You’re not alone if you’ve identified a ready market or a business opportunity but are scared to jump in. Most would-be entrepreneurs begin with a product or service in mind to bridge a gap they’ve observed in their lives. While personal and life problems can be great sources of inspiration, it’s crucial to approach your target customer strategically.
Listen to prospective customers, and process their needs before providing solutions. This is where a product market fit for your industry comes in. Soon you’ll know “what is product market fit?” and why it’s crucial for your business.
In this guide, we’ve put together everything you need to know to find your startup product market fit in 2023.
What Is Product Market Fit?
For your business to thrive and survive, customers must be willing to buy what it’s selling. Thus, it’s important to assess the market demand for your products or services as a startup founder before you start developing it. That’s where product market fit comes in. The term product market fit, or PMF, implies that you have a product or service that people want and are willing to pay for it.
Product market fit connects your company’s products or services to the right market. PMF also connects to the correct target customer base; providing an ideal market with products and services satisfying its needs. PMF is the backbone of any company and every startup’s main priority.
Product Market Fit Objectives
Now that you know your target customer base and what product fit means, let’s look at its objectives. Many startups fail because they lack a product market fit when they believe they do. It’s for this reason that many investors demand evidence of PMF before investing in startups!
In a nutshell, product-market fit aims to connect your company’s products to the right market and customers according to the market demand. So, PMF provides an ideal market with products and services to satisfy its needs.
Three fundamental components make the PMF. These include; Product, Distribution, and Consumers. These components are significant for any start-up to achieve product market fit.
How To Achieve And Find Product-Market Fit For Your Startup
Knowing the product market fit and its importance, let’s look at how to achieve it for your startup. The image below shows the six stages of a new product or company product-market fit. At first, you’re hopeful and excited, but apathy is a very real possibility for many, with periods of doubt often following the initial rush of launch. However, if you stick with the plan, you have every chance of making it work. It could take a while and patience is a prerequisite, but you will never realize your goal until you shoot for it.
Step 1: Define The Customer’s Problem
Customer problems are a critical point of study to be analyzed and used as leverage. Do as much as possible to define your target customer niche’s pain points or needs. Assess how many people have the same problem before providing a product or service solution.
Even if you’ve mastered a certain niche, you should constantly strive to ask questions. Collect data around the demand to identify a product or service that can meet the demand.
Keyword research is one of the best ways to assess your market demand (among others like surveys, social listening, market research). You’ve heard or encountered the term in your online journey, but what is it?
Keyword research is learning how potential customers search for your product or service. You learn the keywords they use. This helps you determine demand. It also helps you understand how clients search for your product or service.
Once you identify these target keywords, you can incorporate them into your digital marketing strategies. This helps grow your business model and attract organic traffic to your product, service, or page. After understanding the demand, you can gather information on your customer’s willingness to pay. You can then analyze the analyst or industry reports on the money spent in the niche or on the problem over time. Check whether it’s on the rise or dwindling.
Step 2: Target A Specific Market Section
It’s often unwise to target a large, undifferentiated market without knowing and understanding the parts that could help you get the highest return on your investment and effort. You can start a viable business by starting with a single product or service in one market.
To achieve this, focus on a particular customer segment and build your service or product around their needs. This allows you to develop more personalized and targeted products or services attractive to your target customer.
You can focus on satisfying their demand and understand their willingness to pay. From there, you can set your pricing while optimizing your marketing to reach the customers more effectively. A pro tip to assessing a particular market segment’s value is how much other businesses are willing to spend to target certain keywords in precise demographics.
You can determine if the market is valuable if the CPC cost-per-click is high. Don’t worry about the paid advertising competition. There are various cost-effective strategies to compete for these clicks and terms.
Step 3: Determine And Study The Existing Solutions
Aside from serving your customers or clients, you should also view them as an opportunity to learn and grow. Analyze existing products that are being used by your prospective customers – are there any areas of the service that can be exposed as lacking in some way? Use this as leverage to create a superior product. Improve on any flaws, and you should have a stronger, richer product for your customers.
Compare the features of the existing products and services to understand their value proposition. Look at any products or services that are performing well, and study them for flaws. What customer experience principles are these products or services fulfilling? Take note of these principles to guide your service or product development.
Step 4: Analyze Competitive Business Models
Examine your competitors’ business models and identify their main components. Do they leverage cross-sells or upsells, or are they offering their products and services at low prices?
Review their distribution channels and determine if they have exclusive relationships with their retailers or distributors. Do they market their products and services directly to customers?
Finally, study and understand customer loyalty. Check the rate at which your target customers drop off or downgrade to lower-priced products and services. This information is usually hidden from the public, so you might need to get a little creative. You can study their social media strategies and interactions, become a customer, attend industrial events and conferences, or directly talk to the competitor’s customers.
Step 5: Speculate On How The Market Will Evolve
You can easily get excited about the existing market and demand that you identify in your target niche. This excitement is where most startups fail by investing their time and money, hoping the market will continue growing from the current trends.
To succeed, you need to conduct a scenario analysis to identify and understand new growth opportunities and expansion. This will help you understand the possible contingencies like diminished demand to obsolescence, reduced consumer spending due to micro forces like inflation, or new competitors saturating the niche.
Accounting for such contingencies and strategizing for growth and profitability gives you a safety net that allows your business to withstand future adversity and cash stability in poor fundraising conditions. Besides, this analysis can help you understand how much you’ll charge for specific products and services and how much you’ll pay to attract customers.
