When developing any business, many people will tell you about the importance of product-market fit.
This term has become a bit of a buzzword and it’s easy to see why.
It refers to the idea of being able to create a product which meets the needs and expectations of the market you’re looking to enter, but it doesn’t provide much more than that.
We can see this in a general confusion amongst startup founders which can be summed up in one key question:
“How do I know when we’ve achieved product-market fit?”
The answer to that question, as many of you will be aware, is “well, it depends”.
It depends on:
- what kind of product you’re making,
- what market you’re targeting,
- how mature that market is in terms of customer expectations,
- and — often overlooked — what stage you are at in your business.
This is why I want to talk about something very slightly different: product-market space.
What is product-market space?
Product market space refers to the parameters of how to define product-market fit as it applies to your business at a given moment in your growth lifecycle. It creates a broad space of market fit which narrows as your company grows and your relationship between the product and the market is optimized.
You can think of product market space as being varying degrees of fit within which you want to improve over time.
Or, as a mapping of market fit over time, against the growth of your company.
It’s like a roadmap of features or components your company needs in order to deliver the product or service to the intended degree of market fit.
In the product market space model, the intent is to gradually improve the alignment of your product-market fit over time as external factors change.
The first step might be to try to sketch out a conception of what product-market fit might look like for your company — a broad set of ideas.
Then you could try to figure out what features or components your company needs in order to deliver that product or service which meets the fit you’ve described.
Moreover, you might want to ask yourself what you think your product-market fit might look like in 5 years time. Many SaaS products start out by targeting SMEs or individual users and begin to reorient themselves toward enterprise customers as their product matures and they want to access larger and more consistent incomes.
So, what would product-market fit look like in 5 years? And how is that different to now? What extra features or components might your business need to navigate that journey? How can we measure the achievement of the first instance of product-market it, and how do we measure the next one? Are the metrics the same or does the scope change?
Broadly speaking, I’m talking about mapping out a journey from one kind of fit to another, as both your product and your market evolve as your organisation matures.
The difference between the initial product-market fit and the one in 5 (or 10) years time is the product market space.
What is product-market fit?
Now, there are some strengths to this kind of thinking and some limitations.
Let’s start first by looking at product-market fit as an established concept.
If we take Marc Andreesen’s essay, first published on his website and now available here, we’ll see a discussion about what is most important in the success of a startup: team, product, or market.
Marc makes a compelling argument for market as being the key driver, saying that an average team with an average product can have great success in a strong market, buying them the space to upgrade the team and the product in the process.
But the article really tries to capture what it is like to find that balance between the product and the market that demonstrates you’re going to make it: product-market fit.
“Product/market fit means being in a good market with a product that can satisfy that market.”
And, according to Marc, finding product-market fit is all that matters.
But how do we measure product-market fit?
Marc gives a kind of ephemeral definition where you just know. The phone is ringing off the hook, you’re adding new servers, and you’re having to hire.
But this doesn’t feel like a useful description of product-market fit given that it basically makes the term synonymous with success. As if the two can be swapped out and interchanged with ease.
And maybe they can.
Still, it doesn’t quite help us if we want to know whether we’re making progress toward product-market fit, or if we want to formulate a particular strategy where we prioritise our actions to get their faster.
This is where Sean Ellis’ proposal feels a little more useful. It basically suggests that when 40% of your users feel your product is indispensable then you’ve reached fit — the value you’re providing is significant and broad.
Even then that’s a bit loose depending on how niche your early adopters are in comparison with your target market as a whole, but at least it gives us some rough numbers to play with and a method for measuring it.
From a more strategic perspective, Alexander Osterwalder suggests that product-market fit is attained when a company’s value statement, customer segment, relationship, and channel are all fixed and don’t require further pivots.
While that might be true, it’s again not hugely useful for a company looking for product-market fit, and more useful for a company looking back — retrospectively — on when they achieved product-market fit.
Nevertheless, the Osterwalder position is useful because it paints the product-market fit relationship as the point at which pivots and changes are no longer needed.
This position suggests the end of the line, whereas the Andreesen description suggests the beginning moment where the company appears to take off.
For many companies, there’s a gap between these two moments. That gap is what we’re referring to here as product market space.
How do we navigate from the moment of sudden growth to the moment of stable success? How do we get to the first step and navigate to the end of that journey?
TAM SAM SOM provides a comparable framework for understanding growth
If you’re not aware of TAM SAM SOM, it is a mechanism to understand your market.
