What is Product-Market Fit?
Product-market fit is a popular concept prominently discussed in the startup world. And for good reason, as it is the key to creating a product that successfully delivers value to customers.
We all have ideas. These ideas are what drives us to solve existing market problems or improve the way we live. But how do we know if these ideas are what the market needs? And would they be willing to pay for these ideas as solutions to their challenges?
Enter product-market fit.
You’ve probably heard about it before but couldn’t quite grasp what it is. It’s a concept that every fledging startups strive for before they can even speak about growth and profitability.
In this article, you’ll learn how product-market fit inspires you to create the best products that serve strong market demand. Let’s start.
What is Product-Market Fit?
Product-market fit describes a stage when a company serves the right product that satisfies a market need. It’s the initial step to building a successful business at which the company achieves exponential interest in their product(s).
Andy Rachleff (co-founder of Wealthfront, Inc.) originally crafted this term. He got the idea from the investing style of Don Valentine, founder of the venture capital firm, Sequoia Capital. The term would later be popularized in the 2000s by venture capitalist Marc Andressen, co-founder at Andreessen Horowitz.
Product-market fit is achieved when a company identifies a demand in the market and customers are willing to spend to address this demand. While this may seem obvious, some startups fail because they don’t consider if enough customers are willing to buy what they’re offering.
Achieving product-market fit bears more weight to the growth and longevity of a business. That being so, startups or early-stage companies should prioritize it before developing a product.
Product-Market Fit Indicators
Since businesses are different depending on their niche, there’s no one-size-fits-all approach to reaching product-market fit. However, some signs tell you whether or not you’re on the road to market fit success. Take note of these indicators:
Let’s say your data shows that more customers are increasingly consuming your products with the added features. This indicates that they rely on your product as a solution to their problem. This is great because it allows your customers with more opportunities to engage with it.
This is also true for customers who send a barrage of emails or calls to resolve their concerns. It could simply mean that they’re dependent on your products to fulfill their business. From a product-market fit perspective, there’s an elbow room for retention here and any issues discovered can be remedied early on.
Generally, it’s expensive to find and acquire users for new products as the process is often long and tedious. However, if you haven’t spent more money acquiring users BUT there’s a considerable boost in conversion rate, it could only mean that more users are satisfied with your product’s value.
As your business grows, you’ll need more skilled people to work for the team. Team expansion is a clear indication of a robust business health. Also, more staff means that you can step up the needs of a growing market; thus, validating your product-market fit.
Repeat Business and Revenue Growth
When you’re able to convince users on a free plan to upgrade to a paid version, then you are successful at offering the best value for the customers. Not only will upgrade or renewal spark revenue growth but assures you that your loyal customers are here to stay.
How to Achieve Product-Market Fit?
Understand your target customer
Who will potentially benefit the most from your products? It’s important to identify your target customers at the early stage of your business. Segment your target market to describe your target customer. Essentially, your team needs to profile your customer so they fully understand who they are developing this product for.
To do that, your team has to craft a well-defined buyer persona. It is a research-backed profile that describes your target customer. Additionally, it’s a semi-fictional representation of your target audience which includes their demographics, interests, personalities, and characteristics. Buyer personas help your team understand your customers better, allowing them to be the center of your product planning and creation.
Define value proposition
Identify which of your customers’ problems that your product can address. Since you can’t possibly answer all challenges that customers go through, focus only on specific customers’ problems that your product can help with.
Value proposition relates to the value a business promises to bring when customers choose to buy their products. It highlights the key characteristics that make them a better choice than their competitors.
Take Full Scale’s value proposition statement as an example. We guarantee to provide our clients with world-class software development services at reasonable rates and terms than what they can find in the market today.
Determine your Minimum Viable Product
Another crucial step to achieve product-market fit is to determine your minimum viable product (MVP). Once you’ve established your value proposition, building an MVP enables you to validate that your product is heading in the right direction.
Minimum viable product is a concept that aims to deliver a product with enough workable features that provide value to target customers. More iterations and features will be added along the way until you hit the right MVP that your customers will find manageable.
Measure Product-Market Fit Efforts
The only way to know if your strategies are successful is to measure them. List down all key metrics that track your performance. You can start by measuring your total addressable market (TAM). Also known as the total available market, it refers to the overall market opportunity available to a product or service.
To calculate TAM, multiply overall potential customers with average revenue per user (ARPU). If you now have your TAM, you can confirm a portion of your TAM as your existing customers.
There will come a time when you reach the pinnacle of product-market fit. However, don’t think it will be the end of the journey or that you’ll always stay that way permanently.
Your target market will continuously evolve over time and so should you. Don’t be complacent; regularly review market performance and ensure that you can continue to serve these needs. Creating a survey is one viable way to do this. Ask customers about their opinion on your product and how it can serve them better in the future.
Be on Top of your Customers’ Minds
In summary, product-market fit happens when your target customers fully understand the value your product brings. Hence, they’re more likely to share their experience with the product and become your salespeople, free of charge!
One thing to keep in mind is that product-market fit doesn’t happen overnight. You may need to perform several tests on your product (or service) before it becomes the most sought-after product that the market clamors for.
It’s essential to use the feedback from existing users as a means to improve your tests. Moreover, adjust this concept based on the data gathered and prepare to change direction when necessary. Your role becomes easier when customers are at the forefront of your business strategies.
At Full Scale, we’re all about creating software products that provide a positive experience for the users. We are an offshore development firm that works on innovative ideas and solutions. If you’re a startup that needs a team of software specialists to create and test if your idea has the right market fit, we’re more than happy to help.
Message us today so we can get started.