Why is Product Market Fit Important?
To answer this question we should first take a step back and look at what product market fit is in the grand scheme of business lifecycle stages.
Here at Straight Talk we believe that there are three primary growth stages that all businesses must pass through in their journey from idea to $100,000 MRR
- Product Market Fit
- Learning to Scale
Product market fit forms the first and arguably most important phase as no scaling can take place without it. It forms the foundation of everything that will follow.
This is the primary reason why product market fit is important. Although using the definition we will touch on later in this article we would argue that there is a second reason market fit is so important.
When done properly market fit will provide you with all the tools to approach scaling effectively. A big trap that many startups fall into is they achieve market fit (as they define it) and turn their attention to scaling. Only to find that they are at a loss of how to do so and many of their existing business processes are insufficient.
Using our definition of market fit this is a trap you can avoid.
What does product market fit mean?
When talking about product market fit it is important to define what it means. At Straight Talk we define market fit as being able to demonstrate the six steps of our product market fit process. You can see the steps in the next section on how to determine market fit.
There are some things that product market fit does not mean:
It does not mean you will just know when you have it because you will feel it
It does not mean some generic definition of satisfying a market demand – because this is ambiguous.
It does not mean people tell you they like your product
It does not mean you have a good net promoter score.
The old maxim of what you measure you improve is true here, just as it is with all areas of business. We do not have time for feeling something is right or it’s getting there. We need a structured process where we can measure progress and clearly articulate what we must do next.
How do you determine product market fit?
We believe that determining product market fit is an easy task. There are 6 criteria you must pass. If you pass them all you have product market fit in a specific market.
The step criteria that we use to determine market fit are:
1) Define a problem that you solve
Clearly articulate what the problem is, why it’s occurring, how you solve it and what the various benefits are for different people. For example, a tool that helps sales reps close 20% more deals has different benefits for the rep and the head of sales.
2) Define the market or segment that has this problem.
Clearly define who the market or segment is that has this problem. It is possible there will be multiple markets with the same problem but pick one and prove you can be successful there before expanding. Also, pay attention to company size a 50 person company will not see the problem the same way as a 150 person company.
3) Show your market will pay for the problem solving
Show you can acquire customers from your defined market and they have purchased your solution to fix the specific problem you identified in step one.
4) Define a Success Metric.
With any product, it’s important to define what success is. It’s no good selling a product to solve a problem only for the customer to find it impossible. Your success metric should be unique to you and be created to define success with your product.
For example, If your product is designed to be used daily, track how many use it daily for 20 working days straight. If weekly, then track for 6 weeks straight. If success is using multiple features, track it – How many customers used 5 features in the 1st week?
5) Sell your solution to the market and repeat the process
Show that you can sell your product with some consistency. Remember it’s about consistency, not volume. You must demonstrate you have found a market, they will pay for their problem to be solved and you are the person to do it. Scale comes next – remember the growth stages.
6) Know your numbers
Finally, you must know all of the numbers associated with selling and acquiring customers.
For example how many people achieve the success metric? Is it improving over time and why? Can you show you’re acquiring people in a particular way?
You must demonstrate that you know the numbers inside and out but that you are also being guided by them to make improvements and spot areas of weakness.
How long does it take to achieve product market fit?
That is the $1 million dollar question, and the truth is that every startup is different. Some startups can achieve market fit in a matter of months and others it takes over a year.
While there is no simple answer to how long it will take to achieve product market fit there are things you can do to make it take longer than it has to.
Here are a few things to avoid:
- Building a product without a beta program or regular feedback from real companies/people who want you to build a product to solve a problem for them.
This is perhaps the most common mistake people make and it can add months and years to the length of time it takes to achieve product market fit. People build a product and they are absolutely certain that it will work and when you finally launch you find that features are missing, some features are not wanted, the UX/UI needs changing. The list can be endless and all of these things must be changed before you will succeed.
2. No product analytics
So you have feedback from the market, you have built your product, and it’s time for launch. How are people using it? Are they doing what you expected? Did they take the actions you decided indicate success? It is all too common for the answer to these questions to be “we don’t know because we don’t have analytics” You must have user-level analytics to understand how people use and engage with your product.
3. Starting acquisition too late
Just because you haven’t started building the product doesn’t mean you shouldnt be acquiring test or beta group members. Acquisition is one of the hardest things to get right and not starting until your product is ready to launch is a massive mistake. Demonstrating demand and that people are willing to join a test group for your future product will save you time and is a great indicator that you have found a problem people want fixing.
4. Pick one market
Many startups will echo the sentiments of “we can help everyone” or “this problem is felt by lots of markets”. These statements often hold some truth in them and that is fantastic information for when it comes to scaling. When we are talking about product market fit stick to one market only. You will find that even small changes from market to market can make a big difference in how your product is perceived and therefore take longer for you to achieve market fit.
Do you have market fit?
The final question is do you have market fit in your business or startup? It is not within the ability of this article to answer yes or no but we have given you the tools to answer this question yourself.
When you look at your business are you able to demonstrate the 6 key steps of product market fit:
- Define a problem you solve for a specific market or market segment
- Demonstrate that the market or segment will pay for the product in order to solve the problem
- You have clearly defined and can measure success when using the product
- You can demonstrate customers achieve this success metric
- You have sold the product to multiple people with the same pain in the same market
- You know the numbers on acquisition and selling inside out.
If you can answer yes to each of these then congratulations. If you can’t then not to worry, you now have a clear understanding of your current position and what you must achieve in order to say you too have a product market fit.