Everything You Need to Know About Product-Market Fit

What it is, how to find it, and how you know you've actually gotten there.

What it is, how to find it, and how you know you've actually gotten there.

January 7th, 2020   |    By: The Startups Team

What is product-market fit?

While the term “product-market fit” gets thrown around a lot in the startup world, it’s not always very well understood. In fact, we can’t even agree on who created it! Some people say that the concept of product-market fit was first developed and named by entrepreneur and investor Andy Rachleff. Others give credit to famed investor Marc Andreessen, who at the very least popularized term product-market fit when he wrote about in a 2007 blog post. He said, “Product-market fit means being in a good market with a product that can satisfy that market.”

In other words: You could have an amazing, sophisticated, well-thought out idea — and people just don’t get it. (Think: That first focus group for Pied Piper on HBO’s Silicon Valley, where the public just doesn’t understand cloud computing.) Or maybe it doesn’t solve an actual problem. Whatever the reason, people just aren’t clicking into what you created.

According to Rachleff, market wins — always.

“If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed,” Rachleff famously said. “Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.”

So how do you get the dogs to eat the dog food? Let’s take a look.

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How do you find product-market fit?

The short answer to how you find product-market fit is: You try stuff. Really! Finding the right fit is a process of trying, failing, iterating, failing, trying again — ad nauseum, until you either fail for real or find your perfect product-market fit.

But we know you’re looking for more guidance than just “keep trying, bucko!” So let’s take a look at how one of the most popular startup methodologies, Lean Startup, can be used to find product-market fit.

Dan Olsen, Lean Startup consultant and author of The Lean Product Playbook, developed a tool he calls The Product-Market Fit Pyramid to help people visualize the process of finding your product-market fit. It includes five levels and level is directly related to the levels above and below it. According to Olsen, from bottom to top, the five layers of the Product-Market Fit Pyramid are: target customer, customer’s underserved needs, value proposition, feature set, and user experience (UX).

Olsen also developed a methodology based on The Product-Market Fit Pyramid that guides entrepreneurs through each layer of the pyramid in their epic quest for perfect product-market fit. It’s called the Lean Product Process.

The Lean Product Process

Determine your target customer

First things first: You need to determine your product market. Sometimes, defining your target market takes care of itself. If you’re building a B2B product for an ultra-specialized industry that only a handful of companies work in, your target market is that handful of companies.

Other times, the organizing principle that unites your target audience may be a little less clear. So how do you go about defining your target market in those cases?

“The best way to figure out who your target market is is with the power of social media,” founder Scot Bryson says. “Test and learn, find out who is engaging with you organically. Using tools like Google Analytics to understand who is coming to your website as a good start. Quantcast also has great tools that are free to figure out who is coming to your site.”

Another great way to make sure everyone on your team is aiming for the same target market is by creating a consumer persona. While a customer profile is looking at a group of people you can target, a consumer persona is the idealized personification of that group. In other words, it’s a fully fleshed out individual.

So figure out who that individual is. Ask yourself their gender, age, location, race or ethnicity, job, marital status, parental status, income, hobbies, and education level. You can even figure out their hair color, height, and weight if you think it will give you a clearer vision of who they are! The idea is to create a fully formed person who will absolutely, 100 percent, without question buy your product. By the end of the process of creating a consumer persona, you and your team should be able to describe everything about your consumer, from their name to their likes and dislikes.

Identify underserved customer needs

One tried and true way to get to know who your target customers are and what matters to them: by talking to them.

In our age of big data and quantitative reasoning, we’ve all been trained to assume that data reigns supreme. But sometimes there really is no substitute for getting on a call, or even sitting across a table from them with a cup of coffee, and asking them what their pain points are.

Qualitative research like this gets a bum rap in an environment that prizes data above all. But one-on-one conversations with your customers will get you something no quantitative survey can: real, deep psychological insight into your audience, their mindset, and what they want from you.

This brings us to the one major pitfall you absolutely want to avoid: Defining your target market without going outside of the insular brainstorming bubble of the team.

This is a trap we’ve seen startups fall in all too many times. Some founders become so fixated on who they want their target market to be, they forget to check and confirm that that’s who their target market actually is.

And more often than not, when you go that route, what you wind up with is not a target market at all. It’s a Frankenstein fever dream of a phantom creature that you think is your target market. Trust us: Real target markets are way better than fantasy target markets. They’re a lot easier to sell to.

