"Being in a good market with a product that can satisfy that market." - Marc Andreessen
This is probably the most precise definition of product-market fit (PMF). It doesn’t apply to the founders of startups but everyone involved with it, i.e., the employees, investors, advisors, and system partners.
It involves market research, planning, and testing, enabling your business to thrive and sustain itself. The phrase “product-market fit” is self-explanatory as it explains how businesses offer their product or service to the targeted customers at the right time and place.
Let’s dig deeper to know what a product-fit market means and how to build one so that your customers are willing to buy your products and rave about them to others as well.
What’s in the article
1. PRODUCT-MARKET FIT: A product manager’s ultimate guide
2. What is Product-Market Fit?
3. How to find product-market fit?
4. What is a Market?
5. Interesting examples of product-market fit
6. Measuring your product-market fit?
What is Product-Market Fit?
Product-market fit is the sweet spot where your product satisfies the market needs.
Simply put, a company has achieved PMF when the product has unlocked high potential in the market and customers are willing to pay for the product. To build a strong foundation for your business, you must choose the right market and carve the niche for your product.
How to find product-market fit?
Building a business is more than just a strategic objective and financial investment. You must develop a product that adds value to its target customers and brings tangible business profits.
You must carry out thorough research of market segment, targeted demographics, and product specifications o determine the product-market fit of your product or service.
What is a Market?
A market encompasses all your present and potential customers who have a similar need or set of needs.
For example, the United States small business lending includes all those who need loans for their small business. You may consider the total number of customers in the market or the total revenue generated to assess the market size.
How to achieve Product-Market Fit (PMF)?
- Define the target customers: Because they are the ultimate ones to decide the success rate of your product. And to find the target customers you must develop a buyer’s persona and understand the market needs by outlining the high-expectation customer demands.
If you already have a few customers analyze the existing data and segment them into industry verticals / Sub-segments. Writing down the details in a simple excel like this below, will give you a lot of clarity.
Apart from the industry vertical details, also collect details on the competitors, market size, and the customers’ capacity to pay for your product/service. The problem your product/solution addresses must be in their top 3 priorities for the current period. You should also be clear on whether your solution adds to their revenue or cost. If it directly impacts their revenue positively, the chances of the customer paying for your product are high.
- Identify the pain point of the target customers when they are already swarmed with tons of existing solutions that don’t fulfill their exact needs. A methodical customer discovery process is invaluable in establishing product-market fit.
List down a set of hypotheses based on your understanding of the customer and their domains. Prepare a list of questions to validate the hypotheses before the customer interview.
Go with a precise and brief list of questions. Write down the answers, analyze responses and assimilate new perspectives.
- Define a value proposition that offers better quality and unique services at an affordable rate than your competitors. Try to answer the following questions to understand your value proposition clearly:
- How is the customer currently handling the problem your product addresses?
- How many resources are utilized to handle the problem?
- How different is your product from the options available in the market?
- Define your minimum viable product (MVP) feature to your customers. Instead of blowing your cash on a full fledge product, you can build it slowly by rolling out features depending on the customer feedback. One of our customers smartly involved their anchor customer actively in building the feature sets initially. This is, in fact, common in many product companies.
- Iterate – Work closely with the customers, and end users and gather insights on how easy/ difficult it is to use from their viewpoint. You can use different techniques, including OVOC (observational voice of customer), where you sit next to the customer and passively observe their use of your product/solution. This is also called the “Fly on the wall technique.”
Product-market fit is an iterative and non-linear process where you have to find the perfect balance between the growth potential of your products and the customers willing to purchase it.
Interesting examples of product-market fit
YouTube
The popular video-sharing website where anyone can watch your uploaded and shared content was launched as a dating website.
The founders created it with the intent to make it the best video dating website ever, but users made something else out of the product. This is the first ever video on YouTube uploaded by one of the founders.
Instead of uploading dating video profiles, users shared videos of vacations, trips, and pet videos. This is how YouTube’s business model changed to what it is now.
The founders revamped the website and allowed content of all kinds that interestingly aligned with the user’s requirements. This is a classic example of adapting to customer needs.
Netflix
Another brilliant example of a product-market fit case study is the media streaming platform Netflix. It started by mailing DVDs to the customers on a subscription basis and had a flexible provision of keeping the DVDs with them.
First, it eliminated the DVD rental stores by offering the same on a subscription-based model. Secondly, it quickly adopted the digital route by offering convenient and affordable entertainment.
This is how Netflix kept rewiring its business model by meeting the changing consumer and market demand.
Often, the product-fit market doesn’t hit the market needs in the first attempt. It takes multiple attempts and iterations to fine-tune with the customer base, value proposition, and market distribution to achieve the perfect product-market fit.
Measuring tour product-market fit
There is no defined single metric that dictates how to achieve product-market fit for a business. But there are practical ways to measure product-market fit, and those are
Net Promoter Score
It is a market research metric to calculate customer satisfaction and experience from survey questions.
It gauges the willingness of the customers to purchase or recommend your business’s products or services.
With the help of NPS, you can understand the success rate of your product and the loyalty of your customers. For example,
How would you feel if you could no longer use the product?
The responses can be:
1. Very disappointed
2. Somewhat disappointed
3. Not disappointed
4. I no longer use the product
Based on the survey, you can calculate the net promoter score, and if the result is above 40%, then you have a good product-market fit. This survey is usually conducted with users who regularly interact with your product.
Churn rate
Customer churn rate is also known as attrition rate, where the customers stop sticking around your business.
Retention rate
Customer retention rate is the metric to help you understand customer loyalty. It reflects the ability of your business to acquire, manage, and retain customers for a while.
Retention curve is a great way of finding out if the customers have found value in your product; also it reflects the success result when existing customers come for repeat business.
Customer Lifetime Value (CLV)
CLV is an essential indicator of product-market fit. It is a measure where a customer’s revenue value is considered and compared with the predicted customer lifespan.
It can be used to identify and target customer segments that are valuable for your business, thereby reducing the churn.
The customer lifetime value is calculated through average order value, the number of transactions, and customer retention rate.
There are other forms of metric that help you understand better and reveals if your product-market-fit is performing well for your business. But first, you must be inventive in your approach and find a way to reach out to your target audience.
For example, when launching an online eco-friendly product on a shoestring budget, you can analyze consumers’ intent by running ads on any social media platform and testing the water. You can avoid casual scrollers by asking for email addresses to get a better signal of intent from the consumers.
In this way, you can eventually build a deck that showcases the product and value proposition for the target audience by avoiding a burn in your pocket.
Find & improve your product-market fit
Getting your product-market fit is tricky and requires a dense focus. But it is achievable. Staying close to customers and incorporating their feedback into the product can increase your odds of success.
There is always a temptation to scale even before you are fully ready. This is a significant reason many product companies stumble. You will be under pressure from your investors, completion, and market to scale. Be cautious not to fall into this trap.
The process of finding a product-market fit indicates that your business is growing. Your product must bring an extra edge to the heavily competitive market.
At Neekan, we do everything to assist you in understanding your business, customers, products, or services better. We have helped customers validate, groom their product idea, achieve product-market fit, and build a customer-focused product roadmap.
We have extensive experience across multiple domains, including eCommerce, Insurance, Healthcare, EdTech, and HR.
Contact Us for a free consultation on your challenges.