Team vs. Product vs. Market

Ask any early stage investor and they’d say that the three most important factors they look at when deciding on whether a startup is worth their time are team, product, and market. Usually, in that order too.

It makes sense if you really think about why that’s the case. Most investors look at the team first, and foremost, because it’s naturally assumed that smart people will build smart products and companies, that presumably other smart people in their circle (and later, around the world) will be willing to fork out money for.

It’s also the same reason why investors love backing serial entrepreneurs who have had successful exists in the past, even though a substantial amount of research has shown that those who have had a successful startup in the past aren’t likely to be more successful than a first-timer.

Once again, the natural presumption here is that if you’ve done it once before, you’ll likely be able to rinse and repeat the magic again. These reasons allow investors to justify spending a ton of time on background diligence for the founding team in early stage companies.

Ask any first-time entrepreneur, however, and they’d tell you that the most important thing is the product. How usable is it? How much better is it compared to current solutions? How fast is it? Does it feel sleeker? Didn’t Google win the search engine war because their homepage is so sleek, clean and polished?

This is, however, not the case.

Spending a ton of time to build a great product to solve a problem no one cares about is the fastest way to kill a startup — after they’ve wasted all their money and time. The unfortunate truth is: the best product rarely wins. Sometimes, the company with the best product might be ahead in the race for a small period of time (i.e. when Snapchat created Stories)… until a larger company comes by and treats that product innovation as a form of outsourced R&D for their very own product (i.e. Instagram Stories).

So, where does that leave us? I think, personally, that the market is the most important factor in the equation.

Here’s why: if you pick the right market, you could have a product that barely works, a mediocre team, and the market will still help generate enough traction and revenue for you to provide you with a large enough cover to solve all of your other challenges. As long as you nail the messaging (i.e. this product will solve X problem; X problem being the market), there will be sufficient latent demand within a great market that it’ll lap up anything you throw at it even if it’s not great.

However, if you pick the wrong market, you can have the best product in the world, but after not gaining any traction or substantial revenue, your team would burn out working on the same damn thing over and over again without any meaningful form of validation. Without a team (whether the team itself is any good or not), you don’t have a company.

Live by the market; die by the market.

“When a good management team meets a bad business, it is the business that exits the relationship with its reputation intact.”

Warren Buffet