things that they love… I’ve seen many entrepreneurs fall in love with the growth they’ve gotten from their advertising and not realized they’re not getting word of mouth.”