Recently, David Sacks shared about having a product-first approach to building companies, drawing on how Square & PayPal used similar strategies to identify market gaps & solve for them. Here are the key takeaways:
#1 Make a simple product with a clear “hook” to grab users. Typically, this hook is a high-frequency task that users can do in the product to engage with it and subsequently, can then be enticed to engage with other features in the stack. Square -> Swipe, PayPal ->Email Money.
#2 Couple the product hook with a distribution trick that can create viral adoption of the product. Square ->distinctive hardware design & branding. PayPal -> email virality via sending money.
#3 Hook+Distribution trick together hopefully drive enough early users to start learning from. Unique market insight doesn’t appear via a brain wave from founders. It’s identified via observing who is using the product & why. Eg. Square -> merchants not having a credit history.
#4 Build the operating capabilities necessary to execute on this insight. For instance, both Square and PayPal had to build new types of fraud detection systems to solve the lack of credit history & processes. These operating capabilities & IP, turn, become long term moats.
#5 Finally, in this process of operationalizing the market insight, an overarching business theme will emerge. Eg. for Square, it became “access”. Start building out your product roadmap around this theme, and keep adding more offerings but all centered around this “North Star”.
To summarize, getting a unique market insight to build a startup on, first requires launching a simple product that gets user-adoption, observing who they are and why they are using it, and then extrapolating that to re-frame the true pain point of the user.
Building a product to solve for this “reframed” user problem will automatically result in a truly differentiated product that is filling a key gap in the market that few others are seeing in the way you are seeing.
You can read the complete article on David’s substack here.
Note: this post first appeared on the Workomo blog here.