Product-Market Fit
Product-market fit describes a situation where a product’s target customers are adopting and telling many others about it thereby sustaining the product’s growth and value. This means that there is market demand for what you’re selling and people are willing to pay for it because it is superior to the alternatives. Achieving product-market fit is critical to product success.
Product-market fit means being in a good market with a product that can satisfy that market — Marc Andreesen.
Product-market fit may be more critical to the future of your product than creative solutions, skillful teams, or any other factor, and it is critical to consider when developing the product.
Achieving Product-Market Fit
The top three layers of the product-market fit pyramid are concerned with the product, while the base of the pyramid is concerned with the market. The target customer is the most important element in the pyramid; if a mistake is made here, such as the target customer not being clearly identified, the pyramid will be disrupted. You only want to target customers with underserved needs, else your product will be of no use. The value proposition asserts how the underserved needs of the target customer are met by the product , the feature set deliver the value, and the UX is how the customer experiences receiving the value. If all these are aligned, then Product-Market Fit!
Product-market fit does not look the same from one product to the next, and user retention curves differ as well. Product-market fit can be achieved in a variety of ways. You can adapt your product to new markets, identify a high market demand, strategize old ideas, go where the market is, or even develop an entirely new product/feature.
There is no single route to success; however, Dan Olsen offers six steps in his book The Lean Product Playbook that can help get your team started in achieving product-market fit — This starts at the bottom of the pyramid and works its way up:
a. Determine your target customer —
“Who do you think your target customers are?”
You may not know the answer right away, but you can find out by conducting market research and developing user personas. “Women” sounds good at first, but research reveals that this is a huge diverse group with diverse needs and problems.
b. Identify underserved customer needs—
“What are your target customer’s problems?”
“How can you assist them in resolving the problem?”
Quite often, we move into solution space without first considering the problem space. It’s difficult to sell a product in a saturated market — crowded with existing solutions that people are already satisfied with. Finding out what they’re unhappy with is a better option. Given the likelihood of many needs in the problem space, it is critical to prioritize based on customer value.
c. Define your value preposition—
“How will your product be superior to any existing alternatives in meeting the needs of your customers?”
“Will it be of superior quality?”
“Will the price be more reasonable and affordable?”
“More interesting packaging?”
“What about new features?”
Ascertain which customer needs your product can best meet. Determine how you can outperform your competitors while also surprising your customers. When deciding which challenges to address, keep your product roadmap in mind; not every problem will fit into yours. The value preposition can be determined by using the KANO model — a method of prioritizing features on a product roadmap based on their likelihood of satisfying customers.
d. Specify your MVP/feature set —
MVP is not a product that startups choose to launch; rather, the market informs when you’ve reached your MVP. Determine the minimum necessary of features you want to include in your first product release. Maintain a simple and doable approach. An MVP, unlike a prototype, must be a viable product to customers, so it must include enough to get people using it and gaining value from it.
e. Create your MVP prototype —
To test your MVP with customers, you must first show them a version of your product so they can provide feedback. Don’t bother about creating your entire concept; instead, create a plain and simple product. You can make the changes based on customer feedback. A prototype is a representation of your product that you create without actually building it.
Prototypes can be different in terms of fidelity (how closely they resemble the final product) and responsiveness (how much the user can interact with the prototype compared to the final product).
f. Test your MVP with customers —
Once you’ve completed your MVP prototype, it’s time to put it to test with customers. Show your product to a group of prospective customers. Gather customer feedback. Allow them to learn about it and experiment with it. Inquire about what they like and dislike about it. What they want to see instead? Maintain an open and flexible attitude toward feedback so that you can revise your concept to better suit your customers’ wants and needs. It is critical in this step to ensure that the people you are soliciting feedback from are in your target market. If you don’t, you risk receiving negative customer feedback and iterating in the wrong direction.
Some examples of product-market fit
Some firms have done such an outstanding job developing a market-fitting product that their successes can serve as models before you launch your product, in your product development process, or your customer development efforts. Some of these firms include —
a. Slack —
In this case, his founders started out building a role-playing video game and Slack was something they had quickly hacked together as a communication tool for the internal team. The team suddenly learned that while the market was flooded with role-playing games, there was nothing quite like Slack. As a result, they shifted their focus away from game development. Slack is now used by 10 million people.
The quick turnaround demonstrates that shifting your focus to a better product-market fit is worthwhile. When you see a better opportunity, don’t be afraid to suspend your original idea.
b. Spotify —
When music-sharing platform Napster failed in 2001 due to allegations of copyright infringement, Spotify CEO Daniel Ek recognized that many of the necessary pieces for product-market fit were already in place.
The music was already available, the devices were ready to distribute it, and Napster had a sizable customer base. Daniel believed that this market of users would be willing and able to pay a small fee for a platform that allowed them to legally access music.
With time, technology evolved and Spotify has grown into using refined web content crawlers and NLP technology, and the popularity of Spotify grew exponentially among the market of young people. And as of 2022, Spotify has amassed 182 million paid subscribers, demonstrating the success derived from recognizing a market need and product worth investing in.
c. Netflix —
Netflix rose to prominence in the early 2000s. Movie fans were growing tired of paying late fees at traditional DVD rental stores. Netflix mailed them DVDs as part of a subscription service, enabling people to keep a disc for as long as they wanted.
Netflix would have died along with DVD players if it had remained a DVD-by-mail service. Instead, Netflix positioned itself as a less complicated, lower-cost alternative to whatever is currently dominating the entertainment market: physical rentals, DVDs, or traditional television.
Netflix continues to adapt its product to market demand in order to stay relevant. This serves as a timely reminder to stay adaptable in changing markets and to look to the future
d. Uber —
Uber originally captured product-market fit by offering free rides between regional San Francisco tech events. Uber’s co-founders identified that the taxi system was prohibitively expensive and out of date, with only a few people using it. When the Uber app gained traction, the company offered first-time users a 50% discount.
Uber’s ability to solve a problem while also creating a need has been cited by experts. Consumers did not demand better taxi service, but once a more convenient and simpler option became available, users began to rely on it. Users began sharing their experience on the internet as a result of the network effect, providing social proof for the startup.
Uber currently has approximately 93 million riders, and in 2020 alone, the company recorded 4.98 billion rides.
Most of the time, product-market fit does not occur on the first try.
You’ll most probably need to test and tweak your product several times before you achieve the ideal balance of value proposition, customer base, and distribution. Experiment on a regular basis based on feedback, adjust your concept as needed, and be prepared to pivot if necessary.
e. Google —
Google used to compete with many other search engines for market share. They made money, like the other market players, by selling ads next to search results. However, they surpassed the competition in 2003 by introducing a new concept, AdSense. Google executives recognized that businesses would pay to have their ads displayed outside of the search results page, so AdSense was created to meet that demand. AdSense used new technology to instantaneously scan webpages and showcase relevant ads.
By 2017, Google’s 11 million AdSense users were paying $95 billion per year. Google recognized a need that no other search engine was filling and then filled it.
You can use Google’s AdSense strategy in your business as well. To differentiate yourself from competitors, look for things that your competitors are really not doing and adapt to fill unmet needs.
While developing a product, Your team cannot afford to focus just on these other important strategic objectives such as growth or upselling existing users before developing a product in which enough people are willing to pay. Those initiatives may even be counterproductive if you haven’t first determined that your product has a large enough market to sustain itself and generate a profit.
When you achieve product-market fit, everything becomes much easier because your customers and other stakeholders will become an important part of your marketing initiative. They may even share their own stories with others, allowing you to focus on providing the same excellent service to everyone who interacts with your product.
