Product-market fit describes a scenario in which aw company’s target audience are effectively buying, using and promoting the company’s product, in numbers significant enough to sustain the ongoing growth and development of the company.
If you think of your product-market fit as sailing, the demand would be the wind, and your product would be the sail. With enough wind, your sail will help to propel your entire company forward. In order for any business to thrive, there really needs to be enough demand for your product in your chosen market.
What is Product Market Fit?
Defining product-market fit can be difficult, as there are so many different versions of the definition on the market. For the purpose of building your business plan, however, you should have at least a basic idea of whether you have the right degree of product/market fit.
Probably one of the best definitions of product-market fit comes from Marc Andreesen, who coined the term in his post “The Only Thing that Matters”. According to Marc, product/market fit means being in a good market, while also having a product which can satisfy the customer needs of that market.
Although this might seem like a vague descriptor, Marc goes on to note that most business leaders can sense when product/market fit isn’t occurring as it should. If word of mouth isn’t spreading, and you’re not generating additional usage, something is wrong.
Although steps can be taken to improve product market fit over time, like developing your knowledge of your target audience and creating new iterations of your product, an initial evaluation of PMF can be an excellent way to validate a product before you ever bring it to market. If there’s absolutely no evidence of product/market fit with your brand and chosen customers, you may need to reconsider your product design, or look at targeting a different audience.
Why is Product Market Fit Important?
Product market fit, sometimes referred to as just product/market, is something that happens naturally when a company successfully identifies an opportunity in their industry, and an underserved target audience. When you achieve product market fit, you build a business capable of growth and revenue in any market. Unfortunately, a lot of companies don’t have the degree of product-market fit they think they do when build their business online.
Ultimately, product market fit is important because until you achieve it, you don’t know whether whatever you’re developing solves a real problem large enough to give you an ongoing source of revenue. Without clarity on product/market fit, you could be investing in something that isn’t commercially viable, which means your company will fail.
Before you develop a product and you know enough people are willing to pay for you can’t afford to focus on other strategic objectives like upselling existing users or growth.
How Do You Measure Product Market Fit?
Most business leaders associate the concept of product/market fit with product management and marketing teams. However, the reality is that achieving this outcome is essential throughout the entire company. Sales, support, business development, finance, and other teams must also help the company to reach this milestone.
So, how exactly do you measure product market fit and ensure you’re making the right investments for your business? This is a question which faces some controversy in the business landscape. Many people believe no single set of metrics is enough to tell a company when product-market fit is achieved. While some business leaders swear you can just “feel” product market fit when it’s happening, the reality is a little more complex.
To measure product-market fit correctly, look for the following signals:
- Are people selling for you? An important part of product/market fit is your customers actively doing some of the work to promote your brand and product for you. They share their positive experiences with others and discuss your brand when talking about solutions to their problems. If you’re getting a lot of brand reach and referrals from existing customers, then this is a good sign of product/market fit.
- Is your company naturally growing? Are you finding your product or service naturally appealing to larger numbers of people, without as much effort from your marketing and sales team? Does it feel as though your solution is growing organically?
- How do your metrics measure up? How do underlying metrics like the retention rate of your target audience, or their satisfactions cores measure up to your competitors? Do users seem happy to stick with your company and continue using your products?
- How do people feel about your product or company? When surveying potential customers or allowing them to test your product, do people who have rejected similar products feel more willing to try yours? Is there a positive attitude towards your brand?
- Do people understand your USP? Do your customers demonstrate an overall understanding of your unique selling proposition and what makes your company valuable?
You can also look at more quantitative measurements like churn rate, growth rate, market share and NPS score to help you understand what kind of direction your company is heading in.
Word-of-mouth, in the form of reviews, testimonials, and mentions on social media can also be valuable for determining product/market fit. Owning the relationship with your customers and investing in one-on-one interviews and surveys should help you to identify problems, generate ideas, build relationships, and improve the overall “fit” of your products.
