A product that the market wants

(~4 minute read)

Often, after I paint the bigger picture, I’ll hear, “yeah, but every company has a grand vision of what they hope to accomplish. What makes Tesla different?”

That makes sense. So, let's dig in and see how Tesla isn’t just “talking the talk”, but importantly, are also “walking the walk”.

But first, let me give you a little background on me. That way, you’ll have a better sense how, over many years, I’ve developed a high level of conviction that Tesla will win. And then it’ll make much more sense why Tesla stock is a big part of my family’s early retirement fund.

How I developed conviction about Tesla

You see, I’ve worked at multiple VC backed start ups in New York City, Wall Street Fortune 500’s, and even tried to start my own thing. Within each, my role was to directly help the company find “product market fit”.

In the most literal sense, I help companies launch / grow a “product” (ie. the website, app, etc) that the “market” wants. And when that happens, and the “market” is consistently willing to pay for it, and tell their friends about it, then, there would be a “fit”. A “product market fit” to be exact.

This is what I spend days, weeks, months, and even years at a time focusing on. And I do it on every project I work on. And I’ve been a Product Manager for many years now.

This is important, because when I help a company find “product market fit”, it lets the company look ahead and start working on the bigger picture vision of how it can make the world a better place (cliche, I know).

Finding product market fit

On the surface, the concept of finding “product market fit” sounds straight forward:

1. Build a product that customers are willing to pay for

2. Get customers to use it and pay for it (and keep paying for it each month or year)

3. Get customers to recommend the product to their friends / co-workers / family

However, when you actually sit down and try to do this, you quickly realize how elusive it can be to find “product market fit”. Sadly, this is why we hear about so many companies with world changing ideas that end up shutting down without having achieved that vision.

I tell you this because it didn’t matter whether I was working on my own idea, working on ideas backed by VC funding or within companies that had already gone public, more often than not, we didn’t have TRUE “product market fit”. At least, not by how YCombinator defines it.

Before product market fit

• Company spends money (and often, a lot of money!) to find new customers who are willing to try out the product. Most who try it will end up churning.

• Customers don’t go out of their way to tell their friends / family / co-workers about the product

• Company eventually dies if it cannot find product market fit

After product market fit

• Customers are lining up to buy the product. Customers actually use the product.

• Customers buy multiple products

• Customers proactively recommend the product

• Company grows as it builds / sells more and more of the product

Specifically, it’s difficult to have a product so good that customers line up to buy it. And it’s even harder to get customers to recommend the product to their friends.

Tesla has "product market fit"

Let's zoom in on the car business (most mature part of Tesla's bigger picture vision) and examine how they are doing.

On finding new customers:

Tesla can’t make cars fast enough. They sell every single car they make (and are targeting to sell ~2 million new cars in 2023). And they have a long line of customers who've put down a deposit and are waiting to take delivery.

On getting customers to recommend the product:

Customers go out of their way to recommend the product to their friends (including helping with deliveries, letting strangers test drive their car, or creating content about Tesla online). More proof:

1. Tesla is doing SUCH a good job finding new customers that they don’t even advertise. Yes, you read that correctly. Tesla has a $0 advertising budget and will still sell 2 million new cars in 2023!

2. You probably know someone who owns a Tesla (ie. neighbor, co-worker, family member). Just ask them if they like it. But watch out…they will likely talk your ear off about all of its cool features and even let you take it out for a drive… ;)

Criticisms

Yes, I fully understand that just because Tesla has "product market fit" now, it doesn’t mean they will continue to have it in the future. This is an important point. And I fully agree this could unwind at any time. At another time, I’ll address this point and importantly, why I don’t see it happening (at least while Elon Musk is at the helm).

My point is simply that it is very hard to find product market fit. And all things equal, it’s much smarter to invest in a company that has product market fit vs. one that does not.

In conclusion, I invest in Tesla not only because there is a big vision, but also because Tesla has found true “product market fit”.

Next time

Let's talk about just how fast Tesla is growing and can grow if it has "product market fit". Sneak peek: VERY fast.