Road to Product-Market Fit

Ananya Nandan
Products, Demystified
8 min readOct 15, 2021

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How would it feel to a company and their teams when the product they have been toiling upon day and night, starts selling out as fast as they are building it, customers are lining up to use the product, revenue is piling up in the company’s accounts and there’s no sight of it halting for some time to come at least, there’s an urgent need of hiring sales and customer support staff due to the ever-increasing demand, and reporters are trying to get just 5 mins of CXOs and PR teams’ time to catch a glimpse of the “next hot thing” in the market; it would feel amazing, right? This is what the organization works for, and dream of achieving since the very first day.

The Product Market Fit, when done right, is what is just described above feels like. This is how Marc Andreesen who originally coined this term, illustrated in his post “The Only Thing That Matters”, as a guide to startups. However, with evolving customer behaviour and needs and competitors coming from all directions in the market, this ideology is not just limited to startups, but with every growing business across industries and countries.

To put it simply, Product-market fit means being in a good market with a product that can satisfy that market.

But why is it important?

Alex Schultz, Facebook’s VP of Growth, says the biggest problem he sees facing the companies he advises is that they don’t have a product-market fit when they think they do.

So, why is achieving it so important? Why do many venture capitalists demand evidence of product-market fit before investing in a company? Why does Andreesen believe in the division of every startup’s life into two key stages: before product-market fit (BPMF) and after product-market fit (APMF)?

The answer is simple: Before companies’ develop a product, they must confirm that enough people are willing to pay for it, the teams cannot afford to focus on other important strategic objectives such as growth or upselling existing users. Those initiatives could even be counterproductive if companies haven’t first determined that the product has enough of a market to sustain itself and generate a profit.

How to achieve Product Market Fit?

The Lean Product Playbook by Dan Olsen has, in detail, described how to achieve the Product-Market fit. It’s easier to find blogs and posts about what it is, but no startup or company has ever worked on just theoretical knowledge of concepts.

Dan created a framework to illustrate a step-by-step, actionable approach to easily be able to adopt Product-Market Fit.

Product Market Fit framework

It defines product-market fit using five key components. In this hierarchical model, each component is a layer of the pyramid and is directly related to the levels above and below it. From bottom to top, the five layers of the Product-Market Fit Pyramid are: target customer, customer’s underserved needs, value proposition, feature set, and user experience (UX).

1. Determining the target customer

It all begins with target customers who will ultimately decide how well the product meets their needs. Market segmentation must be used to be specific about who the target customer is.

Personas are a great way to describe the target customer so that everyone on the product team understands for whom they should be designing and building the product.

Companies might not have a precise definition of the target customer at the outset, and that’s okay. Teams just need to start with a high-level hypothesis and then revise it as they learn and iterate.

2. Identifying underserved and unmet customer needs

After forming the hypothesis about the target customers, the next step is to understand their needs. As companies try to create value for customers, they would want to identify the specific needs that correspond to a good market opportunity. For example, companies probably won’t want to enter a market where customers are extremely happy with how well the existing solutions meet their needs.

This Wayne Gretzky quote speaks directly to a critical element of product strategy: how to identify unmet customer needs. Effective product & marketing initiatives identify unmet customer needs and turn them into growth opportunities. And the company that fulfils those unmet needs with the best solution at the right price wins.

When companies develop a new product or improve an existing product, they want to address customer needs that aren’t adequately met: their “underserved” needs. Customers are going to judge the product with the alternatives, so the relative degree to which the product meets their needs depends on the competitive landscape.

3. Defining the Value Proposition

The value proposition is the plan for how the product will meet customer needs better than the alternatives. Out of all the potential customer needs the product could address, which ones will be focussed on with the product?

The famous Value Proposition Canvas

Steve Jobs said, “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”

Determine which customer needs can be best addressed with the product or service. Figure out how companies can outperform their competitors and surprise the customers, without losing sight of the product roadmap when determining which challenges they’ll address.

