What if there was a way to find out whether people would pay for your idea? Since the blog post The Only Thing That Matters published, product-market fit has been accepted as one of the key factors of a product’s success. The term has been used very often since then and has become a buzzword. But what is it exactly? Although the concept is straightforward because it makes sense, making it happen is very challenging.
Product-market fit is an important concept in the success of a company from startup to maturity, and it’s critical for investors to assess since it’s important for the success of a product.
We’ll focus on product-market fit in this article and try to achieve an understanding of it.
What Is Product-Market Fit?
It’s been said; product/market fit is a key driver in the success of a product. Put simply, product/market fit means being in a good market with a product that can satisfy that market.
In other words, product-market fit is a concept that refers to the extent to which a product meets the needs of its intended market. A company achieves product-market fit when it achieves sustained growth by developing a valuable solution for a specific customer or market segment.
Product/Market Fit is the most well-known and often talked about topic in startups. It’s the metric that everyone wants to use to achieve higher results or prove that they’ve achieved, yet everyone defines it differently.
The term was coined by Silicon Valley-based entrepreneur and investor Marc Andreessen in 2007, The Only Thing That Matters. He is co-founder of Opsware, an enterprise software company later sold to Hewlett Packard in 2007 for $1.6 billion.
Marc Andreessen writes in the post that being in a good market with a product that can satisfy that market is what he understands as “product-market fit.” He refers to a good market as one that is sufficiently large and in need of new solutions. In his own words:
“When a great team meets a lousy market, market wins. When a lousy team meets a great market, the market wins. When a great team meets a great market, something special happens.”
It looks pretty simple, isn’t it? But actually, it’s not that simple at all.
How Do You Know Product/Market Fit?
How do you know when a product meets the definition of product-market fit? What does a company need to look like when it achieves product-market fit?
Product-market fit is something that looks like this:
If you’re not sure whether you’re at ‘product-market fit’, that means you probably don’t have enough customers. In other words, it’s a qualitative assessment. You know your product has reached ‘product-market fit’ when people want to use it. In other words, the quantitative assessment part of product-market fit comes last, after your initial qualitative one.
According to Marc Andreessen, product-market fit is something you can sense. There is no exact definition of what product/market fit should look like, but it will be visible. When you’re able to observe organic, user-generated content about your product, that’s a good sign. Do people want to buy the product, suggest them to others, and promote and advocate it? Do you feel close to building an organic community that starts to grow itself and everyone is happy?
There are numerous tips and techniques to help you estimate product/market fit. Sean Ellis, take the issue a little bit more scientific way. He developed a measurement to see if there is a product-market fit. He suggests that if more than %40 of your current users say they will be disappointed if your product is gone, you have the product-market fit. The test gives you a simple solution to one of the biggest problems in product development: making sure you are developing a product people actually want.
The Sean Ellis test is used by many startups and entrepreneurs as there is a subtlety of market fit for startups. It provides some simple questions that can indicate if the startup’s product is a good choice for the target market it is trying to reach.
Sean’s statistics say, only 40 percent of the participants responded with “extremely disappointed” or “slightly disappointed.” That’s good news because his formula indicates that if the percentage is 40 percent or more, then they have a fit market and are in good shape.
To apply the Ellis test, you should only ask your users what they will feel if the product doesn’t exist anymore. You also need to be able to identify people who will take your test.
In order to answer these questions, you’ll need a customer development interview script. Use the list of 3-5 questions to guide your conversation with potential customers. Although customer development interviews are not the only way to measure customer interest in your product, it does provide more qualitative data about your target market than spreadsheets or questionnaires.
Understanding the beliefs and intentions of your target market will help you tailor the product or service to their needs. This will appropriately position your company in the eyes of competitors and the public, enabling you to have a competitive edge over other companies. You can go into the initial stages of the process with a plan that offers true value to your target market.
How To Get Product-Market Fit?
According to Eric Ries who is the author of Lean Startup, you can know if a product has a product-market fit or not, from the beginning, with a minimum viable product.
When creating products, it’s easy to get caught up in the details and lose sight of what it’s all for and who it’s for. But by covering your bases with 4 steps you can find below, and keeping a constant, forward-thinking focus on your target customer, you can create winning products that bring customers in and keep them coming back for more.
This lean process can be applied to just about any business model or product. As you keep refining your value proposition as a result of new market research, and feedback from customers, you will find the right solution for the people you are targeting, and you’ll begin getting valuable feedback on what it takes to make them happy.
Putting all of this together, we can sketch out a rough outline of the process:
1) Develop a detailed understanding of your target customer.
2) Unearth their needs that are not currently being met by competitors.
3) Define how you will solve those problems better than anyone else.
4) Develop a bare-bones prototype to test out your value proposition with customers before embarking on an expensive development project.
By doing so, you can streamline the design process and eliminate time-consuming and costly revisions and pivots along the way.
In the end, a lean production process means you can build less and learn more. If it doesn’t sell, move on to your next idea. And if it does sell well, you’ve gained valuable insight on how to improve the offering even more.
In conclusion, if you have a product that is loved by many people and they would be disappointed if it was no longer available, that means that you have satisfied market needs and you are on the way to success.