Product/Market Fit: The Definitive Path To Startup Success

startup pyramid for product/market fit

August 11, 2015 • Product Success

The first step post the launch of your mobile app or web startup is to find market demand for it. To assess whether your solution does satisfy the problems of your audience and also whether the problem is worth solving. This is product/market fit.

Marc Andreessen is known to have originally coined the term ‘Product/Market Fit’ where he outlines the fundamentals behind it in his post ‘The Only Thing That Matters’:

Product/market fit for startups

Marc writes how a lot of startups fail because they never get to Product/Market Fit. According to Marc, “In a great market – a market with lots of real potential customers – the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. 

The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product. In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.”

Marc articulates this further by citing Andy Rachleff as the following law to startup success:

how to get product/market fit?

Why should you look for a Product/Market Fit?

Steve Blank, Silicon Valley serial-entrepreneur and academician, explains why startups should look for product/market fit through an animated explainer video.

He highlights that the customer development process is an iterative circle and entrepreneurs have to go through the four phases (draw the business model canvas, test the problem, test the solution through a prototype, verify the pivot) over and over again until they achieve the product/market fit. Only then, can you effectively move to the next steps.

Take a look:

How can you tell whether you’ve got Product/Market Fit?

In the same blog post mentioned above, Marc Andreessen gives us a more vivid illustration of what Product/Market Fit really feels like:

You can always feel when Product/Market Fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel Product/Market Fit when it’s happening. The 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 checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.

Brian Balfour, VP Growth at HubSpot, has the opinion that it is important for all companies to understand at what stage they are in of the Product/Market Fit journey. It will help them focus on the right goals, metrics, channels, and team structure. In one of his blog post, he writes, “My guess is most of you are screaming ‘when you reach Product/Market Fit!’  True, but knowing you have reached product/market fit typically isn’t a clean cut answer. It is a line that is always moving.”

He elaborates, “Instead of thinking about Product/Market Fit as a definitive point on the startup path, I think about it as a series of tests and check points that increase in difficulty, but also in definitiveness. Knowing where you are along this path also helps you understand when to go from traction, to transition, to growth.”

Here are the Product/Market Fit check points by Brian:

Formula for product/market fit

Joshua Porter, the creator of the What to Wear daily report and publisher of Bokardo.com, suggests in his post ‘Principles of Product Design’, the level of dedication and excitement by customers as an indicator of Product/Market Fit.

product/market fit for startups

Andrew Chen in one of his blog post, suggests the importance of getting to Product/Market Fit quickly rather than later.

“Basically you want to get to the point where your product is working, and if you can’t get there within the first 1-2 years of your company’s existence, you generally run out of money or your team falls apart.”

Alex Shultz, in his talk at Stanford on How to Start a Startup, defines Product/Market Fit as that which is based on churn and user retention.

“Look at the curve, ‘percent monthly active’ versus ‘number of days from acquisition’. If you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a viable business and you have Product/Market Fit for some subset of market.”

Check out his full talk to understand the whole picture:

Ben Horowitz, co-founder of venture capital firm Andreessen Horowitz wrote a blog post, ‘The Revenge of the Fat Guy’, in which Ben clearly busts the common myths about Product/Market Fit.

Marc Andreesen- product/market fit

How do you measure Product/Market Fit?

Sean Ellis, CEO and Founder of Qualaroo and GrowthHackers community, is of the opinion that startups should measure their Product/Market Fit as soon as possible as it significantly impacts how one’s startup performs.

So, here are some Product/Market Fit tools which can help you measure your performance and get you closer to your goals:

For Customer Retention

According to the Harvard Business School, increasing customer retention rates by 5% increases profits by 25% to 95%. Once your product is ready, you need to figure out the strategies and tactics to attract and retain customers.

There is no one tool for retaining your customers. Different tactics need different tools. For example, one way of improving customer service and satisfaction is by providing support systems within your site. You can use help desk softwares such as Zendesk or Freshdesk or live chat software like Olark or Zopim for this purpose.

Then you can use Intercom, which is a customer communication tool. It allows you to segment your users into smaller groups and message them via email, in-app notifications, and live chat.

For Getting Feedback

The best way to measure Product/Market Fit is with surveys.

According to a blog post by Baremetrics,

measure product/market fit

Survey.io is a free survey tool that helps you implement some of Sean Ellis’ techniques.  The tool lets you create your own initial customer development survey. Here is a sample survey questionnaire for your reference.

In an interview to VentureHacks, Sean highlights how to judge the results of the survey and what should one do if you don’t get convincing results, “One of the things that I’ve seen work well for companies that are in the 20% range, or even lower, of the user saying they’d be very disappointed without it, is to focus on, one, why those people would be very disappointed without it, and to really start to say, OK, this is our best signal of value that we’re creating.

And then, to look at the feedback from the people who would only be somewhat disappointed without it. Ignore the people who say they would not be disappointed without it, because they’re so far from being satisfied.”

For Analysis

In order to get Product/Market Fit, you should assess the product accuracy and repeat usage of your product.

Google Analytics and KISSmetrics are two tools that will let you track metrics that are important for understanding how customers use your product.

The KISSmetrics blog states the difference between these two tools:

“If Google Analytics is the tool that will show you what happened, KISSmetrics is the tool that will show you who did it. Where Google Analytics is focused on the ‘what’, KISSmetrics is focused on the ‘who’.”

Equipped with data about your product and customers, you either move forward towards growth or you need to repeat the customer development cycle as highlighted by Steve Blank earlier in this article.

Image credit: premium.wpmudev, Startup Marketing by Sean Ellis

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