For example, Spotify’s value proposition positions the streaming service as offering access over ownership, providing data-driven personalization, and the opportunity for content unbundling.

Read more on Value Proposition Canvas — https://www.b2binternational.com/research/methods/faq/what-is-the-value-proposition-canvas/

4. Specifying the Feature Set

Once there is clarity over value proposition, companies need to specify what functionality their minimum viable product or services will include. They wouldn’t want to spend too much time and effort toiling away only to find out later that customers don’t like the product/service built. The MVP approach is aimed at building only what is needed to create enough value in the eyes of the target customer to validate that they are heading in the right direction.

Customers may end up telling you that the MVP lacks an important piece of functionality. Or they may tell that they wouldn’t use a particular feature that teams decided to include in the MVP. The goal is to iterate until companies have an MVP that customers agree is viable.

5. Measuring Product-Market Fit

Performance must be measured to manage the success of the product. Identify key data points that will help teams track their performance. One way is to start by identifying the total addressable market (TAM), otherwise known as the total number of people who can benefit from your product/service (i.e., If everyone who could use the product/service started using it).

Sean Ellis, the author of Hacking Growth, says this can be boiled down to a simple survey question: “How would you feel if you could no longer use [product]?” The users who respond “Very Disappointed” (vs. Somewhat Disappointed, Not Disappointed, or Don’t Use It Anymore) represent the actual target market (although lots of other people gave it a try).

Once companies have their “Very Disappointed” cohort, they can then look at who those people are (persona-wise) and what it is they value most about the product. From there, companies can then extrapolate based on those personas and figure out approximately how many people like that exist, which gives them their Total Addressable Market (TAM).

There are other ways of measuring product-market fit, however, companies can begin with measuring their TAM.

6. Avoiding complacency

If teams managed to achieve product-market fit, they shouldn’t assume they will always have it. Product Market Fit is a continuous process. The customers’ needs will change over time, and companies must constantly re-evaluate market conditions to continue meeting those needs.

To summarise, the below image describes the step by step process in greater detail as to how companies can achieve their Product-Market Fit.

For further reading, this post provides a quick, informative glance with more readings at the end — https://www.linkedin.com/posts/theproductfolks_productmanagement-productmarketfit-productfolks-activity-6845604621910589440-yRi1

Few Companies that did it Right!

1. Netflix

The entertainment media company first gained traction in the early 2000s. Movie watchers were starting to get tired of paying late fees from brick-and-mortar DVD rental stores. So Netflix sent them DVDs by mail as part of a subscription service, letting people keep a disc as long as they wanted.

But if Netflix had remained a DVD-by-mail operation, it would have faded out when DVD players did. Instead, Netflix positioned itself as the easier, cheaper alternative to whatever currently dominates the entertainment market: brick-and-mortar rentals, DVDs, or traditional television. Netflix alters its product every time the market need changes, maintaining its fit.

Netflix’s success is a great reminder to stay flexible in changing markets and keep an eye on the future.

2. Slack

Slack, an instant messaging platform often used for workplace communication, started as a completely different business idea. The founders were in the process of developing a role-playing video game, and Slack was something they had quickly hacked together as an internal communication tool for the team.

The team soon realized that the market had plenty of role-playing games, but there was nothing out there quite like Slack. So, they pivoted away from game creation. Today, 10 million people use the product.

Slack’s quick turnaround proves that changing your focus towards a better product-market fit can be worth your time. Don’t be afraid to move away from your original idea when you see a better opportunity.

3. Spotify

Napster died due to music copyright issues, but before it did, it proved that there was an audience for this type of music streaming service.

Spotify came up with a nifty platform for music streaming, and bet that people were willing to pay a small fee to “own” the music. They were right, and now Spotify has over 270 million users! Since then, they have been adding valuable features like personalized playlists and offline playback. You can bet they found these were popular features through — you guessed it — testing.

A great article to scroll through if you want to read what are the next steps beyond Product Market Fit — https://www.netsolutions.com/insights/product-market-fit-and-beyond/

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