News about recession, ‘funding winter’, and the ‘death of startup culture’ gave a strong warning that every business owner has to focus on profitability sooner than later. Product-market fit is a term that resonates well throughout the startup world, more so in the current ecosystem, because catastrophes do not come with prior warnings.
Every entrepreneur accepts that PMF is the first step toward profitability. With so much noise around what it means to achieve product-market fit, you can get deviated from the core fundamentals of the PMF journey. In this exhaustive guide, find everything you need to understand, execute, and strengthen your product-market fit plans.
Introduction to product-market fit.
Product-market fit, as a term, was first used in a blog by Marc Andreessen. He mentioned how PMF is the only thing that matters and went on to explain the concept as a situation where you are present in a viable market with a product that can satisfy the market need.
Essentially, product-market fit is a bridge between what the customer needs and what you are building or have built.
Dan Oslen — the author of the popular Lean Product Playbook, has further explained PMF as a pyramid where the market comes at the lower base and your product is higher up. The link between the product and the market makes the pyramid complete.
Product-market fit failures.
According to the ideator behind the PMF concept, Marc Andreessen, the market is the most important factor behind the success or failure of a startup. Market demand itself drives product development and pulls the product out of the startup.
But many times, startups are impatient and skip an important step of the PMF process — conducting market research. Not understanding the market means a weak foundation of the PMF pyramid, which can lead to the failure of a startup.
In fact, not focusing on achieving PMF is the primary reason behind the failure of 34% of modern startups.
Despite the importance of conducting market research and achieving PMF before scaling, many startups ignore this important aspect. Such startups are termed PMF failures and ultimately shut down due to a competitive ecosystem, lack of demand, or a product that no one needs. Here are some startups that shut down because of a lack of PMF:
- Dinnr — Failed because of no market demand.
- Navdy — Lack of market research.
- Quibi — Failed to understand the market.
- Reach.ly — Lack of proper market feedback.
- SchoolGennie — Delay in releasing the MVP & gathering feedback.
- AskTina — No market demand.
- EventVue — Lack of understanding about the audience’s willingness to pay.
Want to know more about these startups? Read these epic PMF failure stories and learn from their mistakes.
Achieving product-market fit in 5 simple steps.
Think of product-market fit as the proverbial treasure that has the potential to turn tables and catapult you to riches. It is just like finding the key to Atlantis.
But creating a product that meets the needs of your target audience and solves a real problem is not an easy job. That does not mean you can’t break down the challenging task into five simple steps:
- Identify the problem: First need to identify a problem that your product can solve based on market research and an understanding of the needs of your target audience.
- Develop an MVP: Once you have identified the problem, develop a Minimum Viable Product (MVP) — a basic version of your product that has enough features to appeal to early adopters.
- Get feedback: Once your MVP is ready, get feedback from early users about their perception of the product. Understand their needs and expectations, and start a cycle for continuous discovery.
- Iterate & Improve: Based on the feedback you receive, iterate and improve your product until it meets the exact needs of your target audience. It will help you attract more users and showcase value to the market.
- Achieve PMF: After multiple and continuous iterations, your product will finally achieve Product-Market Fit (PMF). This means that you have a product that meets the needs and demands of a specific market segment, resulting in satisfied customers, high demand, and strong growth potential.
It’s important to note that you should continuously measure and optimize your product’s performance, stay up-to-date with changes in your market, and focus on delivering a customer-centric product that solves their problems.
Read More: Super simple PMF framework for your startup.
Beginning with product-market fit research.
Deep market understanding based on real-time audience research is a critical aspect of the PMF process. Before you start working on the product wholeheartedly, you must conduct market research, survey your audience, research your competitors, and experiment with your positioning.
