Beyond Horizon
Product/Market Fit and Why Startups Should Care


Most successful products go through two distinct phases 1) product/market fit 2) growth/scale. There are a large number of startups that fails before achieving product/market fit and therefore, it is important to understand what is it and why it matters.

What is product/market fit?

Product/market fit is a phase where you try to establish that you are in a good market and have the right product to satisfy the market. Generally it involves developing a deep understanding of customers, running several experiments and iterating product several times to create the right fit between customer needs and your product.

It’s amazing how imporatnt the concept of product/market fit for startups is and how often it is ignored. Focusing on growth before achieving product/market fit can be counter productive for startups. Therefore, it is critical to know when you have achieved it and when to start focusing on scale. 

How do you determine product/market fit?

So how do you know that you have achieved product/market fit? Which metric or target you focus on? 

Sean Ellis’s definition is perhaps most objective definition for determining product/market fit. Sean devised below survey:

How would you feel if you could no longer use [product]?

1.     Very disappointed

2.     Somewhat disappointed

3.     Not disappointed (it isn’t really that useful)

4.     N/A – I no longer use [product]

As per Sean if more than 40% of your customers respond that they will be “Very disappointed” without your product then you have product/market fit. You can find more about Sean’s definition in this post.

Famous VC Mark Andreessen describes a more subtle method. As per Andreessen, you can always feel when product/market fit is happening. Your product usage would be great, customers would be happy, key metrics would grow consistently so on and so forth. More about it here.

Product/market fit is essentially having an engaging product that users find valuable. This can be measured by metrics that are critical for consumer engagement. Take social networking products for example. Key indicator of engagement is what percent of registered users use the product every day and every month. A good standard for engaging social networking product is that at least 30% of registered users are MAUs and at least 10% registered users are DAUs. So it is safe to assume product/market fit when you hit those metrics. Exact metric differs based on nature of product but the essence remains same that how engaging and valuable product is for consumers.

How to achieve product market fit?

1) Focus on engagement features

Typically features fall into one of the below quadrants:

Prioritize features that improve engagement and retention and de-prioritize every thing else till you achieve product/market fit.

2) Experiment and iterate fast

Iterate quickly through features using build-measure-learn model that Eric Ries describes in The Lean Startup.

The core idea behind build-measure-learn feedback loop is to consider product development as an iterative process of learning while minimizing the time through the loop. Many startups fail because they build product on assumption that they know what customer wants. Build-measure-learn model requires you to constantly test your assumptions by quickly building features while constantly measuring to determine how those features are resulting in real progress.

Finding product/market fit is an iterative process but bottom line is to establish key metrics that define product engagement and focus on those metrics relentlessly. Anything that doesn’t contribute to moving those metrics upward is not important before product/market fit.

Angel’s Gate

Angel’s Gate is interesting reality TV show where entrepreneurs pitch their idea to angel investors and get funded live on TV. This is quite unique concept and extremely interesting. The show has been running quite successfully in Singapore .

I’ve had great time watching few episodes this weekend. Checkout Angel Gate’s website or YouTube channel for more videos.

Facebook’s HTML5 App Store

Last year Techcrunch published an article that Facebook is building HTML5 app store, and they hired CEO of openappmkt.com to carry out the task. More recently during Mobile World Congress Facebook announced that more people are using Facebook on mobile web and that Facebook is working with mobile operators worldwide to solve payment problem for these users. I think this is a great move on Facebook’s part to build a strong foundation for their upcoming HTML5 app store. I believe Facebook’s HTML5 app store can solve three biggest problems that app developers face today:

  1. Discovery: Today app discovery is quite challenging, as there are thousands of app around. Facebook can leverage its social graph to make app discovery social.
  2. Large investments in building native apps: Building and maintaining native apps is expensive, as you need to build apps for completely different platforms. With HTML5 you can build a platform agnostic app.
  3. Monetization: Monetization is low for native apps due to limited payment options. Facebook can facilitate payment by tying up with carriers.

I have been playing with HTML5 apps lately (will follow-up with my views in another post) - I think they have great potential and I am excited about Facebook’s HTML5 app store.

Challenges in Android App Monetization

Google’s Android Market has close to 400K+ apps with more than 10 billion downloads to date and growing at 1 billion downloads a month. Even though the number of app downloads is exploding on Android Market, monetization has been challenging.  According to a recent Distimo report, iPhone apps generated 4 times the revenue of Android apps and iPad app generated 2 times the revenue of Android apps in November last year. 

