Businesses

Product-Market Fit: What You Need to Know (But Were Too Embarrassed to Ask)

Product-market fit is a term you’ve heard thrown around a lot in the startup world. But why does it matter so much?

The fact that it’s so oft-repeated means you know it carries a lot of importance—it’s not just a trendy buzzword. But, there’s also a lot of confusion around this subject.

What does it actually mean?

And, uhhh…how do you get it?

Yep, those are the questions about product-market fit that are constantly rattling around in your brain—but, at this point, you’re probably too embarrassed to ask.

Well, don’t worry. We’re here to break it all down for you.

Let’s dive into the basics of product-market fit, and why it matters for successfully scaling your startup.

What Exactly is Product-Market Fit?

While the term “product-market fit” seems like it’s been around for ages, you might be surprised to learn that it was only coined in 2007.

Marc Andreessen, who’s the co-founder of Andreessen Horowitz, a Silicon Valley venture capital firm, was the first to use the term in his 2007 blog post. When defining product-market fit, he says the following:

Product/market fit means being in a good market with a product that can satisfy that market.

 

Sounds pretty straightforward, right? But, let’s dig in a little deeper here to get a solid grasp on what exactly this means.

  • Let’s start with the first piece of that puzzle: a good market.

What exactly makes for a good market?

Well, a large market certainly helps. But, that doesn’t mean that every single product needs a huge audience of eager customers.

You can also have a smaller market, you just need to ensure that it has a strong demand for what you’re offering. Basically, you need enough people to buy what you’re selling.

  • Now, let’s turn our attention to that second piece: a product that can satisfy that market.

Your target market has a problem that needs resolving or a need that has to be met. Your product should directly satisfy that need.

So, if you have a market that desperately needs your product and a product that checks the boxes on what you’re looking for, you’ll have reached that ever-elusive product-market fit.

Why Does Product-Market Fit Matter?

That simple explanation alone is likely already making you realize why product-market fit is significant for the success of your business. But, let’s hammer this point home.

According to data from CB Insights, the number one reason that startups fail is that there’s no market need for what they’re offering. That reason for failure even ranks ahead of running out of cash.

It makes sense—if there’s nobody interested in buying what you’re selling, your business is destined for failure.

 

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But, product-market fit isn’t only necessary to sustain your business—it’s also important for growing your business. By ensuring product-market fit, you build a solid foundation on which to scale your company.

Before Product/Market Fit, trying to scale through marketing and advertising may actually do more harm than good for your company. You’ll be throwing money away, and alienating potential customers before you’ve even created a product that they’re truly interested in,

-explains a post for TechLaunch,-

After Product/Market Fit, on the other hand, growth comes naturally, and every dollar you put into scaling your startup produces a real ROI.

By ensuring that you have at least some degree of product-market fit early on, you’ll avoid that dreaded realization that you’ve sunk a ton of time, money, and resources into a product that there’s actually no demand for.

The Lean Product Process: Laying the Groundwork for Product-Market Fit

Alright, so you understand the importance of product-market fit. Here’s your next question:

How do you get there?

How do you ensure that you have it?

First of all, it’s important to understand that product-market fit isn’t necessarily a finish line. There’s not this big “a-ha!” moment where everything falls into place.

Thus, there is really no such thing as ‘reaching’ Product/Market Fit; rather, the goal is to increase your degree of PMF,

-explains that same blog post for TechLaunch,-

Instead of thinking about ‘getting to’ product/market fit, think about continuously developing your product to fit the evolving market as well as it possibly can.

That all starts with your business plan. As Hayley Leibson reports in her article for Forbes, Dan Olsen, author of The Lean Product Playbook, created a framework to help businesses draft and revise their business plans to pursue product-market fit.

It’s worth looking into the framework in detail if you’re interested. But, for a brief overview, here are the steps that Olsen outlines:

1. Identify Your Target Customer

You need to know exactly who you’re aiming to serve with your product—the more detailed you can be, the better.

  • Who are you targeting?
  • What major problems do they have?
  • What goals are they trying to achieve?
  • What are their demographics?

