How To Startup Part 6: How to Find Product-Market Fit

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

How To Startup Part 6: How to Find Product-Market Fit
Image by SvetaZi/ Shutterstock

For any business to survive, there must be consumers who will buy what it sells. As a startup founder, it’s crucial to assess the market’s demand for your product or service. Knowing whether your product satisfies market needs is the difference between a successful company and a failed product. That’s where product-market fit comes along.


What Is Product-Market Fit?

Product-market fit (“PMF”) means that you have what people want. It means being able to demonstrate that your service serves a need, and that people are willing to pay for it. PMF matters more to the future of your business than building the perfect team or creating masterful marketing tactics. It’s the lifeblood of any business. And every startup’s top priority should be finding PMF as quickly as possible.

When finding PMF, you should ask yourself what exactly your product or service is being hired to do. For example, it’s very clear what users want out of Pacaso. Consumers use Pacaso to help them pay less money to buy a second home. Recon Food (one of my other startups) is still finding its PMF – some people use it to post photos of food they’ve cooked, some use it to decide what to order at a restaurant, and some use it for entertainment to look at great photos of food. We are still asking ourselves what service Recon Food is being hired to do, and what features we should ship next.

When trying to discover if you really have product-market fit, here are some important questions to answer:

  • Are people genuinely excited about your minimum viable product (MVP)?
  • Are users finding and using your product organically?
  • Are you retaining customers/users?
  • Are your early users referring the service to other people?
  • Are people willing to pay for it?

Measuring PMF

The measurement stage is vital as it allows you to learn whether you are on the right track or not and make changes accordingly. There are several data points and metrics that you can use to validate whether your product is headed in the right direction:

  • Paid growth. How many new customers use your product via paid channels like Instagram, TikTok, Google Ads, etc.
  • Organic growth. How many new customers are acquired without paying. For example, word of mouth or free referrals.
  • Conversion. How many people who download or try your product actually use it or pay for it.
  • Retention. Out of an initial user group, how many come back and keep using the product.
  • Customer acquisition cost (CAC). How much you pay to acquire customers. The most basic way to calculate this is to divide your total marketing costs (including marketing and sales headcount) by the number of customers acquired.
  • Customer lifetime. The average amount of time you can retain a customer on the platform (usually measured in months).
  • Customer lifetime value (LTV). The total worth of a customer over the entire period of your business relationship. You can calculate this by finding your gross profit per customer each period and multiplying it by your customer lifetime. Your LTV:CAC ratio should always be >1 because otherwise, you lose money with each new customer.

Timing

Raising outside capital should enable you to build your minimum viable product and find product-market fit. You should ideally validate your market demand during the MVP phase. See below.

Once you’ve actually achieved product-market fit, you can start focusing on growth. Be proud if you make it to this step as it’s a hard one to achieve for many startups. But you’re not done here.

While the earliest version of Snapchat was a simple disappearing photo-sharing app only for iPhones, they’ve since evolved into a messaging platform and one of the world’s top media-sharing apps. As the market changes, your product needs to change as well to maintain its PMF. Snapchat is an excellent example that product-market fit is a never-ending journey. Once you have it, you must work hard to maintain it.

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How the 'Thrift Haul' Boosted Secondhand Ecommerce Platforms

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
How the 'Thrift Haul' Boosted Secondhand Ecommerce Platforms
Evan Xie

If you can believe it, it’s been more than a decade since rapper Macklemore extolled the virtues of thrift shopping in a viral music video. But while scouring the ranks of vintage clothing stores looking for the ultimate come-up may have waned in popularity since 2012, the online version of this activity is apparently thriving.

According to a new trend story from CNBC, interest in “reselling” platforms like Etsy-owned Depop and Poshmark has exploded in the years since the start of the COVID-19 pandemic and lockdown. In an article that spends a frankly surprising amount of time focused on sellers receiving death threats before concluding that they’re “not the norm,” the network cites the usual belt-tightening ecommerce suspects – housebound individuals doing more of their shopping online coupled with inflation woes and recession fears – as the causes behind the uptick.

