a16z founder: What is the most important thing for entrepreneurial success?

Original title: The only thing that matters

Original author: Marc Andreessen

Abstract:This article is from a series of blogs written by Marc Andreessen, the founder of a16z and Netscape Navigator, in 2007, mainly focusing on topics related to entrepreneurs and VC. In the blog involved in this article, Marc Andreessen, based on his own experience and what he has seen and heard, pointed out that for a startup team, the most important factor for success is not the team and the product, but the market, or PMF (product-market fit).

Since Marc Andreessen is a successful serial entrepreneur and has made outstanding achievements in the Internet and venture capital industries, we think his insights are quite convincing. For this reason, we have translated this blog into Chinese, hoping to bring some inspiration to entrepreneurs.

Main text:This article is about the only thing that matters to a startup. But first, we need to understand some theoretical foundations: If you observe a large number of startups, such as 30 to 40 or even more, and try to eliminate randomness and look for patterns, you will find two obvious facts:

The first obvious fact:

There is a huge difference in the success of startups - some companies are incredibly successful, some companies are highly successful, many companies are just barely successful, and a considerable number of companies fail directly.

The second obviousfact:

The three core elements of a startup—team, product, and market—vary greatly in quality.

In any startup, the team members may be excellent or flawed; the products of some companies may be engineering masterpieces or barely usable; and the market in which the company is located may be booming or sunset.

So we began to think: What factors are most related to entrepreneurial success—team, product, or market? Or more directly, what are the determinants of success?For those who study startup failures, what is the most dangerous: a bad team, a weak product, or a suboptimal market?

Let’s start by defining a few key terms:

• Quality of the team: How well-fit the CEO, executives, engineers, and other key players are to seize the opportunity. When measuring teams, I focus more on execution than experience, because the history of the tech industry is full of examples of teams that were built by first-timers and achieved great success.

• Quality of the product: How attractive is the product to real users. Is the product easy to use? Is it feature-rich? Does it run smoothly? Is it easy to scale? How polished is it? Are there any bugs?

• Market size: The number of potential customers/users facing the product and how fast it is growing (assuming profitability is feasible after scale, that is, the cost of acquiring customers is lower than the revenue generated by customers).

Some people might question my categorization: "How good can a product be if nobody wants it?" In other words, isn't the quality of a product determined by its appeal to many customers?

The answer is no. Product quality and market size are completely different concepts, and the classic example of this is that many software applications are developed for operating systems that almost no one uses. You can ask programmers who have developed for the BeOS, Amiga, OS/2, or NeXT application markets what the difference is between "a great product" and "a huge market."

Team, Product, and Market Priorities

So, if you ask entrepreneurs or VCs which is the most important thing for a startup team, team, product, or market, many will say team. This is an obvious answer, in part because you know more about the team and less about the product and market at the start-up stage of a company—because the product is not yet finished and the market is often not fully explored. In addition, we are all taught from a young age that people are the most important asset. At least in the United States, the idea of ​​valuing people is deeply embedded in our culture, including self-esteem education programs in high schools and the "right to life, liberty and the pursuit of happiness" mentioned in the Declaration of Independence. Therefore, the answer "the team is the most important" sounds "right". But if you ask some engineers, they may say that the product is the most important. For the technology industry, the product is indeed the center, and the mission of a startup is to invent products that customers buy and use. Apple and Google are the most successful companies in the industry today because they make the best products. Without products, there is no company. Imagine having a great team but no product, or having a huge potential market but no product. What kind of company would it be?

But personally, I hold a third view - I believe that the market is the most important factor in the success or failure of a startup. Why? Because in a large market - a market with a large number of real potential customers, the market will drive the product out of the startup. The market has a demand, and the market will be met as long as the first viable product appears. Such a product does not need to be excellent, it just needs to be basically usable. The market does not care how good the team is, as long as the team can deliver a basically usable product.

In other words, customers will actively come to you to buy the product, and your main goal is just to meet customer needs and deliver the product. Even in a market with huge potential, the level of the team can be improved spontaneously. Specific examples can refer to search engines, online auction platforms and router markets.

On the contrary, in a bad market, even if you have the best product in the world and an absolutely excellent team, you will still fail. You will waste years looking for customers that don’t exist, your great team will eventually get demoralized and quit, and your startup will fail. For specific examples, refer to the markets for video conferencing, workflow software, and micropayments.

