9 questions that you need to answer in order to find product/market fit

Building a startup is kinda crazy, right?

It seems simple. You need to develop a good product and find people to sell it to. But first, you need to figure out what product you should build. Who should you sell it to? How will you find them? How will you explain it to them? How much will you charge?

So many questions…

But there is a systematic method for tackling all of these questions

You’ve probably heard of it: it’s called Lean Startup. Eric Ries wrote the definitive book about it. (Twelve years ago now, which makes me feel very old!).

Ash Maurya took those principles and developed a framework and an actionable process that helps entrepreneurs to navigate their way to product/market fit. I definitely recommend reading his book Running Lean for a more in-depth look, but here is an outline:

The Lean Canvas

It all starts with a Lean Canvas, a one-page document that lays out your entire business model.

An empty Lean Canvas.

There are nine boxes that need filling in. At the early stages of a startup, you will have to guess and make some assumptions when filling it in… and that is the point! Because once you have written down your assumptions, you now have a documented version of what you believe your business will be.

How to fill in a Lean Canvas

First, put aside a couple of hours to run a Lean Canvas workshop. If you have other co-founders or key team members, get them involved. You’ll want their points of view, and afterwards you’ll be aligned on the business model.

If possible, get together in a room with a whiteboard and draw out the Lean Canvas. For each box, write your answers on sticky notes. This will allow you to discuss and amend as you go. If you’re running this meeting virtually, you’ll be able to find templates for whatever collaboration software you use. For example, here’s a FigJam one.

Let’s go through each box, in the order that you should probably tackle them. I will use Facebook as an example as I go through it, not because I love Facebook (far from it) but they are a well known company that is easy to understand. I’m also not suggesting that Mark Zuckerberg used a Lean Canvas to map out his business model before starting Facebook. (Or at least if he did, it certainly wan’t included in the Social Network film about Facebook’s story… anyway, I digress.

One more thing before we get into it: when you fill in your Lean Canvas, focus on where you are today — not where you want to be in, say 5 years. That will keep this exercise more relevant and actionable.

Ok, let’s do this!

Customer segments

First, who are the customers and users of your startup? Customers are the people who pay for your product whilst users are the people who use it. Sometimes these will be the same people. If you have multiple customers & users use different coloured sticky notes for each. For the rest of the Lean Canvas, continue to use the colours to denote the answer for each customer and user.

Facebook’s customers
For our example, Facebook’s customers are the businesses who pay Facebook to list their ads on the platform. Users are the people who use Facebook to connect to friends and family.

Once you’ve listed your customers and users, try and find an early adopter market. Is there a subset of the customers segments you listed above that you could start with? They maybe more tech-savvy, or easy to access, or experience the problem more acutely.

Starting with a super-niche subset of the potential market may seem counter-intuitive, but it’s actually much easier to build and market something for a very specific set of customers.

Facebook’s users
Instead of initially opening Facebook to the anyone in the world, the early adopters were students at Harvard, Mark Zuckerberg’s university at the time. Zuckerberg was able to get this very small audience excited and using his product with relative ease. Even after he expanded from that one university, Facebook was only available to US students with a university email address.

The FB team was able to iterate the product successfully with this audience before opening it up to further markets. If they hadn’t started with a niche, they would have struggled to get any initial attention and traction.

Problem

What are the problems that your customers and users are struggling with? If your users aren’t struggling with a problem, it’s unlikely they will start using a new product for the fun of it. Even a computer game solves a problem, whether it’s “I’m bored on the bus.” or “I want a way to spend time with my friends virtually.”

I will go into more detail with defining problems in later articles, but for now list the top few problems that each of your identified customers and users are faced with (using the correctly coloured sticky note).

As you start writing these out you may start to wonder if these problems are real or you’re just hoping that they are true. We’ll get to this later.

Facebook’s problems
For Facebook customers (advertisers), their problem is that managing adverts on traditional media (TV, newspapers etc) is difficult, slow and expensive.

Facebook’s users struggle to keep in touch with friends and family.

Next, list how these problems are solved today. You are going to have to convince your customers to switch from this current way of doing things to your solution.

Facebook’s original ‘competitor’ was the the printed student directory that listed every current student with a photo.

