How Slack, Dropbox and Spotify Achieved Product-Market Fit (And How You Can Too)

Photo by Farzad Nazifi on Unsplash
“Product/market fit means being in a good market with a product that can satisfy that market.” — Marc Andreessen

I find it necessary to put the definition of product-market fit (PMF) front and centre for this article. It’s absolutely critical to the success of any business or entrepreneurial venture.

If you can find your fit within a market, you have dramatically increased your odds of achieving success.

If it can’t be found, this is often where a startup’s journey will come to an end.

This post will provide a look of three high-profile examples of tech companies finding their market fit and scaling from there. I’ll also provide three areas of focus to help in identifying a market.

First, let’s dive a little deeper into what we mean by product-market fit and what it’s composed of.

What is Product-Market Fit?

The use of the words “product” and “market” provides an clear hint as to the meaning behind the term. “Fit” is the binding piece, signifying that a company’s product and a market’s consumers are in agreement as to the value being delivered. As Marc said, this gives us a good market with a product that satisfies it’s need.

A key component that may be lacking from some definitions is the function of distribution. This where I’ve found it useful to think of PMF as being the alignment of all three pieces.

A startup will need all 3 to truly achieve PMF. Being very good at two of the three may lead to some short-term gains but is unsustainable in the long-run. Once achieved, the path to rapid growth should become obvious and is one that can be executed efficiently.

Here’s a look at three well-known tech startups finding their market.

Slack: Every user counts.

While now being a definitively enterprise organization, the company charted their path to PMF by focusing on individual and team users. With a focus on being highly responsive to product issues and delightful user interactions, the Slack team was able to turn customers into a word-of-mouth marketing force to drive adoption.

The app grew from 15,000 daily active users when launched in February 2014 to 1.1 million by June 2015 to 4 million in October of 2016. All of this without a multi-million dollar marketing budget or a sales team (!!!).

Growth can be credited to a user-centric approach from the top on down, with founder Stewart Butterfield handling the majority of Twitter comments in the early days. The company continues to make feedback a core asset, providing users with a multitude of ways to communicate with the Slack team.

Slack’s story is one of winning the ‘customer’ part of the equation. By tightening the feedback loop as much as possible, they were able to accomplish a few things: boost user satisfaction, iterate on the product faster, get buy-in sooner. Bringing product and customer close together was also helpful for distribution: sell to teams and then have those satisfied users sing your praises to the company at large.

Dropbox: Go to where your market is.

Our age of continuously synced devices and cloud services has blurred a recent past where our files did not often line up. In 2008, Dropbox changed all of this with the launch of their file synchronization service.

While fixing an obvious and widespread problem, the team still had trouble attracting users. What to do?

Dropbox co-founder Drew Houston devised two really successful methods to find their fit.

First: he made his now-famous four minute explainer video and shared it on the ranking news aggregator site of the time, Digg. Their beta waitlist rocketed from 5,000 to 75,000 overnight.

Instead of testing multiple distribution channels, Houston took advantage of an established audience in Digg where social sharing was the norm. Digg’s user base (younger, tech-savvy) offered plenty of early adopters and he made sure to include social references that community members would recognize.

Second: Dropbox started a viral referral campaign. The campaign rewarded existing users additional storage space for sharing the service on social media, email or by having their friends sign up.

Again, Dropbox found another great distribution channel that led right to an existing audience. By incentivizing their users, the social proof provided acted as a natural draw for people to try out the service.

Spotify: Attack the grey area.

In the aftermath of a disaster often lies opportunity. Opportunity that can often dwarf the disaster itself.

Daniel Ek saw that opportunity in the wake of the collapse of Napster and other P2P file sharing networks in the early 2000s. The networks had promoted large-scale “sharing” (now viewed as wholesale copyright infringement), that at the time was a huge grey area of the newly widespread internet. Consequently, the music industry had begun to see album sales plunge as listeners turned to consuming music online, often from illegal sources.

Ek’s theory: would a percentage, even a tiny one, of people listening to music illegally be willing to pay a small fee for legal consumption?

Proving to be true, Spotify was born out of this specific grey area. The startup was able to recognize that many of the elements of product-market fit were already in place, missing only a legal product. The music content was already in existence, online and mobile devices provided the perfect distribution channels and a market of existing music pirates ready to be converted to legal streamers.

With the release of their streaming service, music lovers could now access almost all of their favourite songs at no cost without any issues of legality. This simple value proposition is so strong that Spotify has been able to maintain an annual growth rate between 20 and 30 percent almost ten years after launch.

Finding Your Fit

While helpful to study how successful startups were able to gain traction and scale rapidly, these reviews can often lack applicability for new ventures.

How can an entrepreneur build interest in a product that’s designed for a specific market?

Through expanding perspective and a willingness to alter work that has already been done, product-market fit can be achieved sooner. Here’s 3 ideas for each part of the equation.

1. Iterate often.

One of the most frequent mistakes entrepreneurs make is getting attached to their particular product as opposed to the problem their trying to solve. Break this bond and your willingness to implement product changes will increase.

At an early stage, every opportunity to tinker or adjust a product for positive adoption should be taken. The downsides are minimal and what can be learned through experimentation can be immensely valuable.

Unique and core features may be more difficult to modify but pay attention to external elements of a product’s overall offering. Website copy, pricing, packaging, colour schemes and trial lengths are all important levers to pull in generating interest.

2. Work through established channels.

As the Dropbox example showed, often times the connection between product and market can be the most difficult part. Today’s digital age presents a multitude of distribution options for entrepreneurs, but which may be right for a given product?

Keep things simple and work through channels that have already been established between a target market. Consumers normally assign more trust and credibility to channels they are accustom to, helping to de-risk products that may be untested.

A good question to ask yourself: if I wanted to learn more about X, where would I go?

3. Solution-based positioning.

Everyone has problems and more incoming information than they can handle.

To stand out, be less “noise” and more of a personal “voice” to customers. Show them how you can solve a particular problem and how great their lives will be afterwards. This approach will win 9 times of out 10.

Important things to remember: features mean nothing to the majority of people and time is usually in short supply. Skip to what people want to hear and position benefits prominently.

Photo by José Martín Ramírez C on Unsplash

Not-so-fun, not-so-empirical fact: many great products and businesses die by failing to ever connect with their market.

Sound business idea, group of potential customers who share a problem and a paid marketing campaign all leading to nothing.

No alignment means no dollars.

Making product-market fit a central part of any business strategy can make a world of difference. The effects of a strategy centred on this idea can help build the foundation of continuous research and learning for a business.

Strive for balance between the three components and continue to experiment even when all seems to be well. In the end, no fit will ever be permanent.

How does your business address a customer’s specific need?

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