It is impossible for a startup to drive sustainable growth without getting product-market fit first. Lots of startups fail before P/M fit even happens.
Product-market fit is one of the most important Lean Startup concepts. The term was first used by Marc Andreesen in the blog post The only thing that matters. He defines product-market fit as being in a good market with a product that can satisfy that market.
According to Andreesen, product-market fit is not happening when:
– Customers are not getting value out of the product
– Word of mouth is not spreading
– Usage is not growing fast
– Press reviews are kind of dull
– Sales cycle takes too long
– Lots of deals never close
Product-market fit is happening when:
– Customers are buying the product as fast as you can make it
– Money from customers is piling up in your company’s account
– You are hiring sales and customer support staff as fast as you can
– Reporters are calling because they want to write about your product.
For Andy Rachleff, identifying a compelling value hypothesis is what he calls finding product/market fit (A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product). Companies go through many iterations before finding product/market fit, if they do.
You know if you have product-market fit if your product grows exponentially with no marketing which is possible if you have huge word of mouth.
Brian Balfour sees product-market fit as a series of tests and check points that increase in difficulty, not as a definitive point in the startup path. This process never ends because your market is always moving, and your product needs to move with it so you always have to keep an eye on the product/market fit.
The product-market fit check points are:
- Leading indicator survey. Popular surveys like product/market fit survey (Sean Ellis) and NPS survey as the quickest method to get data around product/market fit.
- Leading indicator engagement data. Support with data what people are actually doing. The data must align with events or actions, or the core purpose of the product. This data is a potential leading indicator of product-market fit.
- Retention curve. Create your retention curve, if it flattens off at some point, you have probably found product-market fit for some market or audience.
- Trifecta. 1-Non-trivial top line growth, 2-Retention, 3-Meaningful Usage. According to Brian, when and only when you have these three things you can say with close to 100% certainty that you have product-market fit among a meaningful market.
Dan Olsen created a framework that can be used as a guidance on how to achieve product-market fit. This framework is called the Product-Market Fit Pyramid and it’s an actionable model that defines P/M fit using five key components: your target customer, your customer’s underserved needs, your value proposition, your feature set, and your user experience (UX).