App Revenue (Rajat Garg) 

Source: The Distimo Report 2011

One big difference in payment mechanism between Apple App Store and Google Android Market is that Apple requires users to have a credit card on file in order to download any apps (even free) in most markets. Apple enforces users to configure their credit card before they start downloading apps from App Store. However, on Android Market users don’t have to configure their credit card to download free apps. They are prompted to enter credit card details only when they buy a paid app. Therefore, buying a paid app is much simpler one-click user experience on Apple as credit card details are already available at the time of purchase.

Another reason for poor monetization on Android Market is low credit card penetration in emerging markets, where Android is dominant player. According to latest Avendus report, India has abysmal 0.2 payment cards per person as compared to 4.5 in US. There are 18 million active credit cards in circulation and an estimated 8 million unique credit card holders.

India Credi Card (Rajat Garg)

Source: The Avendus Report - India Goes Digital (November 2011)

Since the credit card penetration is so low, Google should look at altrenate ways to facilitate payment for Android apps. Carrier billing is one solution and Google has tied up with several mobile operators to help make payment for apps directly though mobile prepaid or postpaid accounts.  However, Google’s carrier billing penetration is quite low as it supports carrier billing in Germany, Italy, Japan, Korea, Spain, UK and US only. Google need to tie up more aggressively with carriers to increase the reach.

There are various companies (such as Boku, Zong, InMobi etc) that have started providing carrier billing options to app developers as 3rd party provider. These companies have much better reach than Google’s carrier billing solution, but apparently Google doesn’t allow developers to integrate 3rd party payment providers while distributing apps through Android Market. This is quite frustrating and it significantly curtails monetization opportunities for developers.

Time is running out for Google and it needs to solve these ecosystem problems soon. The solution may lie in supporting additional payment channels (such as PayPal or Alipay in China), tying-up with carriers aggressively or acquiring a carrier billing company that already has good reach. Whatever is the solution, Google must act fast.

Android in 2011

ComScore’s US digital future in focus report is out and it brings out quite a few interesting trends for smartphones. Look at the chart below about smartphone platform market share:

Android market share

Source: ComScore

It is interesting to note that while Apple gained 4.6% market share during 2011, Android gained 18.6% to reach to an overall market share of 47.3% in US. Android is growing quite handsomely while Apple’s growth is sort of stagnating. I think Android will grow at even higher pace in 2012 due to new much-improved Ice Cream Sandwich upgrade and many new devices hitting the market. Considering that 58% of mobile users in US are yet to switch to smartphones, there is a huge opportunity in front of Android to acquire many more users. If Android is able to dominate not so price sensitive US market, I think it’ll be in even better position in emerging markets where price sensitivity is high.

Though Apple has better developer ecosystem and iOS is first choice for developing new apps today, I think Android will soon become more important for app developers simply because of its large user base.

Google vs Facebook Advertising

Below is a pretty neat infographic of Google revenue distribution. It shows breakdown of Google’s ad revenue by industry. Google’s 2012 revenue was $37.9 billion and 96% of it - $36.5 billion - came from advertising.

What Industries Contributed to Google's Billion in Revenues? [INFOGRAPHIC]

© 2012 WordStream, a Provider of AdWords and PPC Management Software.

It is interesting to see that Amazon spent $55.2 million on advertising on Google in 2011. Amazon’s total marketing spend for 2011 was $1.6 billion, which included online advertising, television advertising, PR and payroll and other expenses of entire marketing, business development and sales department. Out of all these expenses, a third is just spent on Google. This is huge.

I couldn’t find how much Amazon spent on Facebook advertising (if at all), but I am guessing this number to be tiny. Given that Facebook already had millions of active users in 2011, why didn’t Amazon spent as much on Facebook advertising as on Google? I think the answer lies in understanding user behavior on Google and Facebook. Users go to Google with intention to purchase. When users are looking for a specific product, they search it on Google. On the other hand, users don’t go to Facebook with intention to purchase. They might discover products through advertisements, but likelihood of making a purchase as a result of advertisements is significantly less than on Google. Facebook is good for building brand awareness and accidental discoveries but probably not as effective in resulting sell.

Facebook is a threat to Google all right. But probably as not a big threat as it being made out to be!!

Internet TV

I came across this video few days back. Watch it if you have few minutes. It’s awesome!!                                                                                                                                                         

Union of TV, internet and motion sensing technology really excites me. These technologies have been around for long but I think now we are reaching to a point where it’s viable to produce commercial products by combining them. We have a mature internet TV platform now in the form of Android (Google TV), cost of storage and bandwidth is decreasing and motion sensing technology is advancing.