Collecting Customer Feedback
As mentioned above, the best way to measure product-market fit for most companies will be to speak to your target audience. One-to-one interviews with customers are often the most likely to generate large amounts of effective qualitative feedback. Interviews and surveys can be issued in-person, over the phone, or even through an email thread online. It all depends on the atmosphere you want to create, and what you want to investigate.
In general, you’ll start with questions focusing on:
- Your customer’s background: What are their demographics, where do they work, what’s their age, and what are their hobbies or interests. What makes them unique?
- What your customer wants to do: What kind of pain points are your customers experiencing right now, and what are they trying to do to solve them? What solutions have your companies explored up until now, and why haven’t they been effective?
- How your product can help: Why does your customer thing your product might be suitable? How are they using the item or service to fix their problem, and have they found ways of using it with other tools you may not have considered?
There’s a great set of customer development questions available from Mike Fishbein which can help with creating custom lists of questions for customer surveys.
Remember, you can also collect useful insights through your internal team members, particularly the customer-facing staff who deal with your clients on a regular basis. Staff operating on the front lines will generally get a better idea of how your customers really feel about your business, product, or start-up. Collecting information from your staff will help you to better iterate your value proposition based on interactions with customers.
One important point to keep in mind when collecting feedback is that not all feedback is the same. Getting feedback on your feature set from people who rarely use your product won’t be anywhere near as valuable as getting validation from people who interact with your company regularly. Additionally, if you offer different versions of your product, like free or premium packages, the feedback obtained from paying customers may need to be weighted differently to the feedback obtained from customers who use your service for free.
How to Achieve Product Market Fit
There’s no one-size-fits-all strategy for creating product-market fit, or ensuring it already exists within your business. However, because a company generally can’t thrive without at least some level of product/market fit, it makes sense to have at least a basic strategy.
A good way to ensure you have product market fit when developing a start-up as a founder or co-founder, is to use the minimum viable product, or “MVP” workflow. This involves creating only the most basic version of your product, so you can introduce it to your target customer and get feedback quickly. The MVP workflow is a popular choice for many lean start-up brands who want to increase their profitability as quickly as possible.
To create a test for product-market fit:
- Determine your target customer: Decide who you’re going to include in your customer base, using what you know about market demand, your competitors, and the functionality of your product or service.
- Identify the underserved needs of your market segment and look for ways to demonstrate your value which aren’t being addressed by other company.
- Define your value proposition (What’s going to make you stand out from other similar brands), and what your minimum viable product feature set is going to be. Your minimum viable product feature set should include only capabilities essential to your audience.
- Develop and test your MVP: Develop the minimum viable product features for your offer and test it with customers. Collect as much feedback as you can during the testing stage to enhance future versions of your offering.
Remember, as you continue to develop your business and your brand, you can learn more about product/market fit. Use your findings on metrics like net promoter score and lifetime value of customers to help with everything from choosing new features, to enhancing messaging for your buyer personas.
Understanding the Benefits of Product/Market Fit
- If you’re a lean startup in need of growth and cash opportunities, you might be tempted to jump into building new features into your solution too rapidly, to try and attract more paying customers. However, this isn’t always a good idea. To build a sustainable company, your business model needs to focus on more than just short-term revenue.
Taking an agile approach to your business growth and concentrating on things like product/market fit will help to ensure you’re focusing your attention on the customers and features which are going to generate the most long-term value to your business. This is something Marc Andreesesen Horowitz, as well as other intelligent people in the marketing space understand.
Over the last few years, a number of marketing and business development professionals, from Sean Ellis, to Andy Rachleff and Steve Blank, have shared their perception of the product/market fit roadmap for product development. You can even find a range of PMF playbook articles out there from teams who can show you how to use product market fit to secure venture capital and drive growth within your business operations.
Do You Have Product Market Fit?
No matter how you choose to define product market fit, it’s hard to argue with the fact that understanding your customers and their perceptions of your products will always be important to business growth. Getting in touch with your customers through one-to-one surveys and interviews and collecting information from your customer support team should help to pave the way for stronger conversions and better market opportunities in the future.
With product-market fit, you don’t have to waste time and money trying to please everyone. Instead, you can be open and honest about your product market, making small iterations with speed, and developing loyalty among your target customers in the process.