Solution

Now let’s talk about your solution. How are you going to solve the listed problems for your customers and users? Don’t just list your product’s features, explain how your product will solve the identified problems.

Facebook’s solutions
For their customers, Facebook’s solution lets advertisers Facebook’s self-service their advertising campaigns, allowing them to target demographics and experiment with different messages.

For users, the solution is a ‘social network’ that helps friends stay in touch with each other’s lives.

Unique Value Proposition

The Unique Value Proposition (UVP) is a clear and compelling message that explains why your product or service is different and better than the alternatives. It should be easy to understand, it should deeply resonate with your target customers and it should focus on how your customers’ lives will improve with your product (not what features you offer).

Facebook’s Unique Value Proposition
For customers (advertisers), Facebook’s current UVP is: “Target future customers and fans.”

For users, Facebook’s current UVP is: “Facebook helps you connect and share with the people in your life.”

Channels

Channels are the means through which you’ll reach your customers and users. They can include various online and offline methods, such as direct sales, paid adverts, social media, email, content marketing, PR, and events. Whilst you may eventually use all of these channels as your business grows, focus for now on the channels that will be the most effective at reaching your first customers. Where are your early adopters hanging out? What are cost-effective ways of reaching them? Whatever you try here doesn’t have to scale, for example you might go door-to-door flyering to reach that intial audience.

Facebook’s Channels
In the early days, Facebook primarily used word-of-mouth and its exclusivity to universities to spread among its target users. As the platform grew, it expanded its channels to include digital marketing, partnerships, and app stores.

Cost Structure

The cost structure outlines the main initial costs associated with running your startup. These can include fixed costs (such as salaries, rent, and software subscriptions) and variable costs (like marketing expenses). Understanding your cost structure is important for determining your pricing, projecting your profitability, and managing your cash flow.

Facebook’s Cost Structure
Facebook’s initial costs included hosting infrastructure, salaries for employees and marketing expenses.

Revenue Streams

Revenue streams are the ways your startup generates income from its customers. They can include various models, such as subscriptions, one-time sales, advertising, and transaction fees.

Now you have a clear idea of who your target market is and the pain you are solving for them, you can think about how you’ll initially charge them — will it be a flat fee, tiered, based on seats or usage, or something else? How much value are you providing? How much time or money are you saving them?

Facebook’s Revenue Streams
Facebook’s primary revenue stream comes from advertising, where businesses pay to display their ads to users based on their demographics, interests, and behaviors.

Key Metrics

Key Metrics are the essential numbers you’ll track to measure your startup’s progress. Common startup key metrics include user growth, revenue, customer acquisition cost, and user engagement, but most of these are not necessarily relevant from day one.

When filling in this box, consider what key metrics will show you are validating your hypotheses laid out here. Focus on your biggest assumptions, and where the greatest risks lie if your assumptions are incorrect.

Facebook’s Key Metrics
Facebook figured out relatively early on that if users added at least 7 friends in the first 10 days they were likely to stick around. So they turned that into their “North star metric”.

Unfair Advantage

Your unfair advantage is something that sets your startup apart from the competition and is hard for others to replicate. It can be a unique technology, exclusive partnerships, access to a certain data source, or some sort of network effect.

This is arguably the hardest box to fill in at the beginning. Don’t worry if you can’t yet figure out your unfair advantage, but keep it in mind as you learn more.

Facebook’s Unfair Advantage
In the early days, Facebook’s unfair advantage was its exclusive access to the university market, allowing it to grow a highly engaged user base before opening up to the general public. As Facebook grew, its massive user base, network effects, and data insights became significant advantages over competitors.

And we’re done!

Well done, you’ve just created a 1-page business plan. But here’s the key thing to remember: every box on the Lean Canvas is just an assumption.

You think your early adopter market will be X. You think the problem they have which is worth solving is Y. And so on…

Your job now is to go out there and systematically validate each of those boxes, starting with the customer and the problem.

How you do that is an article for another day. Make sure you subscribed to keep up to date.

About me: I’m James!

I’m a startup advisor and product coach, with over 20 years of experience building digital products and services.

I can help you get clarity on what you need to focus on to make meaningful progress.