Market/Product Fit
Introduction
It’s a fairly new concept in the startup world, and one can’t give a thorough definition of Product/market fit. However, the creator of the term MPF, Marc Andreessen used to describe it as
“Product/market fit means being in a good market with a product that can satisfy that market.”
It can be understood as the degree to which a product satisfies a strong market demand. It is one of the major initial steps to building a successful venture in which a company meets early adopters, gather feedback and gauges interest in its product(s).
Some misinterpretations with MPF
It is important to differentiate between product/market fit and problem/solution fit when measuring a company’s customer base. More specifically, when gauging a customer’s desire, companies need to be sure they are measuring desire for the product or service — not just for a solution. Misinterpreting customers’ desire for a solution as a desire for a company’s product or service will end up being a false positive for product/market fit.
Product/market fit is not binary:
For a fledgling startup, a minimum degree of product/market fit will not be adequate in order to achieve market traction and success. Rather, what is actually required is a high degree of product/market fit, or extreme product/market fit.
When does it happen? (Measuring it)
It’s more important to know if product/market fit is NOT happening. Again from Marc Andreessen, it can be felt when:
- customers aren’t 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
- lots of deals never close
- It looks like an awful situation, unfortunately, common to most of the startups I get the chance to meet.
And, when you HAVE a solid fit:
- customers are buying the product just as fast as you can make it
- usage is growing just as fast as you can add more servers
- money from customers is piling up in your company account
- you need to hire sales and customer support staff as fast as you can
- reporters are calling because they’ve heard about your hot new thing
So, even if it’s measurable, and there is not a clear definition of what it is, product-market fit looks like a desirable situation to be in for a company.
The Market Hypothesis
There are four key market elements one can look at to achieve a good fit:
- Category:What category of products does the customer put you in?
- Who: Who is the target audience within the category? There are always multiple personas within a single category, so this breaks it down further.
- Problems: What problems does your target audience have related to the category?
- Motivations: What are the motivations behind those problems? Why are those problems important to your target audience?
The Product Hypothesis
The four main elements that were important to define as product hypotheses were:
- Core Value Prop: What was the core value prop of the product? How did it tie to the core problem?
- Hook: How could the core value prop be expressed in the simplest terms?
- Time To Value: How quickly could we get the target audience to experience value?
- Stickiness: How and why will customers stick around? What are the natural retention mechanisms of the product?
Achieving MPF
Will Caldwell, currently the Co-founder and CEO of Dizzle and SnapNHD has given great tips in his post on Entrepreneur INDIA:
1. Understand your customers’ current needs and foresee future ones. Learning the needs of your customer takes time and experience. If you don’t know your customer, you won’t have much luck figuring out the product-market fit. To get a better understanding of your target demographic, you should spend time with your customers, write for industry news outlets, attend industry trade shows, and find a mentor in the market to help you learn the ropes. Doing so allows you to gain invaluable connections and gain an inherent sense of the industry needs. Developing a deep understanding of the problems facing your customers enables you to relate to them better and ultimately helps builds trust and credibility.
2. Focus on one significant value proposition. Narrowing your feature set down to the one feature that is a game changer is difficult, but it an absolute necessity. To determine which feature you should initially focus on spending time with customers, analyse major emerging trends in the industry, and examine areas where competitors fail to solve problems. The ancillary features can come later as your customers will be willing to wait if your product solves one major pain point they are facing.
3. Build credibility. The best way to build credibility is to offer up a story. Customers want to know how your product or service is going to make sense for them, and the easiest way to do this is to inject their needs into your brand’s story.
“For instance, I grew up in the real-estate industry, and my mom was tired of clients relentlessly contacting her for a local handyman recommendation. We figured it was easier to say “download my app” instead of texting this info back and forth multiple times a day. Turns out there were a lot of other agents facing this problem — setting the foundation for Dizzle to grow.”
Improving MPF
When launching a new product, a company strives to achieve a reasonably good fit early on, so that paying customers will buy the product. The next step is to improve the fit over time until as many qualified people as possible buy the product.
It is very difficult to make one product that is right for everyone. One strategy is to add requested features in order to complete a sale. As a result, software products are often significantly bloated and cumbersome by the time they reach their third release. We believe that releasing strategic software components as open source can help to improve the market fit of a software product while reducing the tendency towards feature bloat.
The 40% rule
One metric for product/market fit is if at least 40 % of surveyed customers indicate that they would be “very disappointed” if they no longer have access to a particular product or service. Alternatively, it could be measured by having at least 40% of surveyed customers considering the product or service as “must have”. Sean Ellis is noted for popularizing this heuristic after examining many startups.
MPF for Online Business
There are five metrics any online business can measure to empirically verify if they achieved Product / Market fit. They are
1. Bounce Rate
2. Time on Site
3. Pages per Visit
4. Returning Visitors
5. Customer Lifetime Value.
Low bounce rates means a visitor’s expectation is being met. High Time on Site and Pages per Visit indicate that the experience of the user is satisfactory. High Returning Visitor reflects the lasting impact a product has on their customers, causing them to come back, and Customer Lifetime Value measures the profitability each customer brings to the company.
If these 5 metrics are above average and your 40% rule is met, you’ll know you have a Product / Market Fit company.
At last
Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it. Yet many entrepreneurs have highlighted the importance of creating a product that resonates with the target market:
- Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is “make things people want.”
- Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money.”
- Marc Andreessen: A couple years ago Marc wrote the following on his blog: “…the life of any startup can be divided into two parts — before product/market fit and after product/market fit.” He goes on to write: “When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.”
This was EDC ,IIT Guwahati’s this week’s blog , we release informative content on medium every Saturday ! So stay tuned and keep following us on Medium and facebook to stay updated with the startup-ecosystem.
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Compiled by Hansraj Patel and Manish Gurnani.