I think cable industry is poised for disruption and rightly so. I am quite annoyed by exploitative cable services and think that consumers should get a choice to pay for what they want to view instead of getting locked down to unreasonable subscription packages. Web is still lacking in content but I am sure industry is moving in the right direction with players like YouTube and Netflix pushing hard to acquire more content. I look forward to the day when cable services become extinct.

Build, Measure, Learn

I am reading “The Lean Startup” by Eric Ries and highly recommend it to anyone who has interest in entrepreneurship and product management. There are many interesting concepts that Eric talks about in this book, but one that really stood out for me is the concept of build-measure-learn. This is relatively simple concept and seems obvious but I felt it is very powerful if applied correctly.

Eric argues that traditional product development methodologies are suited for established companies or products. But startups operate in an environment of high uncertainty where it is not known how customers are going to respond to product and business strategies. Therefore, startups need to adopt build-measure-learn methodology to test their assumptions quickly and constantly fine tune based on feedback.

 Rajat Garg - lean startup

In my opinion, the key to this concept is identifying the correct hypothesis to test. Strategies are based on many assumptions and it is critical to be cognizant of those assumptions and be ready to change direction. Once the hypotheses are known, you should build what Eric describes as Minimum Viable Product (MVP) to test hypothesis. MVP focuses on just the basic functionality to test hypothesis. No bells and whistles- just the basic product. As a next step, you put MVP in front of your customers and measure based on qualitative and quantitative feedback to determine whether the hypothesis is right or wrong. This process helps in constantly getting feedback from the customers and fine tune assumptions before it is too late to change direction.

I found this concept quite powerful and completely believe that it can prove very useful to many startups. The beauty of this is that it is not applicable to just product development but can be extended to any strategy in business. For example, a startup can pass business models through this filter to figure out what is working best. The key is to develop the “lean mindset” and keep looking for assumptions that needs to be validated.

Product Roadmaps

One of the aha moment for me as a product manager has been understanding what really product roadmaps are. Product roadmaps are product management 101 and every product manager is required to maintain one. So did I. I had a laundry list of features that we wanted to do in next release and releases after that. Features that customer wanted, features from marketing wish list, features that would help in sales wins and features that would make CEO happy. At every release, I would pick up few features, throw them in a release plan, spec them out, get management buy-in, evangelize to various functions, present to engineering and I was done.

I was reborn as a product manager when I realized how inefficient this practice is. I have learned my lessons through sweat and tear and realized that feature driven approach is completely useless and counter productive. The problem with this approach is you end up doing a bit of everything. You have features to make everyone happy but that’s not how you create excellent products. The right way to create a product roadmap is to draw a product strategy first - product strategy aligned with business strategy. It helps you understand business goals and missing links in the shortest path to achieve goals. Once you have the strategy ready, it becomes obvious which features aligns with strategy and which ones does not. Creating roadmap is child’s play after that. You just need to prioritize various features and map them into releases. Anything that is not aligned with strategy is low priority and you are free to deprioritize and cut corners if required. Everything else that aligns with strategy must be prioritized and mapped into various releases. 

Another lesson that I learned is analogies work great in communicating product vision. As a product manager, you are thinking about product all the time. The nuances and details are clear in your mind but not in others mind. Therefore, having an analogy for the product vision helps others relate the end goal with something tangible and understand the overall direction of the product. Let me explain this concept by an example. Let’s assume that you are building an online marketplace. The product vision is to build a marketplace that users can access from web and smartphone apps and it is seamlessly integrated through both the channels. One possible analogy for this vision is Petronas Twin Towers in KL – the end product has two towers namely web and smartphones and they are seamlessly connected to each other, similar to Petronas structure.

Product Roadmap Product Management       Product Roadmap Product Management

Once you establish the analogy, it is easy for others to understand the end product by relating it with something tangible. And as a product manager it is easy for you to define releases and communicate progress by putting dates against various construction stages.

iPhone App For Blogs

I read about Bloapp recently and got interested. Bloapp is a tool that allows you to create an iPhone app for your blog easily. To get started, you have to register on the site and provide some basic information about your blog. Bloapp uses RSS feed of the blog to retrieve posts. 

I registered my blog and got the app ready in 5 mins. Here are couple of screenshots of my blog app.

Beyond Horizon (Rajat Garg) iPhone app 1 Beyond Horizon (Rajat Garg) iPhone app 2

Bloapp provides a number of options to customize UI of the app. It also generates a QR code of the app so that other users can install your app. If you want to install my app, download Bloapp iPhone app from App Store and scan below QR code from the app.

It’s an interesting concept but makes me wonder why anyone would use it. Reading blogs on RSS reader apps is very convenient and I don’t see any reason to have different apps for each blog.

