When you’re starting out in business, you’ll hear lots of advice about refining your Product-Market Fit. One way to think of product-market fit is the moment when “your customers become your salespeople.”
Existing users recognise your product’s value, so they tell others about their great experience with the product and your continually replicate the great experience for new customers.
What is Product-Market Fit?
Product-market fit occurs when a company’s value proposition, customers and routes to market all align. If only two of the three elements align, you’ll probably get some short term success but it will be hard to sustain it.
Indicators of Product-Market Fit
Think about it this way.. if more than 40% of your customers would be very disappointed to see your product or service disappear from the market, there’s a good chance you’ve created a must-have item. If your customers buy your product faster than you can manufacture it, you’ve likely achieved product-market fit. Other signs include a significant amount of press coverage or the need to hire more people quickly.
Product-Market Fit Goals for Startups
Startups should prioritise product-market fit above all other goals, because those that find it will dramatically increase their odds of success. Conversely, many startups fail because they waste money on products that no one wants to buy.
To avoid this fate, make sure you understand the pain points your product solves as well as the challenges your customers are seeking to solve. You can do this by focusing on six primary areas:
1. Determine your target customer
Work to identify the target customer who represents the users that will most likely benefit from your product. Use market segments to define your ideal customer.
2. Gather intelligence
Talk to your customers to determine their pain points and how much they would consider paying for a solution to those challenges. Seek insights from your sales and marketing teams to identify recurring customer complaints.
Collect a large enough data sample to provide meaningful feedback. Consider, too, that face-to-face conversations will often generate feedback that online surveys won’t.
3. Focus on a single vertical
Startups have notoriously small budgets, which means that trying to sell your products to everyone will likely result in disaster. Begin with a narrow focus and dive deep into that industry. Establish yourself as the industry expert in a single domain with a goal to stimulate a viral spread.
4. Define your value proposition
Determine which customer needs you can best address with your product or service. Figure out how you can outperform your competitors and surprise your customers. Don’t lose sight of your product roadmap when determining which challenges you’ll address. Not every problem will fit into yours.
5. Measure your product-market fit
You must measure your performance in order to manage your success. Identify key data points that will help you track performance. Start by identifying your total addressable market (TAM) otherwise known as the total number of people who can benefit from your product/service (i.e., If everyone who could use your product/service started using it). TAM is calculated by multiplying your average revenue per user (ARPU) by the total potential customers in the market. Once you have your TAM, determine what percent what percentage of your TAM are currently customers.
6. Avoid complacency
If you manage to achieve product-market fit, don’t assume you’ll always have it. Your customers’ needs will change over time, and you must constantly re-evaluate market conditions in order to continue meeting those needs.
This could look like sending out a simple survey that asks customers, “How would you feel if you could no longer use [product]?”
Are you struggling to understand your Product-Market Fit? Get in touch