This is part 3 in a series about the growth frameworks companies need to grow to $100M+
This is part three in a series about 4 Frameworks To Grow To $100M+. Subscribe to get the rest of the series
In the introduction I explained there are two types of companies:
- Tugboats, where growth feels like you have to put a ton of fuel in to get only a little speed out.
- Smooth sailors, where growth feels like wind is at your back.
The difference between these two are not the common mantras of build a great product, product market fit is the only thing that matters, or growth hacking.
In part two, I talked about why we should think about Product Market Fit as Market Product Fit, how to lay out your Market and Product hypotheses, and how understanding whether you have Market Product Fit comes down to Qualitative, Quantitative, and Intuitive indicators.
Which brings us to part three: Product Channel Fit.
Earlier, I discussed our common obsession with Product Market Fit that has led to false beliefs such as “Product Market Fit is the only thing that matters.” A byproduct of that false belief are statements such as:
“We are focused on product-market fit right now. Once we have that we’ll test a bunch of different channels.”
There are two major issues with this statement. I’ll break them down separately.
1. Products Are Built To Fit Channels, Not The Other Way Around
The first issue with that statement is that it is saying that channels will mold to the product you are building and as a result you think about product and channel separately in silos. But if you think about your product and channels in silos, then you will end up trying to fit a square peg through a round hole. Why? Because…
Products are built to fit with channels. Channels do not mold to products.
Let that statement sink in for a second because it is an important one.
Products are built to fit with channels, not the other way around. The reason for this is that you do not define the rules of the channel. The channel defines the rule of the channel.
- Facebook defines the rules of what content and feed items appear in people’s feeds. They also define what is allowed via their API’s. They also define which ads get shown and how expensive they are.
- Google defines what content appears in the top ten search results. They also control what the top ten search results look like. They determine what ads appear and the rules that govern their cost.
- Email clients such as Gmail determine what is spam, what ends up in the promo box, and what the content format is allowed in emails.
We could run through this for every major distribution channel out there.
You control your product, you do not control the channel. So you need to change the things within your control to fit with the things that you do not control.
What are some general elements of products that fit with different categories of channels:
- Virality. For virality to be a high ceiling channel, a product at a minimum needs
- Quick Time To Value. Virality thrives when the viral cycles are short.
- Broad Value Prop. Value prop of the product needs to be applicable to large percentage of a user's network (branching factor).
- Network Makes Product Better. Ideally the product value increases the more of your network is on it.
- Paid Marketing. To have product channel fit with paid marketing:
- Quick Time To Value - Users have less patience to find value when coming from an ad.
- Medium to Broad Value Prop - Value prop needs to be fairly broad due to targeting constraints of ad channels.
- Transactional Model - Product is built to extract transactional value to fund paid marketing.
- UGC SEO. To have product channel fit with UGC SEO:
- UGC - Product needs to enable users creating millions of pieces of unique content.
- Motivation to Contribute - Product needs to have the core motivation to contribute content.
2. The Power Law of Distribution
The second problem with that original statement is “we’ll test a bunch of different channels.”
In his book, Zero To One, Peter Thiel pointed out why this is wrong:
“The kitchen sink approach doesn’t work. Most companies get zero distribution channels to work. If you get just one channel to work you have a great business. If you try for several but don’t nail one, you’re finished. Distribution follows the power law."
That last part is key - “distribution follows the power law.” In other words, at a given moment in time a company that has product channel fit will get 70%+ of their growth from one channel.
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If you look at most $100M+ companies, you will find this to be true:
- UGC SEO: TripAdvisor, Yelp, Glassdoor, Pinterest, Houzz all got 70% of their growth from UGC SEO.
- Virality: WhatsApp, Evernote, Dropbox, Slack all got 70%+ of their growth from some form of virality.
- Paid Marketing: Supercell, Squarespace, Blue Apron all got 70%+ of their growth from some form of paid marketing.
The power law of distribution exists because of the concept of product channel fit. Companies that are able to achieve product channel fit with multiple channels are rare, but end up being monsters. LinkedIn is the perfect example where over time they've achieve Product Channel Fit with Virality, UGC SEO, and different forms of Inbound and Outbound Sales.
Product Channel Fit
Product Channel Fit when your product attributes are molded to fit with a specific distribution channel. As a result you can't think about Product and Channel as silos.
Product Channel Fit has a few immediate implications:
1. You shouldn’t take a shotgun approach to testing channels.
It is better to prioritize and tackle one or two at a time in pursuit of your power law channel. Here is a step by step on how to test and prioritize your growth channels.
2. Over time you shouldn’t seek to diversify channels for the purpose of diversification.
You should seek out other channels in case product channel fit breaks and need to transition to a new one (more on this below).
3. Don't have team members focused on user acquisition and team members focused on product in silos from each other.
This is partly why cross functional growth teams have emerged.
Product Channel Fit Is Your Blessing and Your Demise
You know the saying that your strength is also your biggest weakness? Well that applies to Product Channel Fit. Product Channel Fit is what can make your company, and also what can kill it.
The reason is because Product Channel Fit (just like all the other fits) is always evolving and can break as a new channel emerges or an old channel gets killed off. Let’s look at examples of both.
1. New Channels Emerge
Every so often a new major channel emerges in the ecosystem. When this happens you typically see two things:
- Companies in the old channel will try and copy/paste their product into the new channel.
- Because of Product Channel Fit, #1 doesn’t work and leaves the door open for new companies to emerge.
There has been no clearer example of this than the gaming industry.
In the early 2000’s desktop web portals were the major channel. You had big flash gaming companies emerge like PopCap. Then in early 2007, social emerged as a new channel with the Facebook platform. The flash web gaming companies tried to just copy/paste their games into the new channel and it didn’t work. They left the door open for companies like Zynga and Playdom to emerge and build products that fit with the new channel.
Then a few years later mobile emerged as a new channel. Zynga tried to copy/paste their popular games into mobile which didn’t work. The door was open for companies like Supercell to emerge who built new products to fit with the new channel.
Zynga, PopCap, King, etc are still around today. But they took a really long time to transition to the new channels correctly and as a result some opportunity was captured by others.
This hasn’t just happened with gaming. Online Dating is another category where there are tons of examples:
Match and others emerged during the first web boom and got most of their traction via banner ads. Then SEO emerged as a major channel and PlentyOfFish emerged as a contender. Then the social platforms came along and Zoosk and others emerged. Then mobile came along and Tinder emerged.
All along the way the same thing happened. New channel emerges, old player tries to copy/paste, opens door for new company/product to emerge with Product Channel Fit with the new channel.
This is worth repeating here. Products need to be molded to the channel. The channel does not mold to the product. Product Channel Fit creates new companies. But if not managed properly, can also kill your company.
1. Old Channels Get Killed Off
In late 2011 Pinterest hit an inflection point and their growth started to take off. One of the reasons were they hit product channel fit. The channel was viral sharing to Facebook's feed through their API. But around end of 2012 Facebook started killing off the API's that enabled this channel. Many reported on Pinterest's slowing growth.
This is an example of when you have Product Channel Fit, but it breaks due to a channel getting killed off. Many companies were also effected by Facebook killing off this channel. Pinterest was one of the few that transitioned successfully. They ended up transitioning to a UGC SEO channel which has driven their growth ever since.
Part of that transition over the long term was that Pinterest also changed their product focus from a social product to more of a personal utility. Once again, you have to mold the product to the channel. You can't think about them in silos.
In the next two posts in the series we'll go through the other two frameworks Model Channel Fit and Model Market Fit.
After that we will bring all four frameworks together and put them into action. Subscribe to get the next posts in the series.
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