On finding and measuring product-market fit
Regarding your recent writings on product-market fit, can you define product-market fit? How do I know if my product has achieved this?
Products with product-market fit are products that have found an adequately sized market that they can be sold into. It’s more of a spectrum than a binary state — some products are more suitable for their market than others.
The first step of finding product-market fit is to identify the market. Is there a (big enough) cohort of businesses or consumers with the same problem to be solved? To scale a product into a market, there needs to be enough of an audience to target. Some products solve big problems for so few people that they are simply not viable businesses, despite how valuable they may be to early adopters. This is why simply having sold your product to a handful of customers does not necessarily mean you’ve found market fit. The second step of finding product-market fit is to find an adequate solution to the identified market problem. What is the one-size-fits-all way to solve the problem you’ve identified for a large percentage of the people in your target market? For some founders, this comes easily. For others, it can take a very long time.
If you have found an adequately sized group of prospects who share a similar problem, and have built an adequate solution to that problem, you’ve found product-market fit. You’re probably finding it easier than ever to find new customers, and your product vision is stabilising. If you’re struggling to focus your product development efforts in a single direction and cannot commit to a specific ideal customer profile, you’ve probably not found product-market fit.
While the market (i.e., the problem) comes first, and the product (i.e., the solution) comes second, discovery rarely actually plays out this way. Rather, most startups will start with a hypothesis for both the problem and the solution and through experimentation these assumptions are tested. Some startups get the market right from the start, and require some experimentation to find the right solution. Others might surprise themselves with which market ends up most in need of their solutions. Most are at least somewhat wrong about both market and product, and will pivot their way towards a more solid product-market fit hypothesis.
Consistently high sales momentum coupled with consistently low churn is your best measure of product-market fit. Given product-market fit is a spectrum, some businesses will find enough customers to convince themselves that their hypothesis for their product is correct, but won’t find enough customers to achieve the type of scale they need. This can simply mean they haven’t actually found product-market fit. This is a trap that a lot of businesses fall into — they have enough fit to exist as a business, but not to achieve scale. This leads to stagnation and a slow death.
Stagnation, after an initial period of growth, can also be a reflection of the fit between not only product and market, but also market and sales model. It is possible to find a market, find a great solution for that market, but fail to work out how to sell into the market. This is why experimentation should not end with product development, but also extend into go to market strategy (e.g., partnerships, product-led growth, direct sales, SDR, are all channels that might be explored). Product experimentation may also be required to test different types of sales strategies.
21 February, 2022
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