Product ＞ Strategy ＞ Business Model

http://www.avc.com/a_vc/2013/06/product-strategy-business-model.html

by turingbook • 13 years ago

86 34 13 years ago

turingbook• 13 years ago

I translated informally into Chinese: http://geek.csdn.net/news/detail/1290

callmeed3• 13 years ago

>> 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.

smalter• 13 years ago

there are degrees of product-market fit. as someone concisely put it in the comments on A VC, there's fit and there's FIT.

If you're a first-time entrepreneur, you'll most likely need to demonstrate some amount of fit, some traction, to get interest from outside investors.

Also, there are a wide range of investors, even within the VC world, some more comfortable with seed stage and others who only like to invest when a business is ready to move from initial traction to scale.

Then it's a matter of getting from fit to FIT.

il• 13 years ago

You don't need funding to get to product-market fit. The optimal strategy is to bootstrap to fit and raise money to scale and build the business.

callmeed3• 13 years ago

I'm aware, I'm just pointing out how Fred is implying you already have investors when you find product market fit.

aviswanathan• 13 years ago

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.

ronilan• 13 years ago

Very well articulated. The order of things is also the order of precedence.

paul_f• 13 years ago

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.

cglee• 13 years ago

The product/market fit isn't the business model. The product/market fit is first seeing if there's any demand whatsoever of whatever you're selling. The strategy is how you position yourself within the market. The business model is how you plan on scaling the business in a systematic way.

You don't want to think about the business model before you have product/market fit. We could just be arguing semantics here, but I think the general advice is sound.

vinceguidry2• 13 years ago

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.

cs02rm0• 13 years ago

With investment, whether it be time and/or money. Higher risk, higher reward.

pedalpete2• 13 years ago

I think that may be a character thing Vince, and I don't in any way mean that as a negative. I'm a product guy, not a salesman. I think-up then create products (mostly websites and apps). I do it for clients, and often for myself. To me, building product is the easy part. I hate selling myself to employers or clients (though love selling my products).

When you say 'How does one get to product?' do you mean how do you build a product? Or how do you discover a market? Or how do you come up with ideas? If you can elaborate, maybe I or others on HN can help you out.

vinceguidry2• 13 years ago

Well, a statement like Product > Strategy > Business Model and rationale behind it seems to incorporate a sort of 'hacker-level' understanding of business that I would have liked to see extended. Ramit Sethi's freelancing course had that same appeal, that you could reliably build a money-making enterprise the same way you might build a bridge.

When building product, how would you boil the steps down? Do you start with ideas? Or by building tools? How do you know when you're done and it's time to move on to Strategy? What's the minimum number of things a Product has to have before you can call it a Product? As a programmer, I tend to focus on personal skills, but skills != product. Every time I start to think about product, I either get bogged down trying to make the wrong things perfect because I don't know which steps are most important.

Conceptually, I might understand the basics. But turning those basics into a workable product seems overly complex.

badclient• 13 years ago

How do you achieve product market fit without validating your business model?

vladd• 13 years ago

product-market fit = building something a market wants

business model = how to sell it higher than production costs

One way to see if the market wants what you've built is to charge for it, but there are other ways, especially in consumer web.

ozataman• 13 years ago

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.

fredwilson3• 13 years ago

as the person who wrote the "empty bag of words", i'd like to say that i agree that a business needs to have strategy at its core. but product strategy and business strategy are two different things. get the product right first, then figure out the business strategy, then business model. and twitter isn't the only business i've invested in. i've been doing this for 27 years and have invested in hundreds of startups. i used twitter as an example but my message was based on the totality of the experience, not just one company

pshin45• 13 years ago

> Seems to me like a somewhat empty bag of words.

And the "dismissive and snarky comment voted to the top" trend continues...

mindcrime• 13 years ago

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.

Yes. Business model and strategy are so inherently related (practically "joined at the hip") that I'm not even sure it makes sense to try and divorce the two and talk about them separately. And to the extent that you can talk about them as separate things, it seems obvious to me that changes in one are likely to drive changes in the other.

What is strategy? Well, one definition is "the things you do that your competitors don't". Another is "it's the things you don't do". Well, changing your business model is changing "what you do" (or "don't do" as it were).

And to flip things around... let's say you have some kind of SaaS application, and you've chosen "freemium" as your business model. Your "strategy" now is still "what you do that your competition doesn't". Changes to strategy that can fit within the "freemium" model are strategy that can evolve idependently of the business model. For example, you may have chosen to compete on "product quality" as a metric, so you may spend far more money on testing and QA than a competitor, in order to try and create a product that is better. That's "strategy" and that's independent of the "business model"... except when it isn't.

Like, when the freemium model doesn't drive enough revenue to support the dicated investment in testing and QA. So what do you change, the strategy or the business model? Which one is really more "primal"? I think you can look at it either way, and you have to keep things in harmony one way or the other.

So we're back to how business model and strategy are largely "joined at the hip". Some elements of either can evolve independently of the other, but you just can't divorce them totally and put them into a timeline.

So my advice is not to rush into business model without first finding product market fit and then taking the time to lock down on a crisp, clear, and smart strategy for your business.

My only argument with this is the use of the term "locked down" to refer to strategy. Your environment isn't static and unchanging and your strategy can't really be either. Strategy, IMHO, is a dynamic and iterative process that is never "done".

pedalpete2• 13 years ago

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.

eliajf• 13 years ago

He replied to a comment: "strategy is figuring out what part of the market the company wants to play in, how it goes to market, and how it differentiates itself in the market it is about what you are going to do and importantly what you are not going to do."

orthecreedence• 13 years ago

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.

fredwilson3• 13 years ago

as the VC you are ascribing that to, let me correct you. i care a lot about making money. i just think there is a time and place for everything. you can get the "make money" stage too quickly and it hurts more than helps.

auctiontheory• 13 years ago

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.

tzury• 13 years ago

Here is my version:

    Customers > Product > Founders > VC

davj• 13 years ago

This post should be prefaced with the fact that this model of thinking may only apply to venture-backed consumer Internet companies...

qeorge• 13 years ago

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.

snowwrestler• 13 years ago

That is why Flickr recently announced that every free user will get 1 TB of storage for photos.

espinchi• 13 years ago

What strategy do you think these services could follow in order to keep users engaged while making money?

I can't come up with a good answer to this myself.

adrianhoward• 13 years ago

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.

kdavis• 13 years ago

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.

daemon13• 13 years ago

I'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)

Product ＞ Strategy ＞ Business Model

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