Product-Market Fit: What Is It + How to Measure & Obtain It
Product/Market Fit is a well-known idea in the startup community. While it is commonly used in discussions about new high-growth companies, it does not appear to have caught on in the rest of the business world.
It deserves to be better understood because it is a valuable Mental Model for the interaction of a company, its products, and its customers. Learning about Product/Market Fit can help you see the world in a new light and inspire new ideas to provide value to your consumers while also growing your business.
What exactly is Product-Market Fit?
Product/market fit refers to being in a good market with a product that can meet that market's needs.
This is a somewhat hazy definition, but it's a start. What Andreesen says paints a more vivid picture of what Product/market fit feels like:
When there is no product/market fit, you can always tell. Customers aren't getting enough value from the product, word of mouth isn't spreading, usage isn't expanding as quickly, press reviews are "blah," the sales cycle is too protracted, and deals aren't closing.
When product/market fit occurs, you can always sense it. Customers are buying the product as quickly as you can create it — or demand is increasing as quickly as you can add more servers. Customers' funds are stacking up in your company's bank account.
You're employing sales and customer service representatives as quickly as you can. Reporters have called because they've heard about your hot new thing and want to speak with you about it.
Importance of Product-Market Fit?
Why, then, is getting it so critical? Why do so many venture capitalists insist on demonstrating product-market fit before investing in a company?
Why does Andreesen believe that every startup's life should be divided into two stages: Before Product-Market Fit (BPMF) and After Product-Market Fit (APMF)?
The solution is simple: Before you produce a product for which you have confirmed a sufficient number of people are willing to pay, your team cannot afford to focus on other critical strategic objectives such as growth or upselling existing consumers.
In reality, those attempts may be unproductive if you haven't first determined that your product has a large enough market to maintain itself and create a profit.
When your customers spread your product
Tim Harsch provided a complementary definition in Josh Porter's Principles of Product Design. Josh's assessment of customer loyalty and excitement is an indicator of product/market fit:
When you have a good product/market fit, people start to sell for you.
Product-market fit is a strange concept, but here's one way to think about it. It's a great win when people understand and utilise your product sufficiently to appreciate its worth.
However, when they begin to share their pleasant experience with others, and when you can reproduce the experience with every new user referred by your existing users, you have a product-market fit on your hands.
Something beautiful then happens. Suddenly, your customers are your very own salesperson.
Validation of the Value Hypothesis
The clearest and most helpful explanation we discovered in this piece by Andy Rachleff, the CEO of Wealthfront, titled Why You Should Find Product-Market Fit Before Sniffing Around for Venture Capital. To produce this explanation, he paraphrases Eric Reis and Steve Blank's work:
A value hypothesis attempts to express the underlying assumption that underpins why a consumer is likely to utilise your product. A growth hypothesis represents your best thinking about how to increase the number of clients who are interested in your product or service.
Finding product/market fit is the process of identifying a convincing value hypothesis. A value hypothesis considers both the features and the business strategy required to persuade a buyer to purchase your product.
This definition should be noted because there are likely to be several essential assumptions to validate across product, price, and business models.
Myths about Product-Market Fit
This post by Ben Horowitz titled The Revenge of the Fat Guy (referring to a debate with Fred Wilson) has insight that significantly increases comprehension of Product/market fit. In it, he debunks four prevalent myths:
Myth #1: Product market fit is always a one-time event
Myth #2: When you have a product-market fit, it is self-evident.
Myth #3: You can't lose product-market fit after you've found it.
Myth #4: You don't have to worry about competition once you've found a product-market fit.
Finding Resonance
Obtaining resonance with your customers and getting on the same wavelength as them is a fantastic analogue for finding PMF.
It should be noted that this can be accomplished by both altering your product and changing your customers (market pivot).
Changing your wavelength is a gradual, continual process (anti-myth #1), and you can sense when you're close to being on the same wavelength but not quite there (anti-myth #2).
Because both your product and your clients are continually changing (wavelength), it is easy to go out of sync (anti-myth #3), and it is evident that your actions do not prevent others from doing the same (anti-myth #4).
How to get Product-Market Fit
Knowing that we need to achieve Product-Market Fit and all that entails, the obvious question is, 'How?'. Every organisation has a unique path (or fails), and these approaches to the challenge can help you discover your way.
In the book - The Lean Product Playbook, there are 6 steps that you can take to try and obtain Product-Market Fit:
1. Identify your ideal consumer.
2. Determine the customer's unmet needs.
3. Specify your value proposition
4. Specify the features of your minimum viable product (MVP).
5. Create your MVP
6. Put your MVP to the test with customers.
7. Have a product roadmap for clearer direction
Other things you can keep in mind in your journey to getting product-market fit:
Nothing is off-limits
Here's another thought from Marc Andreesen, the godfather of product/market fit. It illustrates that everything is a potential lever to pull you toward product/market fit and that you may be transformed as a result of that quest.
Do whatever it takes to achieve product/market fit. Changing employees, rewriting your product, entering a new market, telling consumers no when you don't want to, telling customers yes when you don't want to, getting that fourth round of very dilutive venture capital - whatever it takes.
When it comes down to it, practically everything else can be ignored.
