Product-market fit for Gen Z
Avoid hype at all costs.
The feeling of product-market fit is like switching off zero gravity mode.
Before you have it, there are times when you (the product) bounce against the planet (the market) and you sense what gravity might feel like. But before you know it you’re floating away.
When you find it, you stick to the ground, moon boots on.
If you were building a startup throughout most of the 2000s or 2010s, it was that simple.
There are many measurements of product-market fit. From the infamous question through to calculations around retention. But one way which is less numeric, but equally powerful, is thinking about it in terms of a product’s hype.
Hype for a long time was almost synonymous with a startup on its ascendency.
In 2005, Facebook launched in the UK to a handful of universities. I was still two years away from being university age. While it initially had a negative impression as something for ‘boring university life’, it quickly became the most sought after thing you could get. I remember people trying to fake university emails to get in. The lack of access and hype drove that.
When Uber launched, similarly, it had the same impactful contagion of telling people “you have to try this” it was a 0 to 1 experience.
But today the link between hype and product market fit is starting to break, and a lot of this stems from the changing consumer habits of Gen Z.
The evolution of product market fit
Benchmark Capital’s Andy Rachleff first coined ‘product-market fit’ in the 90s. In his original definitions, he said
“A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do.”
The scale of “audience” and “business model” are dictated by your business strategy. If you’re a village shop in rural Shropshire, then you can have product market fit by attracting a few hundred regular paying customers. But if you’re building a business that has taken on investment of any kind, then the audience and model need to be scale to be much larger. A challenger FMCG brand needs that audience and business model to support tens of millions of revenue. A tech startup needs to support hundreds of millions or billions.
“The only thing that matters”
Not finding product market fit kills startups. I know this first hand. I’ve seen it happen to dozens of brilliantly-run businesses, with fantastic and radically innovative products, built by the smartest, most passionate, and incredible teams. If having a great team or product was a sure fire way to startup success, then we’d not have the failure rate we do.
There were two key takeaways in Marc Andreessen’s 2007 post ‘The only thing that matters’1
That market is the most important thing to focus on when building a company
Building the product for that market therefore becomes the sole focus early on
If {product} were to disappear tomorrow, how disappointed would you be?
Sean Ellis’ question is now the de facto early yard stick for seeing if you have PMF.
And it’s been a useful device for many years.
Hype as an early indicator of product market fit
Facebook, Twitter, Uber, Spotify, Instagram, Snapchat, WhatsApp, Fitbit, Dollar Shave Club. These businesses all had massive hype waves.
The hype wave was self-fulfilling.
People loved those products early. They used them and told their friends. Their friends joined and loved it. Sooner or later, the press picked up the new It thing and wrote about it. Then a new wave of people joined, loved it, told their friends. These hype viral loops continued.
And if you asked any of the tens of millions of users of any of those products the Ellis question, you’d have had a huge majority responding ‘very disappointed.’
Hype was correlative with product market fit.
The day the hype died
For a short window of time, there were two startups that felt akin to the early days of Facebook or Twitter. Clubhouse and Houseparty. You could not escape either.
I’ve been an Android user for the last ten years and I bought a five-year-old, second-hand iPhone so that I could use Clubhouse when it launched as iOS only. So powerful was that hype.
If you asked the millions who flocked to them the PMF question, I can guarantee you they’d have scored highly with Sean Ellis’ question. And yet within a year both were dead.
Avoid hype at all costs
Sarah Tavel (another Benchmarker) has written a lot on hype. Two years ago, she penned a post on what she calls the Hype Subsidy2. This is the notion that people engage in hype products because they expect to be rewarded.
There are two elements she identifies.
First, is that there is a lot of status in being an early adopter in something that blows up. This isn’t limited to startups. Being in the know about the cool band, artist, writer, bar, restaurants, DJ, whatever, is deeply linked to this. There is significant cultural status in knowing you were there before everyone else piled in.
I was on a call the other day where we were discussing our Monzo membership numbers. While mine was pretty high (in the 50,000s), I’m very proud to be a sub-300 Yonder member. Rationalists will laugh, people outside of the bubble will cringe, but amongst your individual cliques, being early is a status signaller.
Second, there’s the financial benefit. Often by joining networks early you are financially better off. Whether it’s buying Bitcoin early, getting hundreds of pounds of Uber credits, or getting to become a crowd investor in a startup you’d not usually get access too.
We know this when we join things early, it’s playing in the back of our minds. We believe we’ll be rewarded for it later. This is the hype subsidy.
In 2007 a study from University of Georgia3 found when when people expect something to be great, this can lead to more critical experiences of it. And so this notion that hype is universally good has for a long time shown cracks.
I recent read Anu Atluru’s most recent (and excellent) Weekend Theorys4. For anyone not yet reading it, sidebar - check it out. Her recent post helped flesh out some of the ideas in this post. In particular she goes into detail on a few other areas.
It’s not just about the time-to-value ratio you should care about, but the time-to-lameness. For all those that blow up, just as many can quickly die.
It’s not just Clubhouse and Houseparty. Consider Quibi, Pebble, Magic Leap, Tidal. So many brands have been hyped, blown up, and died.
What role do Gen Z play in this?
A McKinsey study5 found of all the core behaviours associated with Gen Z, they all anchor to a pursuit for the truth. In it they outline multiple truths:
Individual truth
Connecting to different truths
Understanding others’ truths
Understanding what is real
One thing that blew up on TikTok – the archetypal platform for Gen Z – was the truth behind influencers.
Last year, both Steven Bartlett and Grace Beverley came under fire for not properly disclosing connections to brands.
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Laws are shifting across the world. Brands are required to reveal more information all of the time as to what is an ad and what isn’t. Even without the legal system following suit, TikTok has been a central hub of what’s true and what’s not over the last year.
Why Gen Z refocused the notion of product market fit
All this makes Gen Z, at least in theory, less susceptible to hype. Hype for a long time was correlative to product-market fit. And as a result, was often the thing that a lot of founders and marketers sought out.
In upper millennials this was often through a desire for big bang press launches. In lower and mid millennials this was the viral hype of the startups they grew up with. But wherever you look, hype has been associated with something desirable and one of those signs that you’ve made it.
It is – in Marc Andreessen’s view of what’s needed for success – a demonstration that the market exists and that you’re satisfying it.
But, if you’re building for Gen Z, be prepared for the inherent scepticism. Be prepared for your claims to be questioned, your hidden partnerships to be exposed, and for the time-to-lameness to speed up.
If you want to build an investor-backed company, you still need the market conditions to be right in PMF terms. But be wary of hype-seeking behaviour, especially if you’re building for Gen Z.
https://pmarchive.com/guide_to_startups_part4.html
https://sarahtavel.medium.com/the-danger-of-early-hype-in-consumer-social-c32229e62f34
https://www.sciencedaily.com/releases/2007/03/070327113414.htm
https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/true-gen-generation-z-and-its-implications-for-companies