Product-Market Fit, the only metric that matters initially


A lot of us talk about Product-Market Fit and to the highest degree in the startup world. In this post, we’ll touch base on the topic, its context, etc. so it acts as a good refresher.

What is Product-Market Fit?

Product-Market Fit is building a product that the market is fully satisfied with, a product that solves top problems for the targeted customers and they are willing to pay for it.

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Additional definitions from various sources

  • Product/market fit is identifying a compelling value hypothesis. (Andy Rachell)
  • Product-Market fit is when you build something that people want. (Paul Graham)
  • Product-Market fit is when you have the right solution to a problem that’s worth solving. (Ash Maurya)
  • Product-Market fit is when users love your product so much they tell other people to use it. (Sam Altman)
  • Product-Market fit is when your customers become your salespeople. (Michael Porter)
  • Product-market fit is the degree to which a product satisfies a strong market demand. Product/market fit has been identified as a first step to building a successful venture wherein the company meets early adopters, gathers feedback and gauges interest in its product(s). (Wikipedia)

Why is Product-Market Fit important?

Product-Market Fit is the most important metric, probably the only metric that matters, when introducing a novel product (a new product of its kind) in the market.

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In the introduction phase, after launching the MVP, it is almost incumbent on the product team to continuously assess customer feedback and iterate the product to improve its relevance & acceptance and thereby achieve Product-Market Fit sooner than later. There’s usually no competition at this stage, so it is only obvious to achieve Product-Market Fit as soon as possible, because a faster fit means the product will enjoy maximum differentiation for a longer period of time. Achieving Product-Market Fit is an important milestone for all product teams and esp. startups as it ensures we have built the right product.

How to achieve Product-Market Fit?

Product-Market Fit is best achieved by having a strong product discovery process. Continuous validation with target customers and refining your offering is the key to success. Typically, you start with a hypothesis, build an MVP, validate it, and iterate based on what you’ve learnt.

How to determine if Product-Market Fit is achieved?

Below are some commonly used methods:

  • High cohort retention (asymptotic churn)
  • High Mom and YoY growth rate
  • Your product is 10x better than the leading alternatives
  • Passionate user feedback & when people sell for you (high NPS)
  • Willingness to pay (business model)
  • High Customer Lifetime Value
  • The 40% rule – if at least 40% percent of surveyed customers indicate that they would be “very disappointed” if they no longer have access to your product

That’s the wrap on Product-Market Fit.

And here is a bonus.

There’s a chasm out there

To reiterate, Product-Market Fit is to be achieved in the introduction phase — however, that doesn’t automatically qualify the product to be acceptable to the mass market (early/late majority).

In other words, Product-Market Fit was achieved for the Early Adopters, but the expectations from the mass market (Early Majority) are different. There’s a chasm that needs to be bridged!

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According to Geoff Moore, author of ‘Crossing the chasm’, the early majority are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow the established ways of doing things/business. And above all, they do not want to debug somebody else’s product. By the time they adopt it, they want it to work properly and to integrate appropriately with their existing technology base. The early majority / pragmatists want to buy from market leaders — be a market leader niche by niche.

A good approach, mentioned in his book is the Beachhead strategy — in business, particularly startups, the beachhead strategy is about focusing your resources on one key area, usually a smaller market segment or product category, and winning that market first, even dominating that market, before moving into larger markets.

Let’s stop here, and cover this topic in a separate & dedicated post.

Hope this post is useful!

How do I know my idea is worthy of becoming a product?


This blog post is a synopsis for a talk from Teresa Torres (@ttorres) called An Introduction to Product Discovery.

It was an excellent presentation — here is the condensed synopsis for my product management friends.

We should immerse ourselves in our customers’ worlds, actively working to develop a deep understanding of our customers, what their needs are, the context in which those needs occur and ideas emerge through this deep understanding. We should not be sitting in a room deciding what to do next, we should go out meet customers and ideas emerge out of deep understanding, and still we move forward cautiously by iteratively testing our ideas.

Assumptions in this approach are (1) We don’t know about our customers until we observe them (2) Customers are the experts (3) We are wrong, so experiment.

There’s two aspects to product discovery: (1) Deep shared understanding of the customer’s world (2) Iteratively test ideas

1. Develop a shared deep understanding of the customers’ world grounded in research

Exercises/activities

  • Customer development interviews
  • Customer observations
  • Dairy studies
  • Participatory design

Tools

  • Customer journey maps, grounded in research
  • Empathy maps, grounded in research (thinking, feeling, seeing, doing)
  • Customer personas, grounded in research
  • Any tool that helps visually communicate what we’ve researched

Build empathy for the challenges and pain points that our customers are experiencing. We want to provide enough context about the customers’ world that our teams would feel the same pain, start to empathize with our customers, and want to help them out.

2. Evaluate whether an idea is worth pursuing by iteratively testing it

Don’t go ahead with full steam and build too much. Quickly learn that the idea is not going to work so that we can move to the next idea that will work.

  • What has to be true for this idea to work → every idea has a whole set of assumptions that have to be true for the idea to be successful.
  • For each idea, you might have a dozen assumptions.
  • For each assumption: What evidences support our assumptions and what refute them (past experiences, win-loss, customer requests, inventory of existing evidence) → classify each assumption as valid vs. risky
  • For the risky assumptions, turn them into formal hypothesis with experiments, with experiments we are going to collect more evidence, we are trying to de-risk a risky assumption, based on the evidence collected from experiments make a final judgment call about the risky assumptions

Iteratively test assumptions

How many assumptions are true and how many are to be iterated on / evolved → most often it’s not a go/no-go decision it’s about refining/modifying the idea based on what we are learning.

At some point when we have enough evidence, we can decide to go ahead and iteratively build and test it.

If there is insufficient evidence with a lot of risky/unprovable assumptions, we could park the idea and move onto the next one.

The loop will be time consuming for the first few assumptions, and then it’ll be okay. Because most of our ideas could share the same set of underlying assumptions.

Summary

Ideas emerge from our deep understanding → those ideas get iteratively tested/validated → we start to learn about which assumptions are true and which are not → that feeds back into our deep understanding → and that makes our ideas better and better.

Building blocks

Hope you find this post useful.