Why Do Most Startups Fail After Reaching Product-Market Fit?
Has your startup reached Product-Market-Fit? It is time to set your eyes on Product-Market-Domination.
Product-Market-Fit! = Guaranteed Success?
The podcast This Week in Startups (TWISt) covered an interesting listener question. Why do most startups fail after reaching Product-Market Fit?
Interesting question. People often think of Product-Market-Fit as the only essential milestone. Many founders assume success after Product-Market-Fit is all but guaranteed.
Failure post Product-Market-Fit is Common
“Au contraire, mon frère,” according to host Jason Calacanis. A large majority of startups fail after Product-Market-Fit. He mentions three common reasons:
- When the market does not show the scale, velocity or depth to sustain initial margins;
- When there are too many competitiors in the market, competing each other to death;
- When founders get emboldened and move to the next thing too early.
Failing to Leverage Fit
The common theme between these three reasons? The failure to turn Product-Market-Fit into Product-Market-Domination. With Product-Market-Fit, the startup secures a mere foothold in a market. But a foothold is of little benefit to company and investors. Unless the startup can turn it into unassailable market leadership.
Each of Jason’s reasons above represents a failure to reach Product-Market-Domination in time.
- Scale reasons: failure to model serving the entire market, beyond early adopters;
- Competition reasons: failure to protect the unique product-market-fit with barriers to entry;
- Distraction reasons: failure to stick with the foothold until market leadership is sustainable.
Only One Gorilla
In tech companies, it is especially important to strive for Product-Market-Dominance. Tech industries tend to converge onto one Gorilla that completely dominates the category. Examples:
- Microsoft Office in productivity software
- Oracle in enterprise databases
- Google in search
- Facebook in social
- Amazon in e-commerce
Each category may have one or two chimp competitors and a few monkeys fighting over scraps. But there is no mistaking who the gorilla is and who near 100% of the profits.
Adopt a Scaleup Playbook ASAP
Product-Market-Fit proves market potential to your competitors as well as your investors. Without focusing all resources on sustainable market leadership, you will soon turn into an also-ran.
In other words, as soon as you reach Product-Market-Fit, the game changes. Those startups that adopt the scaleup playbook can aspire to become the gorilla. Those that stick with the startup playbook for too long will fail. Even after reaching Product-Market-Fit.