How do we know that your products and services meet the customer’s needs or wants? Yes, this is a simple question. Finding the correct product for the correct market is always one of the first things any business should determine. That is called ❝Product Market Fit❞.
It usually is applied in the first step of any startup or whenever a company wants to offer a new product. Now, what is this product market fit? Let’s learn everything that is out there in this very blog. 📝
What Is Product-Market Fit?
Product Market Fit is the first and essential step for all startups looking to measure customer interest in their product.
In this step, you as a small business should measure the level of market interest in the product after collecting customer feedback, even if there are not so many comments about what you are offering.
In short, this concept means finding a suitable market and a product that can satisfy the customers of that market. This concept is cross-departmental; both the marketing and product management departments are involved in developing and promoting it.
Why Is Product Market Fit Important?
One of the biggest problems companies have is that they think they can find a good market, but they don’t! The importance of this issue is that before starting production and investing ( money, time, and resources), you must ensure that there are people out there who want to pay for your product or service. 👥💰
Your sales team shall focus on strategic goals rather than constantly worrying about finding initial customers. Once you find the right fit for your product, you can use many marketing strategies, such as word of mouth, to grow your database of prospects and seek more connections on LinkedIn and other social media platforms. Meanwhile, without the product market fit, you have to do a lot of paid advertising, which may not even have the desired result. 😕
How to Find Product Market Fit
So, how should we find this product-market fit? As mentioned, this is a difficult task. According to statistics, 90% of startups fail in the first five years. There are several reasons for that.
One main reason is that startups invest in a product without identifying its market fit. Later, they discovered that it did not have enough customers and was wasting resources.
Product-market fit should be the first thing they check because it is proven that businesses with a good product-market fit have a higher chance of success than others.
To avoid this failure, it is strongly suggested that you understand the problems your product can solve. This can be done by focusing on some areas which we will discuss.
🔷 Define Your Target Customers 👨👩
It is vital to determine your target customers; the people who will benefit from your services and products. Create an ideal customer profile (ICP) to help your team identify the right customers in each market segment.
🔷 Information Gathering 🔎
This is a significant step. Data is the torch that lightens your path, stopping you from going sideways, getting lost, and wasting your time and resources on false hope.
🔷 Talk to Customers 🗣️
It’s not hard and strange, is it? Let me say that you should talk to every one of your consumers, even those who are unhappy with you. I mean, yes, it’s easy to talk to satisfied and happy customers and let them appreciate and thank you for your product.
It feels great, but is it also productive? No, that’s why you should talk to those who probably dislike your product or are unsatisfied with you and your brand.
They are the ones who help you fix your product or service’s shortcomings. Who are these customers? They are those who filed a complaint after their purchase, contacted customer support, canceled their purchase, did not continue using the service after the trial period ended, etc.
Let them tell you why they think your products and services are not good for them or why your competitors are better. For example, ask them what disappointed them the most about your product/service. What do they think should be changed in your product to encourage them to use it? And similar questions.
These questions reveal the worst defects and problems in your product and service, helping you improve it faster and grow your brand as soon as possible.
I know this makes you feel like crap; it’s hard to hear and accept criticism, but believe me, it helps your growth. Do you remember when you were growing up, and your legs always used to hurt? Growing up is always painful; it doesn’t really matter if you are growing physically or financially.
🔷 Focus 🎯
Don’t be all around the place. As a startup, you probably have a limited budget, and trying to sell your product to a huge population will probably result in a financial disaster.
It is much better to dive deep into one industry and, even better, a specific section of that industry. For instance, if you are concentrating in the healthcare industry, you are not to go for fan production, maybe skin care products are a better option.
When you prove yourself as a professional expert in that industry by publishing valuable content on LinkedIn, Instagram, Facebook, and other platforms, it is much easier to stimulate domination in viral speed.
🔷 Specify Value Proposition 💎
As mentioned above, it is very important to identify the customers’ pain points that your product can soothe. You should also determine how to outperform your competitors and surprise your customers. Identify your challenges and draw a road map.
