Chips and China: A New Way to Think About Product-Market Fit

Aviral Vaid

Aviral Vaid

Sep 23, 20234 min read

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Chips and China: A New Way to Think About Product-Market Fit

In the world of technology and innovation, two different topics stand out: the race for China to establish its own semiconductor industry and the concept of product-market fit. While these may seem unrelated at first glance, there are actually some interesting connections to be made.

China's ambition to re-create the entire foundry supply chain, including companies like TSMC, ASML, Lam Research, and Applied Materials, is no small feat. Not only do they need to replicate these companies, but they also have to consider the global supply chain, which includes companies like Zeiss, TRUMPF, and Access Laser. This highlights the complexity and challenges that China faces in building its own semiconductor industry.

One important lesson that China can learn from Intel's integrated approach is the need for deep integration between chip design and manufacturing. Intel's ability to call the shots in chip design because they also manufactured their chips gave them a significant advantage. This integrated approach extended not just to the designs themselves, but also to the tooling that went into it. This lesson is crucial for China as they strive to build their own semiconductor industry.

Furthermore, the economic dynamics of the semiconductor industry are worth considering. Fabs, which are the facilities where chips are manufactured, are incredibly expensive to build, while chips themselves are relatively cheap. This is similar to the software industry, where there are high fixed costs associated with development but minimal marginal costs for distribution. It is important for China to understand this economic reality and find ways to move down the learning curve on both the foundry and equipment level.

On the other side of the coin, the concept of product-market fit is a crucial aspect of building successful technology companies. There are some common misconceptions about product-market fit that need to be addressed. Firstly, it is not a binary state where you either have it or you don't. It is more of a spectrum, and the goal is to continuously iterate towards stronger product-market fit. It is important to be honest with yourself and objectively assess where you stand on this spectrum.

To understand product-market fit, imagine a landscape with three areas: the PMF Desert, PMF Mountain, and PMF Mountain Peak. The PMF Desert represents being far off from product-market fit, where something fundamental is wrong. This is the time to go back to the basics and make bold moves rather than trying to iterate your way out of it.

As you progress towards the PMF Mountain, you can see the peak but barely. This is the time to climb the mountain quickly, remaining bold while holding on to what is working. It is important to resist the temptation to become too conservative and slow down the iterations.

Finally, reaching the PMF Mountain Peak signifies that it is time to build a real company. This is the moment to hit the gas and seize the opportunity. It is crucial to continue innovating and evolving to stay ahead of the competition.

In conclusion, the journey for China to establish its own semiconductor industry and the concept of product-market fit share some common points. Deep integration between chip design and manufacturing, understanding the economic dynamics of the industry, and continuously iterating towards stronger product-market fit are key factors for success. To achieve these goals, here are three actionable pieces of advice:

  • 1. Embrace integration: Learn from Intel's integrated approach and strive for deep integration between chip design and manufacturing. This will give you a significant advantage in the long run.
  • 2. Understand the economics: Recognize the economic dynamics of the semiconductor industry. Fabs are expensive to build, so focus on moving down the learning curve to optimize costs and improve efficiency.
  • 3. Iterate boldly: Be honest with yourself and don't be afraid to make big changes when needed. Continuously iterate towards stronger product-market fit, and resist the temptation to become too conservative when you start seeing success.

By incorporating these insights and taking actionable steps, both China and technology companies can navigate the challenges they face and pave the way for a successful future.

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