Product-market fit, as the name suggests, means creating a product that matches the market’s needs. In fact, business gurus like Marc Anderseen have emphatically announced that it may be the ONLY thing that matters.
While many of us know that achieving product-market fit is a significant milestone for any startup, not a lot of us know what it really means or how to get there.
How is Product-Market Fit Different from Problem-Solution Fit?
Many founders might argue they already entered the market with a solution that solves a problem, which should be enough or the same as a product-market fit.
But that isn’t exactly the case! A problem-solution fit focuses more on the customer discovery process, where you’re studying a problem a customer is facing and solving it.
However, a product-market fit is part of the customer validation process, where you have transformed your solution into a product or service your customer is willing to pay money for.
5 early signs you have achieved Product-Market Fit
Product-Market Fit can be identified by many different factors, and these factors rarely go unnoticed:
1. Quantitative:
- Are you selling out faster than you can scale?
- Do you have a high number of return customers?
- Are you growing organically in a cost-effective way?
2. Qualitative:
- Are you seeing visible excitement from your customers? (even if it’s a few – fan messages, dilated pupils, or showing disappointment when it’s not available)
- Are the media and industry analysts talking or writing about you?
If you are experiencing a combination of the above – then congratulations – you may have already achieved product-market fit, and it’s time for you to harness that fit and run like the wind with it!
5 early signs you have not achieved Product-Market Fit
If you often find yourself confused or left wondering why your product or service is facing the following reactions:
- Customers not really understanding what your product or service does
- Not receiving reviews or getting unenthusiastic reviews
- Very few or no returning users or purchases
Then, it may be time for you to reassess your product-market fit. But hey! That’s okay – because the process of finding a product-market fit is 100% iterative!
The Product-Market Fit Pyramid
Most founders find it confusing to decide where to start, what to change, and how to track the product-market fit.
This actionable model, created by the Lean Startup Company, takes you through a 5 layer pyramid, split into Product and Market segments; each layer of the pyramid is directly related to the layer above or below it.
According to this pyramid, following the lean start-up model, you would move from the bottom to the top while building an MVP. In brief, the model would unfold like this:
Determining your target customer: You get to know your customers. Use market segmentation to understand their demographics, preferences, and pain points. Create personas that bring them to life so everyone on your product team knows who they’re designing and building for.
Identifying underserved customer needs: The key to success is finding those needs that are begging to be met. You want to focus on the specific pain points and desires of your target customers that aren’t adequately addressed by existing solutions in the market.
Defining your value proposition: Time to stand out from the crowd! Your value proposition is your plan for how your product will meet customer needs better than the alternatives. Think of it as your secret sauce—pick the ones that truly align with your target customers’ desires and will set your product apart. Don’t overcrowd your USPs!
Creating your MVP prototype: Build, but not everything at once. The Minimum Viable Product (MVP) approach comes into play here. Define the essential features and functionalities that will create enough value in the eyes of your target customers to validate that you’re heading in the right direction.
Testing/Going Live with your MVP: Now it’s showtime! You need to give your customers a taste of what’s coming. Engage with your target customers and put your MVP to the test. Ensure that your MVP is optimized for the following:
- It should be doable
- Your customer should be able to use it without your intervention
- It has your main feature set
- It has a feedback mechanism (you can include surveys with questions that calculate the NPS score or the Sean Ellis metric)
- It can track user engagement
Once you’ve hit this stage, you should be able to see some of the signs we talked about earlier – Are your customers excited? Are they lining up? Are they signing up?
No?
It’s time to go back to the pyramid and test your original hypothesis:
Product
5. UX
- Did your customer not understand your product?
- Were they unhappy with the experience?
- Did they not find it user-friendly?
- Did they drop off or bounce off halfway through?
4. Feature Set:
- Did your features confuse your customers?
- Do they want more features?
- Do they want different features?
3. Value proposition:
- Is your value proposition not valuable enough?
- Did you give your customers too many USPs?
- Can you focus on one USP that blows your customers’ minds the most?
- Do you need to find a new USP?
Market
2. Underserved customer needs:
- Was the gap you identified not important enough?
- Were your customers already happy with their current solutions?
- Was this a problem customers did not want to spend money to solve?
- Are there other gaps within the same market that are more important?
1. Target customer:
- Did you get your target customer wrong?
- Create segments out of your existing customers to understand their patterns better.
- Delve deeper into the personas of each to find out what they want
- Is there an audience segment that is reacting better than others?
- Is there an untapped audience segment that wants the product more?
Now it’s time to check your product-market fit metrics again.
5 ways to calculate your product market fit
Early indicators are great, but you also want to get to more specific metrics to quantify your product-market fit with these calculations. FYI, these numbers are an investor favourite too!
1. Net Promoter Score
Net Promoter Score (NPS) measures how likely your customers are to recommend your product to their friends. You can track this by asking them just this one question, “How likely are you to recommend this product/service on a scale of ‘1-10’. Add it to your app, website, or mailer.
2. Customer Retention Rate
A Customer Retention Rate (CRR) tells you how many customers keep coming back for more after trying your product or service.
3. The ‘Sean Ellis Metric’
Perfect for young start-ups, this metric is created by growth hacker Sean Ellis. It asks customers just one question: “How would you feel if you could no longer use the product?’”, with answers ranging from “very disappointed” to “not disappointed”
4. One-to-One Customer Interviews:
If you’re running small-scale testing, talk to your users directly to gauge product-market fit. Get on calls, send them detailed surveys, incentivize them to provide you with feedback!
5. Ad Campaigns:
Run market validation ads through campaigns on platforms like Google and Facebook. Analyse engagement, clicks, and other user behaviours to determine product appeal.
How long do you wait to test your product-market fit iterations?
Depending on the type of product or service, you can choose to make big changes at intervals or many small changes regularly.
Online products like SaaS software have the ability to make certain types of changes quickly and can also test them quickly with their customers. They don’t have to wait to find out if a new feature or new page design has improved the success of the product.
For example, Netflix started as a solution for customers to avoid paying late fees on their DVDs; when the eventually went redundant, Netflix rewired its business to a SaaS platform. Even today, we constantly witness Netflix adjusting its product-market fit to match evolving customer demands.
Famously, Dropbox signed on 5,000 subscribers pre-launch through a compelling 90-second video, followed by a second video with more details that attracted 75,000 more users in a day. They gathered a lot of high-quality feedback to improve the product’s usability by encouraging users to share their thoughts on Votebox.
Finally, when they were ready to launch, they created a referral program by leveraging the excitement for free storage space by introducing a two-sided incentive referral program, which took them from 100,000 registered users to 4 Million.
However, a physical product, like a machine or a tool, that may have a long production cycle or an expensive iteration process would not be able to make changes in short periods of time. In a scenario like this, it is best to indulge in the iterative product-market fit before going into mass production and releasing only small batches to test.
General Electric, before launching their French door fridge, went through multiple iterations, each informed by customer feedback. They put together a small cross-functional team and had them hear customer feedback first-hand. Between January to August, they made 5 versions of the product until the customer started to like it. They released only 75 units of Version 6 and then launched new product versions yearly.
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