How to build a successful start-up
I started this series a late last year with the 1st blog on Generate an idea (but remember that it’s worthless) followed by In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users” and then Document your Plan A and Identify the riskiest parts of your plan and then Systematically test your plan and most recently Get to release 1.0. I have copied the intro to the series directly below and you will then find part 7: “Reach Product/Market Fit” – the subject of this post
Original intro to the series:
The goal of a founder who wants to create a big company is to find product/market fit in a large market – one that is at least £0.5B/$0.75B in size. Much smaller than that and a venture investors won’t be confident that he or she will get 10x on their investment (and note that it doesn’t matter at which stage you’re working, as if an early stage investor like us, we need to believe that we will be able to sell you onto a Series A/B investor who also has to believe he or she can get 10x and so on). It’s not right all the time, but it’s a rule of thumb.
The Lean methodology, thought up by Eric Ries and then evolved by many others, is the best way to work through the early stages to product/market fit.
We like Running Lean by Ash Maurya for a clear outline of what this entails.
What Ash excludes from his thinking is in-depth customer observations, as developed by IDEO, the design firm founded by David Kelley in Palo Alto, right next door to Stanford University, my alma mater, and a clear definition of “strategy” for the start-up.
(Overly) Simply put, we think a founder needs to take the following steps:
I will write a bare-bones explanation for each of these 9 steps with as many links and references as I can so you can read better writers’ thoughts on the subject.
And please note that at some point on this journey you need to find a co-founder. It’s pretty rare for a solo founder to manage it all on his or her own. It happens, but it’s rare. I’ll write about that as an additional point 10:
10. How to do the co-founder thing
And the last thing that you absolutely need is a great culture.
11. What is a great culture?
Here we go:
1. Generate an idea (but remember that it’s worthless)
2. In-depth observe customers, including “extreme” users
3. Document your plan A
4. Identify the riskiest parts of your plan
5. Systematically test your plan
6. Get to Release 1.0
7. Reach Product/Market fit:
Do these 5 things:
You have reached product/market fit when 80% of your early adopters consistently make it through your conversion funnel.
Another way to test product/market fit is to survey your customers:
Question: If we disappeared tomorrow, would you be:
a) Really upset
b) Moderately upset
c) I wouldn’t really care
d) I don’t use the product/service anymore
If >40% respond (a), you have product/market fit.  The number (40%) has be to be high becasue without those champions of your product amongst the ealry adopter community, you won’t gain volume traction amongst non-early-adopters. If the avant-garde don’t want you, the crowd won’t follow.
One final point to keep in mind is something Fred Wilson wrote:
One of the things I have observed over the years is that a hard charging sales oriented founder/CEO can often hide the defects in a product.
Because the founder is so capable of convincing the market to adopt/purchase the product, the company can get revenue traction with a product that is not really right.
And that can hide all sorts of problems. 
If you can’t get product/market fit, iterate…
Nice blog on iterating: http://thegongshow.tumblr.com/post/56882927895/iterative-testing-vs-big-swings-in-product-design
Nice blog (Andreesen) on product/market fit: http://web.archive.org/web/20070701074943/http:/blog.pmarca.com/2007/06/the-pmarca-gu-2.html