For instance, CUFinder, a lead generation platform, has a clear value proposition: It helps customers achieve the best CRM possible without wasting time or money gathering prospects, customers, etc.
🔷 Measuring and Test 🔬
This step is so important that we decided to give it a separate subtitle. You need to test and measure everything, from prices to performance.
Today, we can test everything, do A/B tests, measure the performance of our competitors, and other things. But honestly, many of us are afraid to test some problems such as price, packaging, shipping, etc.
This is exactly where everyone speeds down, and you should speed up. Try your market and test it with prices, packaging, providing different offers, etc. You are a startup, a toddler who curiously tries everything to know the world around them.
🔷 Narcissism Is Dangerous ⚠️
Just as Narcissus drowned for her egotism, you too can drown in your arrogance. Don’t assume that just because you’ve found a product market fit, you’ll always be on the correct path!
Customers and their needs change over time, so you need to monitor the market. Examining the market changes during the COVID-19 pandemic shows how much business has changed since the pandemic’s peak.
Also, I must remind you to move faster. You are not in a friendly meeting; the market, the sale, and the whole process of finding product-market fit are marathons. You have to coordinate your changing speed with your audience and competitors; otherwise, you will fail.
Product Market Fit-The Mistakes
We discussed product-market fit and how to find it. Product-market fit means producing a product for which you are sure there is a large enough market.
We want to sell our product for profit, right? Well, just because you produced something doesn’t mean the market will accept it.
But can everybody find the correct product-market fit? Unfortunately, no! That is why a huge number of startups lose the game very soon. They usually try to solve problems that are not there.
You need to know your target audience, their needs, problems, and concerns, then decide what can solve their problems they are willing to pay for. A product-market fit is like the time you spend learning how to swim before entering the ocean.
Still, you need to know that there is no 100% guarantee that you will be successful even after finding the correct product market fit. Your product may become less appealing to the customers, meaning less demand in days.
📌 There are some common mistakes people make when defining the product market fit ⤵
- Going to the ocean before learning how to swim is deadly. Many startups start producing their assumed perfect product before getting customer feedback, which can lead to failure.
- Speed matters. You are to move fast in the market. If you wait for too long to receive enough feedback, it can get too late to apply the necessary changes, and the ultimate product can lead to failure.
- Startups have a limited budget. That is why so many of them try to do everything by themselves and never look for help from experts, which can lead to huge mistakes and loss of time and money.
- Learn from your mistakes. It might seem like a cliché, but we should really learn from our mistakes. Especially SMEs have few chances to make mistakes and when they do not learn from them and keep repeating them, they obviously are doomed.
- Present something new. You are to present something new to attract people and persuade them to pay for your product. However, there are no benefits in being so much different from others in an industry, except if you are a huge corporation like Apple.
- Not involving the customers can harm you. They can give some really great advice to optimize your service and product, so why not?
- Don’t try to be appealing to everyone and all. Trying to make everyone interested in your product can backfire and damage your brand reputation.
- Offer something valuable. It is better to try to produce a professional and precise product for a specific problem than to be the jack of all trades. It just lowers your product’s demand.
💡 All right, let’s see a couple of success and failure examples here ⤵
Airbnb 🏡
Airbnb is one of the most popular ways to book accommodation in many countries worldwide. However, it has not always been so professional and popular. This brand has come a long way to where it is today, and in 2021, it won second place in this industry with 6 million properties and 300 million users.
These results are from the Airbnb team’s hard work and, of course, finding the right PMF. But how did they do it? Well, it is said that the founders of this brand, Joe Gebbia and Brian Chesky, decided to host some designers in their house to pay the rent of their apartment in San Francisco.
They designed a website on which they introduced themselves as a catering service provider to the famous US design conference IDSA participants.
This was a great opportunity for them because, contrary to their expectations, many people requested to stay at their place. It gave them the idea to start a cheap apartment rental service.
