What is product-market fit and why does your business need to understand it?

Bethany Austin
Oct 24 · 5 min read

Recently, we’ve been talking a lot about those terms that fly around the business world, but often leave people in a bit of a muddle. First it was lean startup and design thinking. Then it was design sprints. And now we’re tackling another: Product-market fit.

No doubt you’ve heard the phrase (we’ve used it in a few blog posts ourselves!), but do you actually know what it means? And, more importantly, do you know how to harness it to increase your product or service’s chances of success?

If not, don’t worry! We won’t tell. In this post, we’re going to go back to the basics of what exactly product/market fit is, how to create and how to test it. You can thank us later!

So, what is product-market fit

The term was originally coined by Marc Andreesen, American entrepreneur and co-author of Mosaic, the first widely used Web browser. In his blog post, “The Only Thing That Matters”, he writes, “Product-market fit means being in a good market with a product that can satisfy that market.”

Essentially then, it means creating a brilliant product that is both wanted and needed within a carefully chosen market, to increase your business’s chances of success.

Highlighting one of the biggest benefits, Josh Porter states that “Product-market fit is when people sell for you”. That is to say, that the level of excitement a market has about a product, based on the way that it is tailored to them, will inevitably lead to higher profits.

As a user and market research consultancy, we’ve seen first-hand just how revolutionary it can be for businesses to truly understand their customers, their market and how their ideal customer interacts with their product. By bringing all of these elements together through product/market fit, not only will profits be higher, but the road to success will be more straightforward.

Why is testing product-market fit important?

According to user research specialist, Tomer Sharon, 86% of product ideas come from personal pain. But this won’t create sales, as this method of thinking doesn’t consider the people that will actually be buying the product.

As Snap Out’s Managing Director pointed out in her blog post about Sharon’s book Validating Product Ideas, “There is a danger that people are developing products typically that nobody needs. Asking relatives or coworkers to validate ideas or involving them in primary research isn’t enough.”

As the more effective alternative to this, Tomer Sharon suggests involving your user through every single step of your product journey. This includes during the strategising process, the execution of an idea and the evaluation stage. To put it simply: You should be asking questions about your users throughout the development process.

Testing product-market fit is one way to do this, allowing you to gain a different perspective on your product or service and to step outside of your own pre-made assumptions.

How to create and test product-market fit

One of the best books to look at when trying to understand product-market fit is A Playbook for Achieving Product-Market Fit by Dan Olsen. Don’t worry though, we’ll extract some of the most important points for you here.

In the book, the key framework used is the “Product — Market Fit Pyramid”, as shown below.

Source

The bottom layers of the pyramid (in blue) represent the market. This not only highlights that your market should be considered during product development but indeed that it should be the basis of everything you create. Without the solid foundations of discovering a strong market, the rest of the pyramid will “collapse”. As such, everything stems from your target customer and their underserved needs.

In order to create product-market fit, it is important to look at these two bottom layers and ask 1. Who is your target customer? And 2. Which of your customer’s needs are underserved?

Market research will give you a huge helping hand here, allowing you to evaluate whose problems you are trying to solve via your product or service, as well as giving you insight into how these problems are currently being solved/not being solved.

Next, the top layers represent your product. This is the part of the pyramid that you have the most control over. You cannot control a market (though you can choose it), but you can adapt and design your product.

As such, the top layer is split into three sections.

  1. Value proposition: What value are you adding to your customer and how will this make you the best on the market?
  2. Feature set: Looking at functionality, what do you actually need to build in order to meet the defined user needs?
  3. UX design: How will you make your functionality as user-friendly as possible, so that your customer can interact with your product or service effectively?

Using this process, creating product-market fit looks something like this…

  1. Defining your target market/customers through market research
  2. Identifying the unserved needs of your target customers through market research and customer interviews
  3. Defining your value proposition (what value you add to your target customer)
  4. Defining the feature set of your minimum viable product
  5. Creating your minimum viable product prototype
  6. Testing your minimum viable product with customers to see if it truly does serve their need

The takeaways

As with most areas of business, deeply understanding your customers and market is the key to success as far as product-market fit is concerned.

Hotjar summarise this perfectly:

“In principle, you can measure product-market fit with surveys that identify what percentage of your users think your new product is a ‘must-have’. But more often than not, product-market fit is less about hypothetical numbers and percentages, and more about an in-depth and tangible understanding of who your customers are, and how they feel about you and your product.” (source)

Product-market is not something that should be considered at the point of launching a product to see if it fits the market. It is an aspect of the entire product design and development process to ensure there is a match user and customer needs found with the product.

Team Snap Out

SnapOut

Transforming your business through impactful, data-driven decision making. User research, market research and grant funding support in Milton Keynes and London.

Bethany Austin

Written by

SnapOut

SnapOut

Transforming your business through impactful, data-driven decision making. User research, market research and grant funding support in Milton Keynes and London.

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