- Total Addressable Market
- Serviceable Available Market
- Serviceable Obtainable Market
Your TAM is basically the entire market for the product or services your company deals in. If I make sausages, then it’s pretty much every sausage (or even related product) sold in the world. I’m never going to reach 100% of TAM, but it does illustrate upside potential for any investor.
SAM is more like the space you operate in. If I’m manufacturing sausages, then maybe my SAM is sausage production in the US. Or if I’m a SaaS product, it might be the particular niche that I operate in: workflow software, BPM software, checklist software, can all count as one collective niche in the larger space of organisational business software.
Your SOM is what you could actually look to sell. Maybe my sausage SOM is sausages sold in supermarkets in the US. I can then tell investors that I hope to take up 5% of that SOM, and suddenly they can see that I can make a lot of money out of sausages, and now my startup cuts the mustard.
The point is, it’s good to understand your market size, for your benefit and for your investors.
But how do you navigate from one market size to another? Well, you have to overcome the barriers which these different markets have separating them. A physical shop needs to open more stores in order to access more markets, or maybe needs to have a more varied stock to survive on a high street.
A lot of the time, a company needs to evolve slightly to be able to access the broader markets it’s looking for. As you work out your TAM SAM SOM, you come to understand these barriers and, in doing so, understand the possible ways your company could navigate these changes.
But changing your market would surely have a knock-on effect on your product-market fit, no?
You’d have to map out a product strategy aligned with the expanding market in order to meet the changing expectations or broader array of use cases.
So you want to be able to demonstrate to an investor that you understand your market and the size of the market you want to occupy at a particular point in time. You want to be able to demonstrate that at this point you have reached your first target stage of product-market fit, well suited to the market you’re in.
However, if you can also demonstrate how you can grow within and outside that same market — over a clear time period with clear market size targets — then you can more accurately demonstrate your growth potential. To do this, you’ll need to show you understand the changing market and have plans in place to retain product-market fit, even with the expanding scope of the market.
That leads you to use product market space as a way to align your product with your knowledge of your changing market.
How to implement product market space in your business
Product market space then is a kind of growth strategy — a show-your-working for how you are going to achieve product-market fit and retain it over time as your product grows and the scope of your market expands.
Let’s finish off with a series of potential steps or considerations for how one might go about that:
- Assess the market. What is the market you’re trying to reach? What does it look like in the most detail possible?
- Estimate market fit. What do you think product-market fit will look like? Sketch out as many ideas as you can — for features, customer expectations, or metrics to measure
- Assemble a roadmap. How far away are you from being able to reach this product-market fit? What do you need to do in order to get there, or to get to a point where you can reasonably test it?
- Establish growth challenges. Assuming your conception of product-market fit is broadly accurate, are there any factors which would mean it might need to change in the future? Are you going to need to expand into new markets?
- Understand future markets. If so, what do those markets look like and what might constitute product-market fit in that area?
- Propose a future roadmap. What extra features or components does your business need in order to get to this point, and can you deliver that alongside your previous value proposal?
- Determine what might influence future market fit. How would you measure whether product-market fit had been attained as you expand the market to bring in new audiences?
- Select ways to measure future success. What metrics would you benefit from monitoring during this growth journey as the company transitions to a broader audience? What are the key considerations?
This is just a series of sketches, and the mapping of this product market space would be different depending on the business which employed it.
Some companies probably wouldn’t need to have these considerations either way — that’s what makes some startups killer from the beginning, they have a core market which can grow to the moon.
An app like Tinder, for example, is a simple concept which hasn’t really had to change, either to access new markets or to monetise.
Yet, not all startups are like that or will be like that. The current investment landscape is a lot less forgiving for low revenue startups that might make money at scale — too many people have been burnt on these already.
As a result, a lot of startups will need to generate solid revenues earlier than they would have done if they started 5/10 years ago.
If your startup needs to figure out how to navigate a roadmap of growth and finding its relationship with markets, then perhaps understanding your product market space will be more beneficial than just focusing on product-market fit alone.
What do you think of the concept of product market space? Do you think it could provide use to certain businesses which navigate a changing roadmap? Let me know your thoughts in the comments below!
For more bits from me, check out:
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- The 7 Best Language Learning Software of 2018: The Awards!
- The Best 12 Spanish Movies to Immerse Yourself in the Language
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