Rachleff’s Law of Entrepreneurial Success

Andy Rachleff (formerly a partner at Benchmark Capital) once summarized the following view:

1. When a great team meets a bad market, the market wins.

2. When a bad team meets a great market, the market still wins.

3. When a great team meets a great market, miracles happen.

The market is the decisive factor in the success of a startup, and a bad market environment cannot be saved by a great team or a great product. You can screw up a great market - it has happened and it is not uncommon - but assuming the team has basic capabilities and the product is basically acceptable, a great market often equals success and a bad market often equals failure. Ultimately, the market is the most important, and neither a great team nor a great product can save a bad market.

The question is, what should a startup team do? First of all, since the team is the factor you can control most at the beginning, and everyone wants to have a great team, what does a great team actually get you? Maybe a great team can get you an okay product, and ideally, a great product. However, I can give you many examples of great teams screwing up their products, and the fact is that great products are really hard to build.

Hopefully, a great team will also give you a great market - but I can give you plenty of examples of great teams that did well in bad markets, only to fail. A non-existent market doesn't care how smart you are.

In my experience, the most common combination of great team and bad product/bad market is second- or third-time founders who had a huge success with their first startup, got cocky, and then made mistakes.Let's say there's a high-profile, very successful software entrepreneur who is pumping about $80 million into his latest startup, but is barely getting anything out of it except for getting in the news or getting a few beta customers - because there's almost no market for what he's building.

Conversely, there are plenty of weaker teams that have had huge success because of the sheer scale of the business in their market. Finally, to quote Tim Shephard, "Given the same market and product, great teams will always beat mediocre teams."

This brings us to the second question: Can't great products create huge new markets? In some cases, yes, but not often.VMWare is the latest company to do so - VMWare's product was so profoundly transformative from the start that it catalyzed a whole new movement in OS virtualization, which ultimately became a huge market.

Of course, in this case, it doesn't matter how great your team is, as long as the team can get the product to market with the basic quality that the market needs. I'm not saying you shouldn't focus on team quality, or that VMWare's team wasn't great, I'm saying that if you bring a product to market that's as transformative as VMWare's, you'll succeed, that's all. Beyond that, I wouldn't expect your product to create a new market from scratch.

Question 3: What should I do as a startup founder? Here’s Rachleff’s corollary to startup success: The only thing that matters is achieving product/market fit, or PMF. PMF means having a product that meets the needs of a market under good market conditions.

When product/market mismatch occurs, customers don’t get enough value from the product, word of mouth doesn’t spread, usage isn’t growing very fast, press reviews are a bit “boring,” sales cycles are too long, and many deals can’t be closed.

When product/market fit occurs, customers place orders as fast as you can make products, and usage grows as fast as you can add servers. Customer payments pile up in your company’s account, and you hire salespeople as fast as you can. Reporters call because they’ve heard about your hot product and want to talk to you. You start winning Harvard Business School's Entrepreneur of the Year award, and VCs are watching outside your house, wanting to invest in your company. But in reality, many startups fail before product/market fit, and they fail because they never achieve PMF.

Going a step further, I think the life of any startup can be divided into two parts: before product/market fit (call it "BPMF") and after product/market fit ("APMF"). When you are BPMF, focus on achieving PMF and do whatever it takes to get product/market fit, including changing team members, reworking the product, entering different markets, trying to find users as much as possible, or raising more money - whatever you need.

When you are truly engaged in the process of PMF, you can ignore everything else.

Whenever you see a successful startup, you will see that it has achieved product/market fit - and along the way, it may have screwed up everything else, such as marketing plans, media relations, compensation policies, etc. But this does not hinder the success of the startup.

On the contrary, you will see that many well-run startups are perfect in all aspects, with perfect HR policies, excellent sales models, careful marketing plans, excellent interview processes, delicious catering, 30-inch monitors for all programmers, and top VCs on the board, but they fall directly off the cliff because they can't find the point of PMF.

The irony is that once a startup is successful, when you ask the founders what made the company successful, they usually cite various things that have nothing to do with success. People have a hard time understanding causality, but in almost all cases, the cause is actually PMF. Otherwise, what else could it be?