Finding Product Market Fit Doesn't Guarantee that You Make Money

The term "Product Market Fit" or PMF was coined by Andy Rachleff, co-founder of Benchmark Capital and former CEO/co-founder of Wealthfront.

Anyone even casually involved in the technology world had heard of PMF.  

There are thousand of books & articles written about out, countless frameworks on how to measure it, and probably millions of dollars payed to consultants who will claim to be able to help you get there.

Because of the importance of achieving it, you would assume that all failed start-ups died because they weren't able to find product market fit.

But when you start looking into it, there are a lot of exceptions. Why?

The Most Painful Type of Failure

The history of the internet is littered with ideas that could have/ should have worked but didn't.

Today, we are going to take a look at perhaps the the most painful version of this failure.

Companies that:

  • Built a great product
  • Acquired a lot of users
  • Never figure out how to make money

By the time that you have a product, it's being used by millions of people and spreading; you have probably beat 95% of companies that have ever existed.

To not reach your potential at this stage has to be the ultimate punch in the gut to the team and the investors.

When I was researching this topic, I was shocked at how easy it was to find examples of this.  Lets look at a few of them:

Movie Pass

Movie pass had a great value proposition, for $9.99 per month you could go to the movies as many times as you wanted.

This value prop clearly resonated with consumers and at the peak the service had ​3 million​ paying users.

The basic bet they were making, similar to gyms, was that people would sign up for the service and then never really use it.  

Unfortunately for them, this wasn't the case. A lot of people used the service and they net/net lost a lot of money from operations and the rev share from the theater chains.

There were reports of users who paid $10 per month and cost the company 10x that in costs paid back to the theater chains.

There were a lot of other unfortunate (​and sometimes hilarious​) factors at play that lead to the collapse.  The sad thing is that this model was so close to actually working but they just didn't monetize it in a way that was sustainable.

The product actually survived, changed ownership several time, and now adopted a ​tiered pricing structure​ which no longer makes headlines but is actually sustainable as a business.  

Sadly, had they done this during their peak PR moment, that company is probably worth $1B+ today and could still be thriving.

HQ Trivia

In late 2017 / early 2018, if you worked in an office (back when that was thing), chances are you saw someone starting at their phone at 3pm EST looking ​sweaty and excited​.

Every day at 9 PM EST and 3PM CST on weekdays, HQ trivia ran a live quiz show with cash prizes for those who made it to the later rounds.

HQ trivia had all of the elements that you need to be a viral sensation. An innovated model, baked in social sharing, strong habit forming ability, false scarcity & time pressure.

At their peak, 2.3 millions people were joining each game, ​The Rock hosted an episode​, and they had a ton of coverage in the media.  

They unfortunately never found a strong revenue model to make the most of this user growth, their

Worth nothing that there were multiple contributing factors to this, most notably the CEO passing away of a​ suspected drug​ overdose in late 2018.

For further reading, The Ringer did a full ​podcast series on the company​  


Presumably everyone on this list had heard of Tumblr, it was one of the first large scale blogging/social concepts to achieve major growth in the early 2010's.

A well known part of Tumblr's history is that it was bought by Yahoo in 2013 for $1.1 billion dollars.  

A lesser known fact is that Tumblr was only making $13 million dollars a year when they were bought despite having over 73 millions registered user accounts and 300 million monthly unique visitors ​per tech crunch​.

While its hard to criticize a company a company for lack of monetization when they sell for more than a billion and that was great for investors/employees, I don't think it was great for the product or the users.

Besides the fact that the multiple on the deal is crazy, what is harder to understand is why Tumblr was making so little money with that much traffic.

Again, the Tumblr team had a great outcome, but I would argue that Tumblr as a product has lost its way since then. Its been shuttled around the industry belonging to Yahoo, then Verizon, now Automattic (parent company of Wordpress).

It seems to finally be getting some much love and attention, but its definitely lost the position of influence it once had.

The only way to really be able to chart your own path is to make enough money to pay for the journey.  

So What Do You Do With This Information?

Achieving product market fit and creating a monetization engine that is strong enough to power a company are two different challenges.

Creating a great product is about solving a problem for your users that they value. Making money is about charging for the value that you are creating.

To build a great company, you need to be able to do both.

Practically speaking, my opinion is that all companies should figure out their monetization model early in their lifecycle for a few reasons.

  1. Unless you are running a non profit or building products as a hobby, you need to figure out how to build a business. To do that, someone has to pay for something.
  2. Some companies are fortunate enough to ride a wave of good PR or cultural trends. Unless you have strong monetization set up, all this is going to do is increase your server costs.
  3. While revenue is not a perfect north start, focusing on it give you a lense through which to judge the impact of your work.
  4. Lots of different features can attract users, but what you want to do is attract people who will pay for something. The only way to really test that is to try to charge them for things.
  5. The only way of really being able to control your future is to build a powerful business, that takes time and is typically slower than product growth.

Companies that don't make money are just an elaborate hobby and there are much better hobbies than running a SaaS company.

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