Create personas for each of your target customers so you can zone in on who exactly you’re trying to reach and market to.

2. Pinpoint Customer Needs That Are Underserved

What needs do you target customers have?

And, most importantly, which of those needs are currently unmet or underserved?

Addressing those specific needs means that your product will offer significant value for your customers—value that they probably aren’t getting anywhere else.

3. Understand Your Product’s Value

Speaking of value, you need a solid value proposition for your product. Now that you’ve determined which of your customers’ needs are underserved, pick the ones that your product can actually fulfill.

  • What features do you have that will help customers meet that need?
  • What sets you apart from your competition?

That’s all important to know not only to ensure product-market fit, but also so that you can come up with powerful and effective messaging to market your product.

4. Outline Your Minimum Viable Product

The last thing you want is to invest a bunch of time and cash into something—only to find out that your customers don’t need it. A smart way to confirm you’re on the right track before that happens is to come up with a Minimum Viable Product (MVP).

This approach is aimed at building only what is needed to create enough value for your target customer to validate that your product is headed in the right direction,

-explains Hayley Leibson in her article for Forbes.

  • What are the core features you need to have in order to test whether your idea is viable?
  • What do your customers need in order to see value—without sinking a ton of resources into flashy extras?

Get a solid grasp on the base of your product, so that you can start gauging the market with that in place.

5. Create Your Prototype

Now that you’ve figured out what your MVP needs to include, it’s time to roll up your sleeves and build a prototype in order to get real feedback from customers.

Remember, things don’t need to be perfect or over the top here. Your main goal is to give your target market an idea of what your product does so that they can react to it accordingly.

6. Get a Read on Your Customers

Your prototype is done. However, your goal here wasn’t just to build your MVP—it was to use it to extract valuable insights and criticisms from your customers.

With your MVP in place, find a way to get honest thoughts from your target market. Whether it’s a survey or informal, one-on-one conversations, it’s important that you take the time to hear from your customers about things like:

  • What do they like about your product?
  • What don’t they like?
  • What do they think separates you from other similar products they’ve used?
  • Is there anything they think is missing?

After you get that feedback, it’s time to iterate, iterate, and then iterate some more. The more you can absorb and then implement feedback from your target market, the closer you’ll get to improving your product-market fit.

The steps that Olsen outlines obviously apply to a business that’s offering a product. But, make no mistake, you can apply these same concepts to service-based businesses.

Your prototype might not be as tangible, but you should still take these steps to lay the foundation for product-market fit—before you get too far down the road of your business plan.

How Can You Tell When You’ve Achieved Product-Market Fit?

Like we said before, there’s really no achieving product-market fit—because the market (and, as a result, your product) are constantly evolving.

So, when product-market fit seems so impossible to wrap your arms around, how can you possibly know when you’re doing a good job with it in your own business?

Trust me—you’ll be able to tell. Marc Andreessen who, as a reminder, coined the term to start with, describes it best when he says:

“You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.”

In other words, you’ll know you have decent product-market fit in your business when things are going well.

If there’s nothing but unclosed sales and crickets on your phone lines and in your inbox?

Well, you probably aren’t meeting a real market need—meaning you need to go back to the drawing board and do some tweaking.

Does Achieving Product-Market Fit Mean You’re Done Worrying?

For many entrepreneurs and startup founders, product-market fit is the promise land. It’s that elusive state where everything just sort of seems to fall into place.

That sounds dreamy, doesn’t it?

However, as we mentioned above, product-market fit isn’t always permanent. The only constant in change is business, which means that while your product might serve the market well right now, that could all change next year—or even tomorrow.

As Ben Horowitz explains in his article for Marc Andreessen’s site, product-market fit isn’t something that’s guaranteed—you can lose it. Even further, just because you have great product-market fit doesn’t mean you no longer have to sweat the competition.

In fact, the best markets are usually the ones in which competition is fierce because the opportunity is big,

-he says.

So, think of product-market fit like an ever-evolving experiment. You should constantly be evaluating your product’s performance and your customers’ reactions to it—and then making any necessary adjustments in order to stay relevant, competitive, and ultimately, afloat.

By On August 22, 2018