Product ＞ Strategy ＞ Business Model
avc.com
avc.com
In consumer web, the product -> strategy -> business model approach makes complete sense, but I'm unsure if it carries over to most things in B2B.
I think business model, strategy, and product are all equally important. You can make a lot of money by making an awesome product and getting a large exit without ever seeing a cent of revenue, but to me sustainable growth based on a real business model is much more rewarding. Maybe I'm just old fashioned, but the more abstract "value" is, the closer your economy comes to crashing as you're essentially creating value out of nothing.
"and investors"? This is what annoys me about the VC world. They talk like this but, from what I can tell few VCs will invest in you unless you have product market fit already.
If you're a first-time entrepreneur, you'll most likely need to demonstrate some amount of fit, some traction, to get interest from outside investors.
Also, there are a wide range of investors, even within the VC world, some more comfortable with seed stage and others who only like to invest when a business is ready to move from initial traction to scale.
Then it's a matter of getting from fit to FIT.
"moving to business model before finding product market fit can be the worst thing for your business" What??
Product-market fit is a fundamental part of the business model. Determining who your customers are, and why they would buy from you, is what you do when discovering your business model. You cannot separate it out. BTW strategy is such a vague concept that I don't know how it is even in the discussion.
Guessing, building an MVP first, throwing it against the wall to see if it sticks, before having a concept of what your business consists of, is what is/was broken about the startup culture. And, please stop this "but Twitter did it" nonsense. Unless "getting lucky" IS your strategy.
You don't want to think about the business model before you have product/market fit. We could just be arguing semantics here, but I think the general advice is sound.
Flickr wants to be the place where people discover and share amazing photos. But they charge their most engaged users extra money for storage, discouraging them from adding the very content which makes the product valuable to new users.
Metered billing is like a usage tax. Taxes discourage behaviors. Don't discourage your users from taking the very actions which make your product valuable.
Thoughtful post Fred, thank you.
I can't come up with a good answer to this myself.
While product-market fit might be the kernel, strategy & business model come along for the ride. They all co-evolve together. In many cases the p-m fit, strategy and business model are so intertwined that it just makes no sense to develop one before the other. Tweaks to the product affect our BM, tweaks to the BM affect how we think about the product, those tweaks to the product may drive the strategy in a different direction, and so on.
I guess the hidden context here is that this is sound advice for certain kinds of B2C startups that are leaning towards, or capable of, VC scale investment. There you're not really leaving the business model to last. You have an initial business model of "get investment", and then you can transition to something more sustainable. Absolutely nailing that pm fit and strategic vision without the distraction of trying to produce a viable business model from the start probably makes sense.
For the average bootstrapper or new product team - not so much. Because without some sort of income stream earlier on product development cannot continue.
Customers > Product > Founders > VCIn my humble opinion this Product > Strategy > Business Model is suitable for the current bunch of feature start-ups that aspire to be acquired by big cos.
If you want to do it right, then it is the other way around.
1. You check the market you want to compete/be in.
2. Then you understand which business models work and which don't and why. You choose several to start with.
3. Then you define your strategy, i.e. What do I need to do to disrupt current market leaders?
4. Then you develop product(s) that fit your strategy and business models.
So if you want to do smth serious the right sequence is Market > Business Models > Strategy > Product(s)
More effective, not to mention lower risk (for the entrepreneur) is the lean/MVC model described in Running Lean and elsewhere.
Fail early, not after you've spent years perfecting a product that doesn't have a profitable market.
When you say 'How does one get to product?' do you mean how do you build a product? Or how do you discover a market? Or how do you come up with ideas? If you can elaborate, maybe I or others on HN can help you out.
When building product, how would you boil the steps down? Do you start with ideas? Or by building tools? How do you know when you're done and it's time to move on to Strategy? What's the minimum number of things a Product has to have before you can call it a Product? As a programmer, I tend to focus on personal skills, but skills != product. Every time I start to think about product, I either get bogged down trying to make the wrong things perfect because I don't know which steps are most important.
