Product-market fit
Achieving the product-market fit is the most important objective for startups in the early days, yet it is also one of the hardest things to define and measure. Everyone seems to have a slightly different definition or a slightly different way of thinking about product-market fit.
If we put it in simple words product-market fit is about finding a big enough market where many customers are willing to pay for your solution.
While your product may be great, in-demand and create a craze if your market is too specific there may simply not be enough users to generate the desired revenue. In this case, you’ll have a product that fits the market and market that doesn’t fit you.
Product-market fit is a multivariable formula. There is a lot that goes into it. Ashot Iskandarian, the founder & CEO at Shopmonkey says that in their company they define it as follows:
Product-market fit is the ability of the company to acquire repeat customers who pay them, who refer friends and who don’t leave them.
If you are a founder of a startup you’ll spend most of your early days on trying to figure out if you have that fit. Why? Because it’s not only a metric for you to understand that you have built something that not only you need but also an important metric for investors. They, more than you, need to understand if there will be enough users that will want and will pay for your solution; so they can take the risk and invest in you.
Ashot from Shopmonkey adds, — “What it makes for founders even harder is that within that formula of product-market fit there are many variables; Some investors want your users to leave less — low churn rate, some investors want your users to pay more — higher pricing plans, etc… and it is very hard to predict”.
Companies often go through many iterations/pivots before they find product-market fit IF THEY EVER DO. When you are in that phase of trying to put the pieces of that complicated puzzle together there a few very crucial concepts to consider that can help you in your discovery journey:
- Try to spend no more than a year to validate that you have the right product-market fit.
- Find at least a handful of users that love your product, that can’t live without it and their lives will suffer significantly if you take your solution away from them.
- You are not going to get all the insights that you need for defining the product-market fit just by looking at analytical numbers and breakdown charts from your tools; you have to constantly talk to your users.
- Be obsessed about collecting your customer feedback. There are many tools like Intercom or Canny that can make that process easier. Review your roadmap based on that customer feedback.
- A lot of software products will try to grow the userbase by giving it out for free in order to validate the demand. But later when they decided to monetize they’ll realize that not so many were eager to convert to paying users.
Getting over that hurdle of doing the initial charge of your users and discovering they still stick around with you is a really good indicator that you have found a good product-market fit. The sooner you’ll do it, the sooner you’ll know.
Sometimes, instead of finding a product-market fit you can go the other way around and find a market-product fit;
Identifying a product that already works in a given market and trying to improve on it in one dimension. Either make it faster or cheaper, so the goal is to not sell the product on brand-new value proposition but really make it an incremental addition/improvement to the way they already are doing things — Suggests the Founder and CEO of Cherry, Charles Mourani
This process of a product-market fit discovery is very obscure but one thing for sure is that you can always feel when the product-market fit isn’t happening. The customers aren’t quite getting the value they want, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’….
Similarly, you can always feel when you have a product that just fits. Customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company’s checking account. You’re hiring sales and customer support staff as fast as you can. Tech reporters are contacting because they’ve heard about your HOT NEW STARTUP.
