How to find product-market fit?
The main task of any product is to attract as many users as possible who will spend their money on the proposed solution.
Often, products and entrepreneurs are faced with a problem: a fantastic advertising campaign has been made, a lot of people come, but the conversion is minimal. If you are familiar with this, this article is for you.
Today we are talking about the coveted Product-Market Fit (PMF), which every business founder, every IT marketer, and seller dreams of achieving. Let's try to figure out what it is, consider several methods to accomplish the coveted PMF.
What is Product-Market Fit?
Product Market Fit is the product's compliance with the target audience’s expectations, a harmonious combination with the market, which allows you to increase conversions sky-high and increase revenues.
The term was coined in 2007 by Marc Andreessen, the co-founder of Netscape and one of the main contributors to creating the popular Mosaic browser. Mark defines what product-market fit is and is not:
“You always feel when you have not achieved product/market fit. Customers do not understand the product’s value, word of mouth is not working, usage is growing slowly, press reviews are bland and tasteless, sales cycles are very long, and most deals fail. And you always feel when you have achieved product-market fit.
Customers are queuing up for a product, and usage is growing faster than you can buy servers. Customer money fills your accounts. You are hiring sales and support specialists at the fastest speed. The journalists are calling because they found out about a hot new project and want to discuss it. You receive the Harvard Business School's Entrepreneur of the Year awards. Investment bankers are waiting at your home. "
There are many literal translations of the term. One says "product-to-market fit,” the other says "a happy union of the product and the target audience." There are many definitions, but the essence is the same: PMF is an indicator of product compliance with consumer expectations. If the criterion is not met, sales will be minimal, and the project’s success is low.
When the PMF is reached, the business grows at lightning speed, and revenues increase every day. If the product disappears from the market, the target audience will get upset and find analogs.
Sounds good. In theory, everything is simple: you need to achieve product-market fit, and then the product will take off. But the problem is that not everyone understands how to do this. More people misinterpret the criterion. Next, let's talk about why PMF is needed and how to achieve and measure it.
Why is Product-Market Fit needed?
The main task of product-market fit is to create the foundation for building a successful and profitable company. Without meeting user expectations, there will be no sales. There will be no sales - there will be no profit. Everything is straightforward.
The criterion is used to plan product changes. If the product falls short of the PMF, analysis, and research is carried out. Determine what to add to the functionality or design to meet the expectations of the target audience.
How to determine Product Market Fit?
To determine the Product-Market Fit of a startup, look at the users and their actions with the product.
The following factors indicate that you have a promising Market Fit for further development:
users feel a need for a product solution (conversion to purchase is more than 15%);
short sales cycle (more than 60% of those who started to place an order, paid for it) or the absence of outsiders/actions in the cycle;
multiple growth of users and sales (x2 / x10 / x100);
users like the product-solution (churn rate is less than 15%);
the problem your product solves is getting media coverage.
Weak Product-Market Fit can be distinguished by the following factors, which may be inherent to both the problem and the product and its market:
weak growth of users and sales (the metric is "marking time" in place, does not grow in multiples);
buyers do not get the total return on the product (significant churn of users over 50%);
the virality of the product is at a low level (no one recommends the product to the Internet);
the sales cycle takes too long or involves too many participants/activities;
the sales themselves are minimal (conversion is less than 15%);
the media is silent about your user issue.
Value and quality should be at the heart of your service or product. Everything else is invented problems and an attempt to impose them on the market.
The truth is that 80% of startups cannot play against the market and fail for this reason.
The other 10% compensate for imposing their solutions on the market with investor money, hoping that one day this solution will be the only one suitable for the market (hello, IT monopolies).
The remaining 10% of startups are the lucky ones that have correctly identified their Product Market Fit and are capturing their market through natural development and growth.
How to find a Product Marketing Fit?
There are many techniques for achieving PMF. We will cite a few here and provide links to the literature for a detailed study of the issue.
Product-Market Fit can be found guided by your intuition, logic, research, prototyping, and testing. This approach requires many resources, both material (constant prototyping) and mental (testing hypotheses, disappointing with failure, coming up with something new).
The empirical method suits creators and market experts. For everyone else, this will be the path of pain.
The methodological path involves the search for product marketing fit through repetition of the algorithm of sequential actions:
Define your target audience
Find out your current needs
Define a value proposition
Model the functionality of the solution and create an MVP
Ensure correct user experience with the product (UX)
To go through the second scenario and ensure that the product matches the market, you should arm yourself with one of the methods already outlined.
You can contact the Sannacode team, and we will help you develop an MVP that meets the market’s needs.
For example, Lean Startup (author of the methodology by Dan Olsen, Lean Product Playbook) launches lean manufacturing when resources are spent on creating constantly tested MVPs.
The way to work “from the client” is suggested by Steve Blank (books “4 steps to insight” and “Startup. Founder's Handbook”). He focuses on working with the audience, verifying it, and constantly testing hypotheses about the market, consumers, problems, and necessary solutions.
Important postulates about Product-Market Fit
You always feel if you have achieved PMF or not. Always. If you do not understand this, you most likely have not achieved it and are deceiving yourself. At the PMF point, the business, as they say, begins to develop itself. Effortlessly, customers appear, sales close, the brand's weight in the market increases, people talk about you, and demand grows for you.
The market always comes first. It cannot be changed at your whim. But you can take part in its transformation. The market dictates to you a request: what does society want now? The market consists of the Client, the Problem, and the Solution.
The product must be of value. Without finding a working hypothesis of why the market needs your product, you will not solve the problem. And that's okay when you “tackle” a value proposition several times until you perfect the one that best suits the market. Anyone who thinks that he will solve the problem with the help of bright packaging (unless it is part of the value) is mistaken twice because it does not work to improve the product but to distribute it.
While it is evident that the PMF has achieved / not achieved it, it may not be so apparent on paper. To understand this, you need to be familiar with and the ability to “see signals,” such as financial indicators, retention of customers, and others. Sometimes it is possible to miscalculate the absence of PMF when tests are performed incorrectly (for example, not on the target audience or with incorrect positioning).
What matters is not which of the competitors first created the product but the first to achieve PMF. Facebook was not the first social network; Google was not the first search engine. Apple was not the first computer. But they were all the first to find their Product-Market Fit, and thanks to this, they became the market leader.
A competitor can overtake you with a better PMF. The illusion of the inviolability of success quickly fades when you see how quickly rivals catch up with you. Do not stop at strengthening your position, expanding the sphere of influence, scaling.
PMF is achieved the moment you have created the right product. That is, even before they sold it. The launch is necessary to ensure that the cherished goal is achieved, but even testing hypotheses can convince you of the result. We're talking about MVP (a minimum viable product).
Reaching PMF is a strategic challenge. Therefore, there can be several tactics for achieving, and no successful company can do without Product-Market Fit.
The Sannacode team specializes in developing startups from scratch. We help businesses identify the needs of their target audience and create an MVP that will attract investment. You can fill out the form on the website and get a free 30-minute consultation with our CTO.