In pursuit of product-market fit, it is reasonable to change teams, markets, products, names, and visions. That's the narrative of numerous firms, like Instagram, Soylent, Anyperk, and Twitter, which all diverged from their original concept to discover Product-market fit.
Talk to your customers
Customer Development is a critical skill for achieving product-market fit. We've dedicated an entire Evergreen Edition to it, titled How to Failure-Proof Your Business with Customer Development.
Product-Market Fit is Everyone’s Job
Every employee in the organisation should realise that they are looking for Product-Market Fit and should be prepared for a difficult path. It's not a matter of linear advancement - it's a maze in which you spend much of your time lost, never knowing if you're making progress or simply invalidating a notion. Ryan Holiday makes an excellent point about this:
Product Market Fit is not a mystical state that occurs by chance. Companies strive for it; they scurry toward it. They are willing to discard weeks or months of work since the evidence supports their conclusion. The services as they are presently known to their clients are significantly different from what they were at launch — before they achieved Product-Market Fit.
Every member of the team, from those who produce products to those who make strategic choices or connect with customers, has a role to play in locating it.
Today, ensuring Product Market Fit is as much the marketer's responsibility as it is anybody else's.
However, rather than waiting for it to happen by itself or believing that it is the responsibility of another department, marketers must participate in this process. Identifying your customers, determining their wants, and building a solution that will blow their minds are all marketing considerations, not just development, and design decisions.
All Markets Are Not Created Equal
There are several markers that would denote a ‘good market’:
✤ A high number of prospective customers
✤ Significant increase in the number of potential users
✤ User acquisition ease
Here are some benefits of targeting a ‘good market’:
Leading with a strong market allows you to implement your product design more straightforwardly and cleanly. The reason for this is that once you've chosen a large market, you can devote time to determining some user-centric attributes on which to compete.
The crucial thing to remember here is that you can usually identify a few key ways in which your product differs from the competition, but then leave the rest of the product decisions to chance.
How to Assess Product-Market Fit
"What is measured gets managed," as management guru Peter Drucker always says, so how can we quantify this concept of Product/Market fit? How can we tell if we're getting closer or if we've already got it?
This isn't an easy question, and there aren't any exact solutions, but there are three estimates that can help you on your way to Product/market fit:
1. Do your customers tell their friends about you?
Net Promoter Score (NPS) is a simple survey that asks consumers to rate how likely they are to recommend something to a friend or colleague on a scale of 1–10.
2. Do your customers care if your firm goes bankrupt tomorrow?
This approach, which assesses how many consumers would be upset if they couldn't have your product/service anymore, is a companion question to NPS, which measures how many customers adore you.
By asking your users to share or invite their friends, you can effectively quantify your value to them and approximate the price you could extract or the power you have to drive growth.
An example of a question you might ask your user may be:
“How would you feel if you couldn't use the company’s product anymore?”
• Extremely disappointed
• A little disappointed
• I was not disappointed (it isn't particularly useful)
• N/A — I don't use [product] anymore
3. How many customers leave and how quickly?
In his address at Stanford's Lecture Series How to Start a Startup, Alex Shultz outlines his concept of Product-Market Fit, which is based on churn and customer retention:
Consider this curve: 'Percent Monthly Active' vs 'Number of Days from Acquisition.' If you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a profitable business and a product-market fit for a segment of the market.
Other signals to keep in mind
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Is there a sector of potential customers that suggests they will switch to your product after surveying them or allowing them to test it?
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Are some users eager to try your product after rejecting similar products on the market?
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Do customers appropriately group your product with the right rival products during user testing?
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Do your customers grasp your product's differentiators or unique value proposition?
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How do your underlying numbers (such as user retention rates) compare to those of your competitors?
How To Start A Product Roadmap
See the overall picture
Before you sketch out what your team should be working on, take a step back and grasp the product vision — why are you generating this product in the first place. What, if not the entire world, would the success of the product bring to the client, the firm, and the market?
Come up with a product strategy
Your product strategy outlines the steps you'll take to realise your product vision. It connects your product vision and roadmap by converting the vision into activities that the roadmap emphasises.
Information collection
This is where you'll collect all of the information you'll need to develop your roadmap. These requirements can be obtained from a variety of sources to build the optimal solution or features to implement.
Determine your product roadmap themes
As you get closer to realising your vision, your product roadmap should describe how you intend to provide value to your customers and stakeholders. Themes are a sort of value that can be used to group similar features, projects, or epics.
They define a client's need, a problem, or what your clients will receive (the job that your product/service will help them complete). Under the subject, for example, you can organise projects that help improve the customer service experience.
Closing Words
When you see a successful startup, you usually see one that has attained product/market fit — and usually has screwed up a slew of other things along the way.
In contrast, you see a surprising number of really well-run startups—with HR policies in place, a great sales model, a thoroughly thought-out marketing plan, great interview processes, outstanding catered food, 30" monitors for all the programmers, and top-tier VCs on the board — falling off a cliff because they never find product/market fit.
Ironically, if you ask the founders of a successful startup what made it successful, they would frequently list a variety of factors that had nothing to do with it. Causation is a difficult concept for most people to grasp. However, in almost every case, the root cause of their success was product/market fit.
More articles please read Business Development: Strategy, Tactics & Examples That Work