Define your value proposition

Your value proposition is what you offer to the customer. Social media marketing strategist Kayla McDonald says that while it’s a good idea to be clear, specifics also help. She writes:

Specifics are key to standing out and appealing to the needs, wants and desires of your audience. Your value proposition should clearly define the service you offer, and the end benefit of using your product or service.

To formulate a great proposition, consider the following questions:

1) Who is your target audience? 2) What are they currently struggling with? 3) How does your product/service specifically help them overcome this obstacle? 4) What alternative solutions are available? Why is your product/service better than these alternatives?

These questions will help you zero in on your main focus, and better appeal to your audience.

Create your MVP

First, a definition. According to the Lean Startup Model, your minimum viable product (MVP) is the absolute leanest, simplest, most bare-bones version of your product you need to make it in the marketplace. Creating an MVP makes it easier for you test your product-market fit, without investing hundreds of hours (and dollars) into a product, only to realize that it’s not the right fit.

While Olsen has two steps here — “specify your MVP feature set” and “create your MVP” — we think they’re really just two parts of the same step. You need to first figure out what features you want to test in your MVP — and then you need to create it.

Stuart Brent, co-founder of MapPlug, is a big fan of what he calls a “Wizard of Oz” MVP. What’s that, you ask? “Wizard of Oz MVP means there is no backend. This doesn’t work for all services, but if you can, try to not build out any automation, and just ACT like it’s automated, with you and your team manually doing everything behind the curtain, like the Wizard of Oz.”

“It’s awesome because you can validate and try to earn money without investing a lot,” says Stuart. “You can also tweak the site and service before you hire a dev, which will save money. You find problems before having to pay someone to fix them. Plus, if you do a Wizard of Oz long enough, you could bootstrap development.”

Stuart is quick to note that a Wizard of Oz approach to an MVP won’t work for every product or service. But whatever the version of your product that you launch with turns out looking like, remember this: don’t wait for your product to be perfect before launching. Like anything made by humans, it never will be. And don’t forget the old truism of developing: the longer it takes to code, the less likely it is to launch.

Test your MVP with customers

Once you’ve created your MVP, it’s time to test it on your customers. This step is essential to finding your product-market fit, as it will reveal what’s working — and what isn’t. The best user testing is done face-to-face (or, at least, side-by-side) so that you can observe

It’s important during this stage to make sure that the users who are testing your MVP are actually target market. Otherwise, the data you get from them won’t be useful.

Perhaps the most famous example of user testing with a Wizard of Oz MVP comes from ecommerce company Zappos. Founder Tony Hsieh and his team spent weeks running out to shoe stores and buying shoes that users ordered on their website in person in order to validate that users really would buy shoes online before taking the costly step of investing a ton of time and money into building the infrastructure to support it.

How do you test product market fit?

The best way to test whether or not you’ve achieved product-market is iteration — aka refining and retesting, over and over again. Iteration is a key part of the Lean Startup Model. In fact, it’s totally integral. They have their own term for it: Build-Measure-Learn.

Build-Measure-Learn

While the MVP is often extremely minimalistic, the feedback from the initial group of test customers helps entrepreneurs learn what’s working, understand what isn’t, and figure out what direction they should go.

The general idea is that startup founders should follow the build-measure-learn model repeatedly, with the goal of turning that MVP into a sustainable business. Oftentimes, that feedback leads founders to pivot from one idea, market, or niche to another in their quest for a great product.

Innovation is a high risk sport on an idea by idea basis, but you can dramatically increase the quality and reliability of your outcomes in the way you manage new concepts.

Creating structured ideas and then figuring out creative ways to test them is central to the lean startup movement, not to mention the scientific method itself. And it turns out it’s a great way to innovative, even if you’re short on resources.

Build-measure-learn is a research-intensive process that can be emotionally fraught, as creators have to be willing to not only put their creations out into the world before they’re “finished” but also take feedback and implement it. However, if done properly, the lean startup methodology can lead to a company that serves its client’s needs, is sustainable, and is verified before the founder even starts looking for funding.

How do you know when you’ve found product market fit?

If you’ve built, measured, and learned — and built, measured, and learned — and built, measured, and learned and your clients no longer have negative feedback, find it easy to use, and think it’s valuable enough to use? You’ve found product-market fit.

Now it’s time to get work building your product! However, don’t think you can just leave product-market fit forever. Come back to this process as you continue to develop your company to make sure you still have product-market fit. Otherwise? You might not realize that the dogs aren’t eating the dog food anymore.

About the Author

The Startups Team

Startups is the world's largest startup platform, helping over 1 million startup companies find customers, funding, mentors, and world-class education.

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