Product-Market fit has been an important concept ever since product management started to evolve. As the name implies, product & market (users) are two sides of a coin and no product can go successful without finding a fit between these two.
David Rusenko, one of the founding members of Weebly defines product-market fit as:
“Make something a lot of people want”
An explanatory version is available in Marc Andreessen’s 2007 blog post which reads:
“You can always feel when product/market fit is not 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 is 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. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house.”
Although it sounds straightforward and obvious, there are different factors which would make this concept a little complex. Let me try to explain it with an example.
Let us assume we want to design an e-commerce app for a market where there does not exist any great competition. Now, the very first thing comes to mind is that if we launch this app with some exciting features then there is a huge revenue opportunity. So, while crafting the features of this app, we can come up with a few USP features like ‘order items with voice command’, ‘15 min delivery guarantee by drone’ etc. Do you think the app is going to boom in the market with these stirring features?
- Yes, indeed!
- No, the features are still not appealing enough
- Can’t say
You are right if you have chosen C. The reason is, we know about the product and its features and we also know that these are a few of the features that users would love but are these one of the primary needs of the users? Can’t say. What if we researched a little more about the market and found that the market that stakeholders wanted to target was Cambodia where there is a 78% rural population with an economy dominated by the agriculture sector. If we further extend our market research by interviewing the end users, we would come to know that one of the primary problems people in this region face is getting agriculture material delivered at home without any hassles. They somehow manage to get these bulky & heavy items delivered by collectively ordering items in a single shipment so as to save on transportation & delivery costs. Now if we go back to our initial assumption of creating an e-commerce app, it is very different than what we had imagined. In simple words, the product that we had imagined is still great but not fitting the target market.
Early stage of product strategy defines the degree to which a product is going to satisfy target market needs. One of the best ways to lay the foundation of product-market fit is to understand and follow the Product-Market fit pyramid. The pyramid defines the early stages of the product in bottom to top sequence. Out of the five phases, first two define the market & their needs and next three define how to fulfill these needs with an easy adoptable solution.
- The very first step is to define the market and user persona. Defining personas is again flexible and dependent on the kind of problem we are willing to solve. If we take the same example of an e-commerce app for Cambodian agriculture market, the persona can be defined by taking users’ demography, geography, etc. into consideration. Whereas, for a B2B product say – analytics solution for mar-tech organizations, considering users’ demography wouldn’t help but their job profile, skill sets, nature of business, etc. would help define the persona.
- Although it’s shown as the second step in the pyramid, understanding market need can go hand in hand while defining the market itself. The funny thing about understanding market needs is that it’s not always discovering their pain point or need but it can be creating a need too. One of the best examples of creating a need is Livespace – an online home decor tool. A few years back the idea of interior decoration was just to assign an interior designer who would design your home with his/her ideas. Now, when online tools like Livespace came in, the appetite of new home buyers was not limited to the interior decorators, but they started feeling a need to evaluate more and more designs and see them live in a virtual tour of their homes. So, is it safe to say that every first player in a product segment had created a market when they analyzed the users’ probable need? The answer most of the time is Yes. Although the concept of creating a market seems interesting, the risk factor is high too. What if an entrepreneur wants to create a new market and builds a solution for a presumed need and once the product is launched, the target market never felt that as a need at all? Well, in that case, all effort would go to waste or that entrepreneur would need to put additional efforts to mould the product per market need. Yes, the risk factor is high but if the product fits the market, the success is skyscraper. On the other hand, a typical way would be to discover the needs of an existing market where the probability of success is high but competition is high too.
- Once the market and its needs are defined, the next phases are comparatively simpler. The challenging part is the product development and execution at the right time frame and in sufficient number of iterations. One of the important factors to keep this execution on track is to define the ‘Value Proposition’ of the product and stick to it at all times in all iterations of the product. The value proposition clearly defines how a product/solution is going to solve the user’s problem than any other alternatives available. The ‘Value’ answers what, who, and how questions of user’s problems:
- What solution are you building?