They soon found people who wanted to rent (demand) and many applicants who wanted to rent out (supply). This means that they found a product-market fit for their business, which caused the rapid growth of this service worldwide.
Although this idea was very risky, these two people first tried it cheaper and then tried to consider the audience’s opinion to optimize their service.
Dinnr 🍳
It was in 2012 that Adil Mohammed and Michal Bohans found Dinnr. It allowed the customers to select a recipe, order, and receive the ingredients at the defined measure on the same day.
They just needed to have a kitchen, oil, salt, and pepper. Dinnr was not a restaurant; they just used to provide the ingredient base on every recipe. They shut down the website in 2014, for there was no real need for this service from the very beginning.
Some people might like the idea of having needed ingredients to cook at their door; it is faster (I do!), but most of us can just go to the local supermarket and buy the ingredients cheaper and faster.
When we don’t feel like preparing the ingredients, that means we don’t feel like or have the time to cook and prefer to have a ready-made meal.
That meant a low profit margin for Dinnr, and they had to shut down the website. The problem was that they did not do the market research and the product-market fit correctly, or at all! Well, how should we measure it?
How to Measure Product Market Fit?
Product-market fit is something very crucial for any organization. Though it is just a concept and not an exact metric, there are various ways to measure it using specific criteria.
1️⃣ Sean Ellis Criteria (40% Survey Method)
Sean Ellis does advise a survey-based approach. If at least 40 percent of consumers say they will be “very disappointed” when a product is no longer available, it indicates a strong product-market fit. At the same time, anything below this percentage suggests a weaker fit.
Such a poll shall be prepared for those that are most valuable to research based on a profile of being very frequent users: those using your product more than twice for specific purposes and customers with more than two weeks’ customer lifespan.
Response analysis helps develop the product according to the actual needs of customers.
2️⃣ DAU/MAU Ratio
It is a measure of user engagement that is calculated by comparing the number of DAU (Daily Active Users) versus MAU(Monthly Active Users).
Common benchmarks ⤵
- Above 20% = Good Engagement
- Above 50% = World-Class Engagement (e.g. LinkedIn-Level)
3️⃣ Retention Rate
The cohort retention rate is the proportion of customers who continue to use a product over time. Companies with high retention rates have high PMFs because customers continue to find value in their products. For instance, for SaaS, a good 6-month retention rate is 40% or higher.
4️⃣ Net Promoter Score (NPS)
NPS measures the degree of customer satisfaction and can be assessed by the likelihood of active users recommending a product to others. The higher the NPS score, the better the product-market fit and brand loyalty. Yet, you are to know that it is not a PMF measurement.
Customers are asked, “How likely are you to recommend this product to a friend?” (Scale of 0-10).
- Promoters (9-10) = Loyal customers who drive growth 😍
- Passives (7-8) = Satisfied but not loyal 🙂
- Detractors (0-6) = Unhappy customers 🙁
5️⃣ LTV/CAC Ratio
LTV, Lifetime Value, calculates revenue generated by a customer; CAC, Customer Acquisition Cost, measures how much it costs to win customers. The high ratio of LTV to CAC proves there is PMF.
Conclusion
Product-market fit is one of the most important things you must do before starting mass production. Many business experts believe that many startups fail in the first five years because they did not find PMF correctly, and this is true, at least to some extent.
When you find the correct product market fit, you are ensuring enough customers out there to buy your product or use your service after you present it to the market. That stops wasting time, budget, and other resources and increases the profit as much as possible since you have found your the real thing that works in the process. So please take the time to find the best product market fit. 👌🏼
FAQs
1. What is product/market matching?
Product/market matching is finding the right product and value proposition partnership to please your target customer base. Before you start, you should know which products can be sold to a target audience.
2. Who is responsible for product-market fit?
Product-market fit is any sales teams’ responsibility that interacts with the product or service and the customer. It includes product development, marketing, production, testing, and sales..
3. Why to do product markets fit?
The reason is to identify whether you’re building a product that solves a real problem your customers are facing, or if you need to develop it more to reach the point of customer delight.