Discovery in Social Networks

One of the biggest challenge in creating a social network is making content and users discoverable. A new user must be able to find the content instantly. Discovery is critical, especially during formative period of the network. When there are not many existing users and not much content going, it is critical that newly signed up users discovers existing users and interact with them intuitively. Nothing is more sticky than the content on a social network. And the content has to be discoverable. 

color app social media discovery (Rajat Garg)

Discovery is one of the biggest mistake that Color made. Those of you who don’t know about Color, it is a photo sharing application on iPhone and Android. Color was one of the biggest launch in recent times. They raised $41M from Sequoia and then launched the product with much fanfare. There was a time when everyone was talking about Color and there couldn’t have been a better launch for them. But when the initial euphoria died down, people started realizing that they couldn’t do much with the app. The reason is that it was nearly impossible to discover users on the app. Discovery on Color was based on concept of geographic proximity – you can see other users and their pictures if they are within 100 feet. If other users are in next building or in some other part of the city, you can’t see them on the app. This concept of discovery based on geographic proximity made discovery of users and content extremely hard. I’ve personally never found any users or content on the app so far. I have used the app many times in a number of public places but never found any other user that I could connect and interact with. Whenever I created content on the app, I felt like I am shouting in vacuum. 

Most social networks deals with discovery problem in different ways – some use Twitter/Facebook to find friends, others create a public list of all users that users can browse through to find who is using the service. The specific solution depends on the nature of the product. Whatever is the solution, it is extremely critical to think how your first 1000 users are going to find content from each other.

On Valuation of Startups

Bill Gurley wrote this excellent post about what drives valuation of startups. I read this some time back and thought of putting it on my blog.

Bill says:

What drives true equity value? Those of us with a fondness for finance will argue until we are blue in the face that discounted cash flows (DCF) are the true drivers of value for any financial asset, companies included. The problem is that it is nearly impossible to predict with any accuracy what the long-term cash flows are for a given company; especially a company that is young or that might be using an innovative and new business model. Additionally, knowing what long-term cash flows look like requires knowledge of a vast number of disparate future variables. What is the long-term growth rate? What is the long-term operating margin? How long will this company hold off competition? How much will they be required to reinvest? Therefore, from a purely practical view, the DCF is an unruly valuation tool for young companies. This is not because it is a bad theoretical framework; it is because we don’t have accurate inputs. Garbage in, garbage out.

Bill then goes on and discusses the key characteristics of startups that drive valuation:

 While one might not have the specific numbers required to complete an accurate DCF, we do know which business qualities would have a positive impact on a DCF exercise, all things being equal. When investors see a large number of these traits, they then have an increased confidence that the elements are in place that will lead to a strong DCF value over time. You often hear people refer to companies with strong DCF characteristics as having high “revenue quality.” Companies with characteristics that are inconsistent with a strong DCF model are said to have low “revenue quality.”

Read the full article here.

Zynga At A Glance

Zynga filed for IPO recently and I dug up its S-1 filings to see how the business looks like. Below is a quick summary of Zynga’s business.

Key Facts

Zynga facts (Rajat Garg)

Solid Revenue Growth

Zynga’s revenue grew YoY 61% to $286.6M in March 2011 from $178.3M in March 2010.

Zynga revenue growth (Rajat Garg)

Source: nextUp Report

Revenue Distribution

Key Source of revenue is virtual goods with advertising contributing just close to 5.5% in total revenue.

Zynga revenue distribution (Rajat Garg)

Key Operating Data

Zynga commands a solid Daily Average Users (DAUs) and Monthly Average Users (MAUs).

Zynga operating data (Rajat Garg)

Numbers speak volumes of Zynga’s business. Close to 50 million daily average users and 200 million monthly average users over last 2 years clearly indicates that Zynga’s games have been highly engaging and addictive. Zynga has been successful in launching new games. One of the biggest contributor to success of new games was cross promotion to existing users. While this is good in general, we have to be aware that almost all of Zynga’s successful games and users are on Facebook - and this fact makes Zynga’s business highly risky. Zynga can suffer if it fails to maintain good relationship with Facebook or if Facebook decides to make policy changes that are not conducive to gaming business. This is exactly what happened in 2010 when Facebook changed its policies to require all payment made on Facebook platform through Facebook Credits. Facebook decided to keep 30% of the revenue generated from purchasing Facebook Credits by the users.

Another risk is over dependency on virtual currency as revenue stream. As you would have noticed from the charts above, close to 95% of revenue comes from virtual currency.

