Jenny Cox
August 5, 2022

RIP product / market fit

Unicorns aren’t real. You and your customers are real. Focus on reality. Avoid hell.

The game

Venture-backed companies are incentivized to manipulate their narratives in order to attract upfront investment of staggering sums. Their pitch decks, term sheets, and valuations create the illusion that they are poised to win a billion-dollar market. Simultaneously their business models are unproven and predicated on unvalidated products.

Consumed by “the big charade” of raising capital, many “venture scale” companies skip over the necessary upfront time testing and experiencing what iterating and “failing fast” actually means and feels like on a small scale.

Failing fast is Glitch (the video game) not gaining commercial appeal and pivoting its internal chat functionality into Slack less than a year after shutting Glitch down.

Failing fast is learning that live streaming your day from a camera on your hat ( is a non-monetizable novelty but allowing others to stream various parts of their days is maybe something. Through the rapid addition of hundreds of channels over several years Twitch (gaming) emerged as a monetizable winner.

Failing fast is getting iced out of a company where you were part of the founding team and taking an insight (that women want to be in control of their dating lives) and turning it into an adjacent, effective competitor in under 6 months.  

Not adequately understanding or intentionally exaggerating the market opportunity of a solution for real world need is the most significant reason for eventual disconnects between investors and founders - which lead to the real world consequences of layoffs and bankrupted ecosystems - negatively and asymmetricaly impacting “the little guy'' - salaried employees and gig workers, small business owners and often perversely the customer.

When founders take capital on a misunderstood or misstated market opportunity - again, often predicated on not really understanding a real need and building a solution based on hype - investor incentive structures are unable to absorb or tolerate any decrease in that valuation, whether executionally realistic.

This set-up is entirely by design. Things that don’t make sense on purpose are traps.  

I’m a business, man

It’s important to understand how VCs make money.

They take a % of their overall investment fund to pay themselves nice salaries. So they’re never scraping by - unlike many founders. Some VCs monitor founder salaries and put pressure on founders to pay themselves the bare minimum until the company has reached scale.

Although many will publicly protest (methinks too much) that founders should absolutely pay themselves a reasonable salary, I’d be willing to bet the average early stage founder makes on the whole 25-50% of the compensation of the average early stage VC.  

VC firms  - the entities who pay the VCs salaries - make interest on the money that comes back into the firm from investments. There are two main ways money comes back into the firm.

  1. First, if 1 of 100 companies makes it big via an IPO or “good” acquisition (i.e. one that is favorable for the company owners), big money flows back into the firm.

  1. Otherwise, many get smaller, periodic “cashouts.” Picture a scenario where 30 of their 100 companies raise more money in subsequent rounds or get acquired in a firesale (i.e. not a good acquisition). In these situations, they sell or transfer the equity they fought so hard for to other investors or owners as and when it suits them. These smaller amounts also flow back into the firm.

VCs do not care if most companies they fund truly succeed or find the ever elusive “product/market fit” because they only need 1 out of 100 to really make it to a self-sustaining, scaled business and 30 out of 100 to get further investment or be acquired to stay comfortable - fat and happy just playing the odds.

There is an almost total lack of alignment in incentives between most founders and VCs from the start of the relationship.

Product/market fit is dead

The misunderstanding and misuse of terms like product/market fit fundamentally stems from non-builders advising builders based on their own financial incentives and not their experience or expertise in building self-sustaining, scaled businesses.

Non-builders like VCs heard the term product/market fit associated with scale and capital investment and started calling all sorts of things - like getting free users and modest early traction around a variety of half-baked and half conceived products and services masquerading as technology - by the same term.

Product/market fit doesn’t mean anything anymore. It’s a dead term. RIP.

The vicious cycle

The total bastardization of concepts like product/market fit is so pervasive that you may not even be able to name a well known company that has genuinely achieved it - in other words built a self-sustaining scaled business. Theranos, WeWork, Uber - what fundamentally led to these wild stories of founder failures?

In each case, the founder was playing “the game,” which is a vicious cycle of:

  1. Manipulating narratives to be the rosiest possible without addressing assumptions or risks
  2. Taking upfront investment of staggering sums
  3. Creating the illusion of being poised to win a billion-dollar market
  4. Forcing the scaling of unproven business models on top of unvalidated, premature products
  5. Without nailing a value exchange between the solution and the customer
  6. Or an understanding of the cost structure required to provide this solution

All the while each founder was also chasing the next round of funding to buoy a further variety of half-baked and half conceived products and services - many of which should have died on the vine based purely on user interest and cost.  

Without a fundamental, replicable value exchange between a product and a customer at a cost that is less than the value of the exchange, not a single growth tactic will work for a company in the long run. Everything else is hollow.

The technology sector has fundamentally forgotten what running a self-sustaining business is because the people funding the technology sector do not really care if most of the companies they’re funding ever turn into self-sustaining businesses.

Instead these “business, men” care about something else - mostly whether a trend will magically catch fire and someone else will invest in or buy this company or that company - passing the buck, keeping the con going, hyping the bubble, frothing the market, living on someone else’s dime, riding on someone else’s back.

What hell looks like

Trying to scale a non-self-sustaining business or a product that hasn’t found market/fit is essentially a pressure test on a builder to withstand extreme stress and competing demands in an environment where it is almost impossible to succeed.

This type of pressure test is something many incubators and VCs push on builders - and it has nothing to do with building a great product that people need and will pay for. Instead it’s all about seeing if when the going gets impossibly tough, investors can count on builders not to crumble.

Remember, that while venture scale investors are looking to see who is the 1 of 100 building a self-sustaining, scaled business, they are more commonly trying to see who is the 30 of 100 who will keep going to the brutal end even if that ending is not pretty.

As a builder, you don’t want to make the mistake of trying to grow and scale prematurely.

If you find yourself thinking through your narrative to show you are poised to win a billion-dollar market all the while pining over staggering sums of imaginary money YET you don’t yet have a proven business model that takes cost into consideration or a product solving a clear problem for a specific customer - stop.

You are about to enter a hell where you will spend all your time putting out fires (or attempting because this is hell after all) and managing stakeholders focused solely on their own financial interests. You will spend none of your time making things of value for people. You will not pass Go. You will not collect $200. RIP.

Unicorns aren’t real

The unicorn bubble is very close to bursting. Instead of dead unicorns, expect to see a lack of core user value wrapped up in a whimper.

You are real

To build products that actually get traction, start by being honest about what is and is not valuable to real people. If you don’t know - test. Test before you build. Always, always, always test and get traction with real people before you take money from an institutional investor. Pay for it now in critical thinking, testing and time to locate your customer or pay for it later with your soul.

Your customers are real

When you have identified at least one type of person who wants to use and pay for a solution you are providing and there are at least hundreds to thousands of this type of person - you are ready for scale. Scale is optimizing the same solution repeatedly for a lot of real people, often of one or more similar types.

Focus on reality

Even if you don’t find scale, if you find you can make or do something valuable that people want and are willing to pay for and it costs you less to make this product or provide this service than they will pay you for it - congratulations! You have created a self-sustaining business. That’s more than most people can say for themselves.

Accepting reality and responsibility will reliably keep you out of hell.