- Who is willing to use this solution?
- How is the product going to solve the user’s problem in a better way than any other available options.
- Now, to build this value in a product, we need to break it into smaller pieces which ultimately defines the feature set. Sticking to our earlier example, the value that the ecommerce app for farmers in Cambodia is going to provide is door-step bulk & heavy items delivery in a cost effective way than any other available shipping options. So, the feature set would be to browse & choose items in bulk, choose delivery options, payment options, etc. On the supply side, the features for sellers would be – an easy way to register and list items, payment credit options, delivery options, etc.
- The last but a very crucial phase of the pyramid is the UX of the product. It has to be well crafted keeping the user persona in mind. Also, the UX has to be very specific to the minimum shippable feature set. The best way to minimize the risk and rework is to create a functional but non-production ready prototype of the product so that real users can quickly gauge the degree to which it is solving their problems.
Product evolution phases
The initial product market fit search requires a lot of iterations but what are the phases to build a sustainable product?
Once the product development starts and it goes to create-test-refine iterations, it is important to keep a balance between business and user requirements. You need to keep on enhancing the solution to build a persistently remarkable product. Below are the few steps to achieve it:
- Talk to end users and keep developing market thesis considering users’ ever changing needs. A few simple but most effective ways are to interview users and listen to their problems or ask them to fill a questionnaire with mostly open ended questions.
- Listen to their problems and not solutions. Users always tend to start talking about expected features they would want to see in the product but better to skip that part and bring them back on the problem part of conversation.
- Build a prototype as quick as possible making sure that all the features defined in the upcoming MVP are covered in it.
- Show the prototype to the end users and get their feedback. Make sure they provide honest feedback.
- Once the prototype is passed, build the MVP
- Again release it to a smaller set of end users
- Did your users like it on live products? If no, go to step one and prepare your next MVP.
- By the time you have reached this step, you must have found a product-market fit.
The later stage of product market fit comes when there is a substantial traction on the product and it keeps monetizing with minimal efforts. Although it sounds like a cake-walk, it is important to keep enhancing the product by continually discovering users’ other problems. Once missed, the product may go to maturity and soon in the decline stage of its life cycle.
How to measure Product-Market fit?
There is no hard rule or formula to measure a product market fit but it would be really helpful if we could quantify it so as to keep a track and work towards improving the index. A couple of approaches to quantify the product market fit are as follows:
Approach 1: Inspired by the approach of a survey conducted by Slack to know the percentage of users who would be very disappointed if Slack no longer existed. If we conduct a similar survey then the optimal (or safe) score to consider the product fits the market is in a range 35 to 40%. That means, there are 40 out of 100 users who would be very disappointed if your product is discontinued. The target here should be to beat this number or at least keep it consistent even at the product maturity stage.
Approach 2: This approach is again similar and based on a survey but heavily relies on NPS (Net promoter score). NPS is a score calculated based on a simple survey question (mostly appears in the product itself) like ‘how likely you are going to recommend this product’ with a scale 0 to 10. Users who rate 9 or 10 are promoters, 0 to 6 are detractors and then ones who rate 6-7-8 are ignored.
So NPS = Promoters – Detractors
Typically, the products that achieve NPS above 50 are considered to be fit to the target market.
There are other index scales which can define the degree of product market fit are – user retention trends (percentage of day 1, 3, 7, 30 returning users); percentage of paying customer renewal rates, etc.
In a nutshell, Product market fit is a key to success of any product at any stage. And the simplest definition that I can think of is – Product Market fit is considered to be achieved when the product owner is happy with the scale of usage by product users. Higher the degree of satisfaction of product users, more the usage, thus more revenue and happy product owner.
Do let us know if you liked this blog and our definitions of this concept. If you have any feedback regarding product-market fit, get in touch with the team! Read our other blogs here