Product market fit is what happens when the product you have created perfectly answers a customer need and therefore finds a strong market that enables it to grow. The term is credited to entrepreneur and investor Marc Andreessen who has described it as: “being in a good market with a product that can satisfy that market.”
The idea is that no matter how good or exciting your new product or technology is, there has to be a large enough group of people who want it, for it to be a success. According to head of Sixth Sense, Milan Kocic, it’s not uncommon for start-ups to create something new without first understanding whether it’s actually needed:
“You have to somehow validate the idea with the market. Before you start development, you need to speak to customers to find out what you’re solving. Otherwise, it may turn out that however amazing your product is, nobody wants it.”
How to find product market fit
Great product market fit happens when there is a good dialogue happening between a company and its current or potential future customers. Having an idea is one thing – making sure it has legs is another.
Two types of research are important in this process:
- User research – observing potential customers to see their pain points and motivations
- Market research – understanding attitudes to a potential product and the size of the market
At the development stage, you’ve got to outline what your product or service is going to be or do. The problem it is going to address and from whom. Once you have your hypothesis clearly outlined it’s time to speak to the market.
This validation is essential. You need to ensure your assumptions are correct and allow for refinements based on feedback about customer problems, frictions, and habits. This comes under user research.
This doesn’t need to cost the earth, argues Milan: “Many start-ups say they can’t afford to do the research and I just don’t agree. Every company knows some of its customers – pick up the phone and talk to a few of them. Wider market research can come later but this upfront dialogue is essential and it can be done quickly and cheaply.”
Another important thing to keep in mind here is that finding product market fit is everyone’s job on the team. Each and every person who has a part to play – from product engineers, to marketeers, to the founder, to the social media intern – they should all understand what you’re trying to do and find the insight and evidence to make it happen and shape the end product.
Measuring product market fit
Marc Andreessen outlines in his blog how you know you’ve got product market fit and how you know you haven’t. In short: “You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.
“And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account.”
There is a more scientific calculation you can do, as advised by entrepreneur Sean Ellis. His survey simply asks – how would you feel if you could no longer use our product? Multiple choice options are:
- Very disappointed
- Somewhat disappointed
- Not disappointed
If 40% of respondents or above say “very disappointed” you have found product market fit. Sean recommends asking this question to: people who have experienced the core service, people who have experienced at least twice and people who have experienced it in the past two weeks.
Another way to measure PMT is through a high NPS (Net Promoter Score) – which measures how likely people are to recommend your product or service to others. This is a tried and tested customer loyalty and satisfaction measurement.
The benefits of product market fit
Hopefully it goes without saying, getting product market fit can mean the difference between success and failure. But obviously it isn’t a guarantee for success, argues Milan:
“What happens when you get it right? Nirvana obviously! You’re going to make money because you address an issue people have. But in all honesty, it means your chances of success go up. There are other things you have to get right too, the product itself, selling strategies etc. PMF gives you a much better chance. If you skip it, your solution might be completely lost on people. Technology on its own doesn’t solve anything.”
Further reading and listening
Forbes: Product Market Fit: What Is It, And How Can You Measure It?
Y Combinator: The Real Product Market Fit
Podcast: How to Achieve Product-Market Fit by Author, Dan Olsen
Andy Rachleff on “How to Know If You’ve Got Product Market Fit”