Ideally, you should follow the below-mentioned steps to start with the research process at every stage of the PMF journey:
- During the ideation stage
- During the validation stage
- Reach out to customers with an MVP
- Conduct user interviews
- Keep an eye on online reviews
- Gather & analyze feedback
- During the scaling stage
- Create an NPS survey and share it with your customers
- Conduct Sean Ellis Test among your users
- Improvise till you reach the desired growth metrics
Did you know you can use GapScout to scan online reviews, get daily insights about what your customers want, and automate the PMF research process?
Creating a product-market fit questionnaire.
At every stage of the PMF process, you will need a solid PMF questionnaire to reach out to your users. The questionnaire will help you gather appropriate feedback, listen to the customer’s voice, and power your product-market fit framework.
Developing a PMF questionnaire can take a lot of time, especially at the beginning of your journey. There’s a simple way to start conducting PMF research by asking one question to your audience — How disappointed will you feel if you cannot use the product?
A questionnaire with this question is known as the Sean Ellis test. It is said that if more than 40% of users feel ‘very disappointed’ as an answer to this question, you’ve arrived at product-market fit.
Product-market fit for SaaS startups.
Product-market fit is essentially a weapon for B2B SaaS startups. They are eager to build a product that customers love and are driven to achieve ‘customer delight’ quickly.
An essential aspect of the PMF process for SaaS is powered by continuous discovery.
Continuous discovery is all about staying agile, staying in touch with customers in real-time, and using customer insights to drive product development. Continuous discovery is an important element of the PMF journey as a SaaS and is all about keeping customer opinions and needs at the top of everything you do as a startup.
Best practices and tips to achieve product-market fit.
When you are chasing PMF as a startup owner, there are some best practices and standards you must follow religiously. Some are as evident as listening to feedback, while others are complex, involving tracking the right metrics. While you follow a continuous discovery approach to PMF, here are some tips you must remember all the time:
- Start with a clear problem: Always identify and outline the specific problem you are trying to solve with your product based on market research insights.
- Identify your target market: Determine the specific group of customers who are most likely to use your product to solve their specific problem.
- Develop a minimum viable product (MVP): Create a smaller version of your product with only the core features necessary to solve the identified problem and meet the needs of your target market.
- Continuously gather customer feedback: Regularly gather feedback and customer opinions to understand their problems, experience, perception, and expectations related to your product.
- Measure & analyze feedback: Evaluate the feedback you receive and make strategic changes to improve the features, design, and overall user experience of your product every few weeks or months, based on your growth goals.
How do you know when you have a product-market fit?
Analyzing customer feedback and measuring your PMF survey results is an important element of achieving product-market fit.
While the Sean Ellis test and rule of 40% give a clear metric to find if you’ve reached PMF, there are a few other indicators of PMF. These include:
- Net Promoter Score or NPS Score: Higher the score, the better
- Churn Rate: Lower the better
- Growth Rate: Higher the better
- Market share: Increasing market share reflects achieving PMF
- Retention: Higher retention rates mean your customers are happy (and you are in the PMF stage)
- Customer Referrals: More referrals = Positive PMF indicator
- Online Reviews: Positive reviews indicate product-market fit
- Word-of-mouth: When more people talk about you, it reflects your capability to address a problem the audience is facing
- Media coverage: Positive PR and coverage reflect positively on the PMF scale
- Goodwill/authoritativeness: More backlinks, authority, and mentions mean you are sought after in your domain, niche, or industry.
Tracking these metrics and keeping an eye on customer satisfaction scores will indicate if you are close to your goal of achieving PMF.
Wrapping up achieving product-market fit.
Product-market fit is a powerful way to solve the problem of slow or no growth. Also, when you start accounting for customer feedback in your day-to-day business activities, you are bound to succeed.
All you need is a way to track customer feedback and opinions to drive continuous discovery for building a customer-centric roadmap. GapScout can fill the missing piece of the puzzle by automating the process of analyzing online reviews.
GapScout scans online reviews and provides sentiment analysis about what your customers need, wish, or expect from you — an important element of the PMF process.
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