As for data, there’s a survey from Depop themselves, finding that 53% of respondents in the UK are more inclined to shop secondhand as living costs continue to rise. Additional research from Advance Market Analytics confirms the trend, citing not just increased demand for cheap clothes but the pressing need for a sustainable alternative to recycling clothing materials at its core.

The major popularity of “thrift haul” videos across social media platforms like YouTube and TikTok has also boosted the visibility of vintage clothes shopping and hunting for buried treasures. Teenage TikToker Jacklyn Wells scores millions of views on her thrift haul videos, only to get routinely mass-accused of greed for ratching up the Depop resell prices for her coolest finds and discoveries. Nonetheless, viral clips like Wells’ have helped to embed secondhand shopping apps more generally within online fashion culture. Fashion and beauty magazine Hunger now features a regular list of the hottest items on the re-sale market, with a focus on how to use them to recreate hot runway looks.

As with a lot of consumer and technology trends, the sudden surge of interest in second-hand clothing retailers was only partly organic. According to The Drum, ecommerce apps Vinted, eBay, and Depop have collectively spent around $120 million on advertising throughout the last few years, promoting the recent vintage shopping boom and helping to normalize second-hand shopping. This includes conventional advertising, of course, but also deals with online influencers to post content like “thrift haul” videos, along with shoutouts for where to track down the best finds.

Reselling platforms have naturally responded to the increase in visibility with new features (as well as a predictable hike in transaction fees). Poshmark recently introduced livestreamed “Posh Shows” during which sellers can host auctions or provide deeper insight into their inventory. Depop, meanwhile, has introduced a “Make Offer” option to fully integrate the bartering and negotiation process into the app, rather than forcing buyers and sellers to text or Direct Message one another elsewhere. (The platform formerly had a comments section on product pages, but shut this option down after finding that it led to arguments, and wasn’t particularly helpful in making purchase decisions.)

Now that it’s clear there’s money to be made in online thrift stores, larger and more established brands and retailers are also pushing their way into the space. H&M and Target have both partnered with online thrift store ThredUp on featured collections of previously-worn clothing. A new “curated” resale collection from Tommy Hilfiger – featuring minorly damaged items that were returned to its retail stores – was developed and promoted through a partnership with Depop, which has also teamed with Kellogg’s on a line of Pop-Tarts-inspired wear. J.Crew is even bringing back its classic ‘80s Rollneck Sweater in a nod to the renewed interest in all things vintage.

Still, with any surge of popularity and visibility, there must also come an accompanying backlash. In a sharp editorial this week for Arizona University’s Daily Wildcat, thrift shopping enthusiast Luke Lawson makes the case that sites like Depop are “gentrifying fashion,” stripping communities of local thrift stores that provide a valuable public service, particularly for members of low-income communities. As well, UK tabloids are routinely filled with secondhand shopping horror stories these days, another evidence point as to their increased visibility among British consumers specifically, not to mention the general dangers of buying personal items from strangers you met over the internet.

How to Startup: Mission Acquisition

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

How to Startup: Mission Acquisition

Numbers don’t lie, but often they don’t tell the whole story. If you look at the facts and figures alone, launching a startup seems like a daunting enterprise. It seems like a miracle anyone makes it out the other side.

  • 90% of startups around the world fail.
  • On average, it takes startups 2-3 years to turn a profit. (Venture funded startups take far longer.)
  • Post-seed round, fewer than 10% of startups go on to successfully raise a Series A investment.
  • Less than 1% of startups go public.
  • A startup only has a .00006% chance of becoming a unicorn.

Ouch.

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From The Vault: VC Legend Bill Gurley On Startups, Venture Capital and Scaling

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

Bill Gurley in a blue suit
Bill Gurley

This interview was originally published on December of 2020, and was recorded at the inaugural dot.LA Summit held October 27th & 28th.

One of my longtime favorite episodes of Office Hours was a few years ago when famed venture capitalist Bill Gurley and I talked about marketplace-based companies, how work-from-home will continue to accelerate business opportunities and his thoughts on big tech and antitrust.

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