The biggest opportunity in front of Zynga is to expand into mobile gaming space. Android and iPhone are ubiquitous and reached to a number where it is possible to build a scalable gaming app business. However, launching new games on Smartphones is not going to be easy as Zynga wont have the same network effect that it has on Facebook with its existing games. Also, the mobile gaming space is already crowded with many successful and big players.

It’ll be interesting to watch what twists and turns lies ahead for Zynga.

How to build a winning social networking product? Few Thoughts

[This post originally ran on pluggd.in]

There is a plethora of social networking products these days. Some are successful and some are not. So what do you do to build a successful social networking product?

Here are few things that you can do:

1) Facilitate content creation

When it comes to social, content is the king. Single most important factor in success of social product is community driven content. Consumers would love the product if it has good content. Content creates stickiness. Users would abandon the product if they don’t find new content no matter how great the product is.

Make sure that content creation is easy and simple in your product. Twitter is successful because content creation is simple – 140 chars. Additionally it has Retweet that makes content creation very easy. Users can just Retweet if they don’t have anything original to say. Facebook facilitates content creation by supporting multiple media types. Users can upload a picture, post a link or just like someone’s status or pictures. Foursquare is successful because it lets you create content by simply checking-in. The mantra is “don’t make me think”. If users have to think and toil for content creation, they wont.

2) Leverage other social networks

The irony with social networking products is that their success facilitates success of their competitor. Twitter and Facebook already have a large social graph. Leverage that to reach out to your potential users. Instagram did that beautifully. Instagram allowed users to share the pictures on Twitter & Facebook by a simple link. When users clicked on the link, Instagram not only presented the picture beautifully but also showed users how they themselves can take such beautiful pictures by using Instagram.

Social Networking Instagram (Rajat Garg)

Quora did that elegantly too by letting you post a link to Twitter when you ask a question or answer a question.

3) Build Bacn in your product

Bacn is something that brings back your users to your product. Typically it is an e-mail that is sent out to users to alert them of activities. Here is an encyclopedia link of Bacn. Remember Bacn is not a spam and users benefits from it by knowing what is new. Traditionally Bacn has been e-mail but it could even be push notifications in smart phones. Use e-mails and push notifications intelligently to generate traffic and activity.

4) Focus on UX/UI

Last but not the least, make sure that you have absolutely rocking UX and UI. There will be at least three other products with similar concept and your differentiating factor would be UX/UI. The consumers must fall in love with your product and it should be extremely easy to use. Path is a very good example of sleek UX/UI.

Social Networking Path (Rajat Garg)

These are few key ingredients of a winning social networking product. What are others? Do share your insights/comments.

Battle in the clouds: SugarSync vs Dropbox

Cloud is back in news. It has been a buzzword in tech community with apple announcing iCloud few days back. Besides iCloud, there is another cloud product that created lot of noise in tech community - Dropbox. Dropbox has been darling of tech community and gathered some very good PR in the past. SugarSync, on the other hand, did not get much PR but has been making progress slowly and steadily. The battle is on and time will tell who emerges as winner. Here is a direct comparison of two products to see how they fare against each other.

Ease of Use 

When you install Dropbox, it creates a folder named “dropbox” on your device. You have to keep all files that you want to sync in this folder. This means you have to either move all your files to dropbox folder or you have to keep copying files manually to dropbox folder. SugarSync is much simpler. During setup, you have to tag the folders that you want to backup to SugarSync. That’s it. Your folders will keep syncing with SugarSync from then on. 

Pricing

SugarSync beats Dropbox hands down in pricing. SugarSync not only has more flexible pricing options but also is significantly cheaper.

Dropbox Sugarsync (Rajat Garg)

Features

The biggest difference between Dropbox and SugarSync is that SugarSync provides an option to backup files while Dropbox doesn’t. Dropbox automatically syncs files to all devices and you don’t have an option to just backup files on cloud without having it to sync on other devices. What if you don’t want those large data files from work on your iPhone? SugarSync supports both syncing and backing up data. Folders that you add to SugarSync gets backed-up on cloud and you can access them from any device online. And if you want certain files to be available on all devices offline, you just need to drag-and-drop those files to a folder called “Magic Briefcase”. Lack of ability to backup data is a major drawback in Dropbox for me.

Apart from this, I found both SugarSync and Dropbox to be similar feature wise. Well, atleast for commonly used features. Both support syncing multiple devices. Both have very useful iPhone apps. Both supports accessing files via browser and both have ability to share files to friends / other users. And both support multiple platforms.

There could be other features where one could be better than other but I have just focused on those features that I use.

Conclusion

SugarSync is the winner for me. Simpler to use, more value for money, work flawlessly and supports all required features.  Dropbox is famous for its simplicity but for me SugarSync is as simpler and works better.