Any market is like an ocean.
It’s big and beyond your ability to control. It’s always changing. It doesn’t care how smart you are or how you want it to behave. And it always wins.
I’ve seen founder after founder tell themselves stories about how the market should work. After all, once you have an idea it’s natural to be obsessed with it, and you will think about it. A lot.
The more you research, compare, and imagine a world with your idea in it, the more you unconsciously develop a habit of seeing validation for your idea.
The False Positives of Red Car Syndrome
In logic circles, this is known as the “Red Car Syndrome” (or as some call it, less colorfully, the Baader-Meinhof Effect”). As an example, you buy a new red car and suddenly you see red cars everywhere on the road. Did the number of red cars really spike, or is something else going on?
In fact this is an extremely common failing in human perception involving two cognitive processes: selective attention and confirmation bias. Selective attention occurs when your brain decides that something is important and starts noticing it more. Confirmation bias happens when you start to believe that something is more prevalent because you are seeing it more often, even if the frequency hasn’t actually increased.
Founders think about their market, their product, and their customers all the time, which signals to their brain that attention should be paid to it. Suddenly the need for the product seems to be everywhere, confirming and deepening your commitment and belief that you’re seeing the world correctly. Your conscious mind seeks to explain this pattern and helpfully leads you to interpret it as evidence that there is a market for your idea.
Jedi Mind Tricks and Involuntary Accomplices
Early exposure of your idea to other humans can actually deepen this perception imbalance on their part. It’s common for friends, family, supporters, advisors, and even investors to fall into the same mind trick once your value proposition has been articulated to them. Some will suddenly notice the need for your solution everywhere, others will suspend their skepticism, knowing they can’t predict the future or read other peoples’ minds and willingly mute their contrary opinions.
(Incidentally, this is one of the reasons why traditional market surveys are woefully inadequate for predicting customer behavior, especially in green-field product categories. By simply introducing the concept of a product, the human brain has no choice but to imagine a world where it exists, which warps it into perceptions that would not otherwise occur.)
Unsurprisingly, those individuals who express doubt about your idea are readily discounted. By the time your idea has taken shape, you’ve probably surpassed the amount of direct research done or data gathered by most others. In a founder’s mind, those who haven’t done their own research are less informed and thus less likely to be correct in their assessment. This is confirmation bias at its finest: the evidence of the need is everywhere, and anyone who doesn’t see it is less informed.
But just like a mariner who looks out to sea and sees a clear course and a clear destination, there’s a lot you don’t know. The assumptions you’ve made about the way the ocean will behave don’t necessarily apply beyond your immediate horizon. A storm could emerge, hidden currents may lie beneath the surface, the winds may blow in a different direction than you thought they would.
No matter how logical or ‘obvious’ it might be, your understanding of the ocean into which you propose to sail – and the assumptions upon which that you base that – are just that: assumptions. As it is said, “a map is not the territory it represents.”
This is absolutely not to say that you’re wrong. In fact, you’re probably right. But until you’ve proven it you’re nowhere.
Dr. Product Market Fit, PhD
One of the fundamental tenets of the scientific method, drilled into us when we’re young, is that a scientist starts off with a hypothesis that explains how they believe the universe behaves. They then set out to conduct experiments to test that hypothesis, study the results, and use that to “prove” their theory. Only after that the experiment has concluded can we say that the hypothesis is true.
Baked deeply into this method are two assumptions: first, that there is a truth that exists whether we like it or not, and second that until it is proven any hypothesis is just speculation.
Successful founders treat their market the same way.
1. Start with product-market-fit hypotheses
Any theory about your market – especially its need for and interest in your product – should start off as just a hypothesis. You may be confident, but until you have actual evidence it’s worth no more than the paper it’s printed on.
Start with the phrasing of the hypothesis: begin with your customer segment and the problem they have, then state the definition of the solution you propose would solve that problem. In other words,
“In order to address problem A, customers who meet description B will use/buy/adopt solution C.”
That’s a product-market-fit hypothesis.
There are likely several variants of the hypothesis that might be true, specifically in the segment (market) and solution (product) definitions. The more specific and targeted those definitions, the more easily the experiments to prove them will reveal themselves. Articulate those hypotheses as clearly as possible, making lists of combinations that might be true.
This is where your team comes in, as well as all your market knowledge and research. Prioritize the hypotheses based on those most likely to be true and provable.
As you’re doing this, pay special attention to your Decision Hinges. Put yourself in the position of an investor and ask which of the hypotheses, if UNTRUE, would most prevent you from investing in the business. If the viability of the venture could turn on their validity (hence them name), they should rise to the top of your priority list.
2. Design and prioritize your experiments
Now, using that same team, design the actual experiments you might conduct that would prove your leading market hypotheses. Odds are there are plenty of options: some will be expensive, some will take time, some may produce only marginal results. Prioritize those with the highest likelihood of success requiring the least amount of effort.
Ask what kinds of results would be convincing and figure out how to measure them. Remember, you’re looking for commitments from paying customers (and/or monetizable users) obtained from the public marketplace as a result of something you did and can repeat. In almost every case this is a marketing exercise: how many “Buy Now” clicks do you get per 100 views? How many “Learn more” downloads or demo requests or phone calls do you get as a result of a given email or advertisement?
That’s a Product-Market-Fit Plan.
3. Execute, Analyze, and Iterate
Now go execute those experiments. Don’t worry about anything else: if you can’t find demonstrable evidence of fit between a market and a product you don’t have a business.
Be disciplined and diligent. Work fast and intensely. Execute as well as you can afford. Every week you spend is eating at your fiscal and psychological resources, which are inherently limited.
In all likelihood your first experiments will fail, or at least be inconclusive. The faster you can convince yourselves that a hypothesis is false, the faster you can throw it away and iterate to find another. Keep the product definition constant and try another segment. Or the inverse: go after the same market segment and tweak your product definition.
Remember: you’re seeking evidence from a market that exists regardless of your wishes. Be ready to release your assumptions and go where the evidence takes you.
The Good News and The Bad News
Which do you want first? Never mind, I’ll choose.
Here’s the bad news: you’re unlikely to find success right away. Even your most promising hypotheses will probably fail.
You’ll be tempted to write off failed experiments or explain away mediocre results. Maybe it was poor execution. Maybe you just haven’t approached enough target customers. Maybe there were outside factors at play that had nothing to do with your efforts. Sometimes this can be true: all the more reason to concentrate on testing one hypothesis at a time and executing as well as possible. Analyze ruthlessly, put your pride aside, then give up what isn’t working and try something else. Fail fast.
The good news is that when you find early evidence of market acceptance, you’ve gone a huge distance towards proving you have a real business and laying the cornerstone of success. You’ll have proven not only that there is a market for your product but that the product definition you offered them is the right one AND that you can execute well enough to connect customers. Once you have that evidence in hand, even at a small scale, gaining market and investor momentum becomes a far less difficult task.
If you’re as good as you think you are, it might not even take that long.
In the end, the best mariners know how to adapt to the mysteries of the sea, as well as being resilient enough to complete their journeys despite the squalls and riptides. And that’s as much as anyone – navigation or in business – can ask for.
