Product/market fit is a popular term in the startup sphere—even a misnomer. Although you’ll hear it often around any startup talk, product/market fit isn’t as famous in other parts of the business sphere.
However, this concept deserves a broader understanding, primarily since it represents the dynamic between a business, its clients, and its products/service. In this post, you’ll learn the product/market fit, why your business needs it, and how you can measure it yourself.
Hopefully, this may inspire you to see your business differently and find new avenues to develop your consumers’ value and, ultimately, grow your company.
Defining the Product/Market Fit
Product/Market fit is a term describing the time when there’s a broad acceptance for a new product/service in the market. In the last couple of years, most startup communities have accepted the lean startup method as presented by individuals like Steve Blank and Eric Ries.
The lean startup methodology is based on a radically different approach to business. In other words, startups need a different strategy than mature companies. It has to validate the educated guesses it is making. To do this, a startup has to develop a minimum viable product and ‘exit the office” to meet its current and future clientele. This way, a young company learns there is an actual demand for its product/service/app.
To be able to learn this way, you need customer feedback. During the first phase, it’s probable that you’ll change your product a lot based on this feedback. Whether we’re talking about minor iterations to even complete pivots.
Especially if your product/app/service doesn’t meet the target market’s wants and needs properly.
Depending on the feedback, you’ll be able to tweak the product correctly. Even revamp the whole ordeal. All to meet the needs of the first market segment you’ve targeted.
After you get an adequate volume of real users — for instance, those who’ve bought the app and use it daily — you’ll have enough arguments to confirm that there’s a demand in the target market for what you’ve developed.
In other words, you solve a real issue for a particular population segment. This part is significant in having proven objective demand rather than soft-selling to family and friends.
Calculating the Product/Market Fit
In essence, you can calculate product/market fit with customer surveys that explore what part of your users believe your new service/product is a must-have. However, it’s often the case that product/market fit is less about theoretical figures and percentages and more about detailed and tangible knowledge of:
- Who your consumers are?
- What do they need?
- How do they think/feel about your product/service?
Do you have organic growth? Is your product so good there’s word-of-mouth around it? Are individuals really willing to pay for it? If the answer is yes, then you got a product/market fit. The path to product/market fit is often paved by initial customers and word-of-mouth marketing—before you start your PPC and SEO campaigns.
During your startup/early growth phase, your product will likely satisfy a minority of the market (if fortunate, a good call). As your biz grows, so will your knowledge of the issue your product solves. Moreover, with this knowledge, your customer profile may change.
If you want to broaden this knowledge, you must establish and nurture your relationship with your particular consumer segment. Talk to them!
Nurturing the Relationship With Your Consumers
The first step in developing relationships with your customer is taking one-on-one interviews with them. This will help you identify potential friction points and issues, inspire new ideas and product improvements, and develop contacts. Moreover, it will form the foundation for your thinking around customer segmentation.
However, reaching out and communicating with your customers may feel awkward. You can best do a user interview over the phone or via Hangout chat. Even in person, based on what you need to know or investigate.
Be warned. You’ll need to prepare a template with particular questions. However, if you need to improvise and go more in-depth, feel free to do so. Some of the most used questions include:
- Those on your customer backstory — Who are they? What is their job? What is their typical workday?
- What your customer is trying to solve — What are their pain points? What activities do they employ to solve them? What solutions have they used?
- How your service may aid them — Where they heard about your product? How are they using it?
Remember that multiple-choice and open-ended questions work wonders as well. Alternative ways of collecting data include talking to your internal teams. Particularly, sales and customer service. If your teams are small, you’ll likely act as customer support.
However, you’ll likely need to build an in-house team as your business grows. This is crucial since they’ll function as a frontline where your customers can come in and talk to you. This, in turn, will further your knowledge of what your target market and customers want.
Why Do You Need Product/Market Fit?
Product/market fit is critical since, until you get it, you don’t understand whether the product you’ve developed solves a real issue that a large enough customer segment has. Miss this, and you’ll continue investing in creating something that isn’t a viable product.
Even worse, you could burn money as you prematurely build sales and marketing that won’t generate revenue. In fact, scaling too soon is usually cited as one of the crucial reasons new businesses fail.
Different elements in the B2B SaaS sphere continue to muddy the waters further.
If your app is a significant innovation, you must educate the market about its benefits. This will cost you a lot of time and money.
Second, if you’ve used VC investments, your investors will focus on accelerating sales. This, in turn, will pressure you to skip the ‘research’ part.
Ultimately, if your sales cycle is long (and you’re focusing on prioritizing sales), the feedback loop will be so bad you won’t learn anything about the actual demand and product usage. If you’re a startup, expect you’ll need two to three times the time to validate your market.