(2018-07-20) Andreessen Where To Go After Product Market Fit

An Interview with Marc Andreessen by Elad Gil. Achieving product/market fit also marks the beginning of a challenging time for a lot of founders. You’ve poured your energy into getting here—now what? Few people have as much insight into this make-or-break moment as Marc Andreessen.

Elad Gil:After you’ve achieved product/market fit, what do you think are the most important determinants of a company’s success?

the main thing becomes taking the market—which is to say, figuring out how to get the product to the entire market, how to get dominant market share; because most tech markets tend to end up with one company with most of the market share

the markets are bigger than before

But that means that the challenge of building an organization, a model, and a distribution capability that can actually get the product to all the customers is an intense challenge.

Number two is getting to the next product

if you don’t keep innovating—your product will go stale. And somebody will come out with a better product and displace you. Wait: improving 1st product isn't same as creating new one!

the general model for successful tech companies, contrary to myth and legend, is that they become distribution-centric rather than product-centric. They become a distribution channel, so they can get to the world. And then they put many new products through that distribution channel.

But then the third thing you need to do is what I call “everything else,” which is building the company around the product and the distribution engine.

That’s the stuff that’s the easiest to put to one side—for a little while

the obvious one that we’re all seeing right now in this environment is HR. The number of companies in the Valley that put HR off to the side and decided it wasn’t important and are now dealing with some level of catastrop

Elad: A common question for a lot of founders, especially first-time founders, is when should they actually hire an HR leader or somebody in the HR function or a GC [general counsel] or somebody for finance?

Marc: It’s somewhere between 50 to 150 people

I think there’s actually an explanation for that. It’s because 150 is the Dunbar number, the number of people you can directly know. So somewhere between 50 to 150 people, everybody doesn’t know everybody.

When it comes to taking down the market, can you talk a little bit more about the primary things that people should be doing? And what do people tend to miss, or where do they tend to screw things up?

every market has early adopters

And a lot of product/market fit is the fit with the early adopters

The problem is, the early adopters are only ever a small percentage of the overall market (crossing the chasm)

In the consumer world, it’s not true because people have plenty of existing things they can spend their time on.

And then for sure for B2B. Most businesspeople in the world, most CIOs or whoever is going to buy technology in a business, don’t wake up in the morning and say, “Gee whiz, can I go find the next hot thing to take a chance on?”

One of the things you see crystal clearly in VC is how much competition emerges whenever anything works.

Elad: You mentioned three or four tactical things that startups can do to stay viable. One is product iteration and building products that serve more of that market. Second, you really emphasize building up distribution. Third is M&A, which seems to be really underutilized in Silicon Valley today

I am shocked by the absence of M-and-A relative to what I would expect in the environment

Cisco is one of the great case studies in the Valley.

And then obviously Google. Probably an under-told part of the Google story is how M&A built Google.

As far as defensibility, I think you construct defensibility through some combination of product innovation and distribution building

true defensibility purely at the product level is really rare in the Valley, because there are a lot of really good engineers.

I think the distribution moats end up being at least as important. At some point, whoever has the distribution engine and gets 100% of the market, at some point that engine itself is a moat

One interesting question I have is: Would you rather have another two years’ lead on product, or a two years’ lead on having a state-of-the-art growth effort? I think the answer for a lot of consumer products is actually that you’d rather have the growth effort.

The other big missing variable in all of this is pricing.

I’m always urging founders to raise prices, raise prices, raise prices.

First of all, raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to

And then number two, companies that charge more can better fund both their distribution efforts and their ongoing R&D efforts

If you price it high, then you can fund a much more expensive sales and marketing effort, which means you’re much more likely to win the market, which means you’re much more likely to be able afford to do all the R&D and acquisitions you’re going to want to do

I think network effects are great, but in a sense they’re a little overrated. The problem with network effects is they unwind just as fast. And so they’re great while they last, but when they reverse, they reverse viciously. Go ask the MySpace guys how their network effect is going.

Elad: I’d love to talk a little bit about getting the next product in the product cycle. How do you start iterating and how do you come up with your v2 or your new product area?

Anybody who’s actually worked in R&D knows it’s not really a question of money. It’s not really a question of percentage of spend. It’s who’s doing it.

What I’ve always found is this: give me a great product picker and a great architect, and I’ll give you a great product.

As you scale, you need more of those people. But I always think it’s a matter of, okay, how many of those people do you have or can you go get? Or, back to acquisition, how many of those can you acquire? And then basically that’s the number of products you can be working on. You organize R&D around that, in my view. You want to have a relatively flat R&D structure. You basically want to have autonomous teams, where each team is guaranteed to have a great product person and a great architect. And that’s the model.

I generally think matrixed is death, so I’m always pushing companies to go to a flat structure of independent teams. (Two-Pizza Team)