Having known how to achieve PMF, you can start ranking solutions with what seems most feasible. When done correctly, you’ll be able to launch a product or service that fits its market demand.
Ask yourself these queries when trying to find out if your product market fit is effective:
· Are people finding and using your service or product organically?
· Are people excited about your minimum viable product, MVP?
· Are you retaining users?
· Are your early customers referring your service or product to others? This is the net promoter score.
· Are users willing to pay for your service or product?
MVP (Minimum Viable Product) And Product-Market Fit
A minimum viable product, MVP, is only the first step to success. MVP is a product with enough value and features to attract early-adopter users and validates the product idea in the early days of the development cycle. MVP plays an integral role in agile development as well as iterations.
You can think of an MVP as the simplest version or a product- the skeleton version in functionality terms but still provides value to users. Also known as the lean product process, MVP is your initial user test version. It should provide user feedback on the expected product. This feedback is useful in informing future product development or the iterative process, while serving as a product roadmap for adding or improving new features.
At this stage, you need a product that’s not overly built but still good enough for the customers to use as expected. You’ll know when you have an MVP if you believe it’s worth paying for. It allows you and your small team to collect as much product information as possible. This allows you to learn more about your target customers.
MVP also lets you release your service or product as quickly as possible, which helps you learn what resonates with your target market and what doesn’t. Moreover, the lean product process also helps you reach your product-market fit and this is the stage where you optimize the service or product for your target market. You can also conduct surveys and user tests or use open-ended questions.
Tools For Measuring Your Product Market Fit
To help measure your product market fit, you can use the following tools:
· Intercom: customer feedback and communication
· Google Analytics: Analytics and usage
· Inspectlet: User behavior visualization
· FullStory: Session recording
· Segment: Customer data hub
Google Analytics is a useful tool to measure and achieve product market fit. It tracks collective data, trends, visitor origins, and various other useful stats. You can use it for your specific product to track the collective trends of upvotes and downvotes in search result feedback counts.
Intercom is a client communication tool. You can divide your customers into smaller groups (based on location, traits, and actions). Then, you can contact them via in-app notifications, emails, or live chat. Intercom allows you to view threaded conversations together with user events per user. This will give you a clear insight into how many customers are interested in your product.
FullStory and Inspectlet are other tools for understanding user behavior better. FullStory records sessions allow you to record, search, replay and analyze every user’s real experience with the product, service, or site. It provides valuable insights into how customers navigate your site, especially on mobile devices.
Similarly, Inspectlet offers eye-tracking heat maps that show you where your users are looking. It visualizes their mouse movements to show, for example, that users tend to look more on the right than the left.
How To Measure Product Market Fit
The metrics that show whether your product or service is headed in the right direction include the following:
· Paid growth implies acquiring clients through paid avenues such as PPC campaigns or advertising.
· Organic growth or customer development: A business strategy looking to increase growth using internal efforts. It shows that a company can increase its revenue, customer base, market share, and earnings using industry best practices and efficient management.
· Retention: the ability of a company to convert clients into repeat buyers, preventing them from going to competitors. It shows that the quality of your service or product pleases the existing clients.
· Conversion: This shows the number of people who buy a product or service divided by the number of people entering the store.
· User acquisition cost: This measures how much your business spends on acquiring new clients.
· Customer Lifetime Value: It is the total amount a client is anticipated to spend on your products or services during the lifetime of your business relationship. This helps you maximize the value of every client relationship.
Product Market Fit Examples
With the main points now covered, let’s take a look at some real-case examples of market product fit for you to consider with your own startup. Here are three examples of startups that have excelled and how they attained their PMF.
Airbnb (Air Bed and Breakfast) is one of the most successful renting services worldwide. This success, however, did not come overnight – far from it. The founder created a landing page to assess how many people would be ready to pay to stay in a stranger’s home instead of a hotel. This was when the hotels would be full during occasions such as conventions.
Results demonstrated an interest in the concept, so they moved forward with an MVP in 2008. While PMF wasn’t qualified, they made the decision to go ahead regardless, with a goal to improve the product as they developed it. PMF was achieved after just two short years, by offering a unique alternative to hotels that became very popular, very quickly.
Netflix gained momentum in the early 2000s while movie fanatics were getting fed up with the late fees from conventional DVD rental stores. Netflix stepped up and sent users DVDs by mail, allowing them to keep the disc as long as they wanted.
But, when DVDs-by-mail failed, the company changed tactics. It positioned itself as the best, easiest option. Netflix strived to dominate the entertainment industry, television, DVDs, and physical rentals. The company changes its product every time the market requires changes, helping to maintain its position as the market leader. Netflix reminds startups to remain flexible in evolving markets and watch future trends.
Slack is another instant messaging platform used for workplace communication. It started as an entirely different business idea where the founders wanted to develop a role-playing game but quickly evolved into an internal communication platform for their team. During the process, they realized that the market had plenty of role-playing games, but there were no platforms available like Slack.
They took this opportunity and shifted from game creation to developing Slack in its current form. With over 10 million users, this turn-around validates that shifting your focus toward better product-market fit is key. You should always be ready to pivot from your initial idea when a better opportunity presents itself.
By now, you already know the solution to the question, “What is product market fit?” and how to find a product market appropriate for your startup. In short, you have PMF when solving a real-life problem with strong market demand. The lack of PMF is one of the many reasons why startups fail during the early stages.
Finding a PMF means finding a viable solution to a significant problem. As your company or business grows and goes through major changes, ensure you continuously stay up-to-date with the current market demands. This will help create the right fit, and hopefully, lead to success.