Conceptually, I might understand the basics. But turning those basics into a workable product seems overly complex.
Say, for example, that my "product" is to transfer $1000 to your bank account for every page you view on my site.
Undoubtedly the market will love this "product". However, whatever the strategy, the business model has to get more than $1000 per page view. This seems impossible.
The point being, you can't simply create a product that no conceivable business model can support.
business model = how to sell it higher than production costs
One way to see if the market wants what you've built is to charge for it, but there are other ways, especially in consumer web.
If we have to impose a timeline, though, I would say that all 3 elements (market fit, strategy, biz model) have to be considered together, all the time in the leaders' heads (and officially recognized once in a while). Please remember that there is only a single digit (or so) number of Twitter-like stories in the world. Just think of the numerous times that kind of linear thinking (forget about biz. model - let's just pour money into this thing for a long time, or, let's build this cool product without a strategy although I don't even know what cool means without a strategy) approach has failed. In those rare cases, you probably still think about the biz model, as in "it doesn't yet exist but will exist likely in one of X forms once we reach status Y".
I might have a different definition of strategy, but you need some kind of strategy, which at a high level might even just mean "approach", to be able to do anything, including validating an initial market fit. Even starting small, testing/iterating and seeking market fit and later switching gears itself is a form of high level strategy. A ship without a direction gets nowhere, even if you're a small ship in a really-well charted sea.
Unless, of course, he means by product-market fit "an idea for a product/service that the market wants", which would be just about the first thing to do in any business, as championed by the likes of the book "Four Steps to the Epiphany". I suspect those bootstrapping (to at least some degree) would likely know this from deeper in their hearts than others who've had an easier time with plenty of funding upfront. Everything else by definition has the workings of a strategy, whether you admit it or not. If you're not explicit about it though, you're just letting the waves take you places you hope will be good.
Edit: The issue I take is that the article puts strategy into a step in the timeline or process, whereas I believe it needs to be everywhere, all the time. You can't have product-market fit without strategy AND/ORD you can't build a solid, sustainable business without thinking about strategy/market-needs/biz model and probably more at the same time, holistically throughout your existence. It's not just that "don't forget about strategy before biz model!!". Jumping to biz model without having a strategy is impossible - it just means your strategy implicitly is to "grab the money in the best way you see possible right now", without charting a longer term objective.
And the "dismissive and snarky comment voted to the top" trend continues...
Yes. Business model and strategy are so inherently related (practically "joined at the hip") that I'm not even sure it makes sense to try and divorce the two and talk about them separately. And to the extent that you can talk about them as separate things, it seems obvious to me that changes in one are likely to drive changes in the other.
What is strategy? Well, one definition is "the things you do that your competitors don't". Another is "it's the things you don't do". Well, changing your business model is changing "what you do" (or "don't do" as it were).
And to flip things around... let's say you have some kind of SaaS application, and you've chosen "freemium" as your business model. Your "strategy" now is still "what you do that your competition doesn't". Changes to strategy that can fit within the "freemium" model are strategy that can evolve idependently of the business model. For example, you may have chosen to compete on "product quality" as a metric, so you may spend far more money on testing and QA than a competitor, in order to try and create a product that is better. That's "strategy" and that's independent of the "business model"... except when it isn't.
Like, when the freemium model doesn't drive enough revenue to support the dicated investment in testing and QA. So what do you change, the strategy or the business model? Which one is really more "primal"? I think you can look at it either way, and you have to keep things in harmony one way or the other.
So we're back to how business model and strategy are largely "joined at the hip". Some elements of either can evolve independently of the other, but you just can't divorce them totally and put them into a timeline.
So my advice is not to rush into business model without first finding product market fit and then taking the time to lock down on a crisp, clear, and smart strategy for your business.
My only argument with this is the use of the term "locked down" to refer to strategy. Your environment isn't static and unchanging and your strategy can't really be either. Strategy, IMHO, is a dynamic and iterative process that is never "done".