Have You Achieved Market Fit – The 6 Steps You Must Complete Before You Can Say Yes
Achieving Product Market Fit, is a stage of the business lifecycle that all software and product based businesses must go through. With thousands of books, blog posts and videos on the subject of “How to get there.”
If Product Market Fit is a destination for us to arrive at, the biggest challenge for startups is “How do you know when you get there?”
Once you have achieved Market Fit, what do you do next?
We’ll answer those two questions, in this post.
6 Stages You Must Complete
There are 6 stages that we judge a startup against, when deciding if they have achieved Product Market Fit.
- Identified a problem you solve
- Defined a niche / market to target
- Have demonstrated you solve the problem and the niche / market will pay you to do so
- Define a success metric
- Prove you can sell the product via founder lead sales
- Demonstrated you get better at serving the niche / market over time.
Identify A Problem You Solve
The first step is pretty straight forward – You have to identify a problem you solve.
There are many products that will solve multiple problems and thats a good thing.
However, focus on just one for now. Once you have been through this entire process once you can repeat it for each problem you solve for your customers.
Define A Niche / Market To Target
Once we know the problem we solve we must identify the niche / market with that problem.
As with step one there can be multiple niche’s that have the same problem but start with a single niche, get the process right then repeat as necessary.
Trying to work through this process solving every problem and targeting every niche at once will just make things more confusing and increase the time it takes to acheive market fit.
Another tip when defining your niche is be as specific as possible for example – Accounts is not acceptable.
Accountants with 30 -50 members of staff, based in the USA and have specialist tax return services is acceptable.
Demonstrate You Solve The Problem & The Market Will Pay You To Fix It
Demonstrating that you solve the problem and the market will pay can be a tricky one. It can even take multiple iterations or pivots to get this right.
Just because you have identified a problem and you can solve it doesnt mean the market will pay you to do so.
You have to be constantly listening to feedback from your target market, analysing their input and adjusting the product as necessary.
Define A Success Metric
A success metric or a “aha moment” as its known by most people is usually defined as the moment when people are successful or gain value from your product.
The reason most people get this step wrong is they use churn as their guide for success. Churn is a lagging indicator and that is what causes the problems.
For most companies using churn where they have longer contracts i.e. 12 months they have to wait a whole year before finding out the churn rate.
The problem with this is you could have a terrible churn rate and you would know nothing about it for a whole year.
That wasted time and money often results in companies walking off a cliff edge before they even realise it. They often never make it through year two.
Churn can work as a success metric where you have shorter or rolling contracts. However, even if that is the case we would recommend creating a success metric based on action taken.
The way we like to create success metrics is to look at how your product should be used.
A simple example is imagine your product is designed to be used daily. We would suggest you track the number of customers who used your product daily for 30 days.
If that number is increasing you know you are adding value.
Prove You Can Sell The Product
This initial step of selling your product can often be defined as founder lead selling. Typically this step will be done almost exclusively by the founders.
For most startups this will be no more than 10 – 20 customers. These initial customers often come through referrals, your network or direct relationships of some sort.
The main requirement of this stage is to:
- Learn what you customers want / need
- Be exposed to the sales process
- Begin to understand what is needed in order to sell your product
- Understand the timeframes of a sales cycle
Get Better At Serving The Niche / Market
This final step is exactly what it sounds like. You must get better at adding value to your chosen niche / market over time. The easiest way to demonstrate that is with your success metric.
If we carry on with our example daily use product lets imagine of your first 10 customers 3 of them use it every day for 30 days.
Whereas, customers 11-20, 6 of them use it every day for the first 30 days.
That is showing a clear improvement in value added to your chosen niche.
You can also demonstrate increase value over time through cohort analysis and tracking how long it takes each cohort to achieve the success metric.
You Have Market Fit What Next?
Once you have achieved product market fit two things typically happen with our clients.
1. They look to raise their seed round
Not all companies need to raise a seed so it may not be applicable to you. However, the second step is applicable to everyone
2. Learn to scale
We have a full guide on learning to scale available Here