Product Thinking for Designers Part 1: The Product Market
Understanding the “Market” in Product Market Fit.
Product Market Fit
To succeed in the current job market, all product designers need these three core skills: (1) product thinking, (2) visual design, and (3) interaction design. Previously, I discussed the importance of developing niche skills to solve high-value business problems within a domain.
For the most part, visual and interaction design can be self-taught with the resources available online. On the other hand, product thinking seems to be more challenging for designers to grasp. Product thinking can be thought of as the connection between users (problem space, the “market”) and the business (solution space, “the product”). The most impactful designers are able to use their skills to help their team achieve product-market fit.
Most first-time founders believe the product (solution space) is the most important. Marc Andreessen (an investor who first defined PMF) believes the market is more important than both the team & the product itself in determining a business’ success. In fact, he wrote a famous essay arguing the PMF is the only thing that matters. Building the product before defining the market would be the equivalent of pulling the cart before the horse.
Importance of Choosing a Great Market
PMF is an abstract relationship between “product” and “market.” First, let’s break down the “market” (problem space). Choosing a great market is more important than building a great product. So what’s considered a “great market?” Great markets have many potential customers, significant customer growth potential, and clear customer acquisition paths. If you’ve found a great market, it will be fulfilled by the first viable product that comes along, regardless of the team who built it and how good the product is.
"It doesn’t make any sense to make a key (product) and then run around looking for a lock (market) to open. The only productive solution is to find a lock (market) and then fashion a key (product solution)."
—Seth Godin, This is Marketing
According to the "Rachleff's Law of Startup Success,” when a great team meets a lousy market, the market wins; when a lousy team meets a great market, the market still wins; when a great team meets a great market, something special happens. A great market correlates with success, and a poor market correlates with failure. The market matters most. It’s that simple. To drive this point home, many seasoned founders refer to PMF as “market-product fit” to highlight the fact that the market should always come before the product.
Monopolistic vs. Fragmented Industries
In most cases, the markets you’re looking at will be within existing industries or at the intersection of multiple industries. Industries can be classified as monopolistic or fragmented; this is also known as the degree of market concentration. In general, newer industries with heterogeneous (diverse) use cases tend to be fragmented. For example, the productivity industry is fragmented due to its customers having a massive range of pain points, motivations, and preferences. This is evident in the number of note-taking and to-do list products that exist (Evernote, Bear, Notion, Obsidian, etc.). Despite being fragmented, the market is large enough that numerous victors (startups worth over $1B, or at least a couple hundred million) can emerge.
On the other hand, mature industries with homogeneous use cases tend to be monopolistic. For example, the ride-sharing market within the North American transportation industry is dominated by Uber. This is due to the market’s homogenous customer use case. Rideshare customers all have a single straightforward goal: to request a car to get from point A to point B at the lowest cost and highest convenience.
Neither fragmented or monopolistic industries are necessarily “good” or “bad” to enter. The advantages of fragmented industries include lower barriers of entry, less unfair advantages, more opportunities to win through product differentiation, and you can potentially acquire or merge with competitors to secure more market share. The disadvantages of fragmented industries include: more competition, newer competitors are likely to emerge, tight margins, possible price competition, and constrained supply. On the other hand, the advantages of monopolistic industries include: high barriers to entry once you’re “in,” existing players are likely weak due to spreading their resources to cover the entire market, and potential for large margins. The disadvantages of monopolistic industries include: expensive and difficult to enter, a high likelihood of getting bullied by existing players, and difficultly getting customers to leave your competitors.
Understanding whether your market is in a monopolistic or fragmented industry also has significant implications in your “go-to-market” (GTM) strategy. In a fragmented industry, you’ll want to highlight your product’s unique combination of features that your competitors lack. For example, when Notion launched, it highlighted its management and cloud-based features. In contrast, Notion’s competitors focused on word processing and text editing features at the time. In a monopolistic industry, you want to focus on the core value proposition that makes you different from your competitors. When Uber launched, it avoided terms like “taxi” and pushed “rideshare” to highlight its core value proposition and distinctiveness from existing transportation options.
Great industries aren’t secrets, but great markets are (at least initially). The absence of competitors in your industry is more of a red flag than a green flag. As your market expands into its own industry, don't be surprised when competitors and imitators pop up and attempt to steal market share.
Blue Ocean vs. Red Ocean
The crucial part is finding a market you can own and fight off competitors in. A helpful framework to consider is “Red Ocean & Blue Ocean.” Red oceans are competitive industries where all the profitable markets are well known and occupied. Blue oceans are undiscovered or untapped markets with little to no competition. Blue ocean strategies focus on creating new demand rather than fight for the limited existing demand. For example, the transportation market used to be composed of public transit, personal vehicles, and taxis. Uber entered the transportation industry by creating a ridesharing market (blue ocean) that they now own. If you attempted to create a new ride-sharing product today, you’d be fighting in a red ocean within a monopolistic market. This is evident in the lack of new rideshare startups and numerous emerging scooter rental startups (like Lime and Bird), who believe the personal transportation rental market is a potential blue ocean.
To find a blue ocean market, focus on finding an underserved audience segment within the existing markets and create a new market for them. These are the customers who use the existing solutions because there are no better alternatives for them. For example, the scooter rental market targets rideshare customers who want a faster and more accessible transportation method for short distances.
In general, it’s easier to create blue oceans within fragmented markets; however, this isn’t always the case. We often hear the word “disruption,” where a new startup manages to create a new market within a red ocean (e.g., Netflix disrupting the media rental industry). However, these cases are rare and are often dependent on accidental luck.
In the next post in this series, I’ll be discussing how designers can contribute to PMF and help identify great markets.
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