What Every Founder Should Know to Find Product-Market Fit

It takes a wild mindset to launch a startup. Why? Given the fact that about 90% of startups fail in their early stages, it takes guts to stand against the stats and launch your own business.

There are various reasons why startups fail. One of the most frequent reasons is not finding product-market fit.

However, as with a lot of frameworks, it’s frequently misused and wrongly defined. Let’s figure out what product-market is fit and why it still matters.
What is product-market fit?
Product-market fit is the stage where a company has successfully identified a target audience and serves their needs with the right product. It’s the perfect balance of a company’s value proposition, customers, and distribution channels. Simply put, the business achieves product-market fit when a product satisfies the customers on the market.
Common myths about product-market fit
Myth #1: Product market fit is always a big bang event that’s easy to identify.
Myth #2: Once you have product-market fit, you can’t lose it.
Myth #3: Once you achieve product-market fit, you don’t have to work on outpacing the competition.
How to measure product-market fit
You can measure product-market fit usingcustomer surveys to identify how many users consider the product you sell a ‘must-have’. Services like Delighted and others can help you automate the process of collecting and analyzing user feedback.

However, product-market fit is less about hypothetical numbers and more about an in-depth understanding of who your customers are and how they feel about your product.
The road to product/market fit is usually driven by finding customers via word-of-mouth before scaling user acquisition.

As an early-stage company, your product will probably satisfy a small market segment. As you grow, your customer profile might evolve.
Usual benchmarks to measure product-market fit
1. Do your customers recommend your products to their network?
This might include metrics like Net Promoter Score (NPS).
2. How many customers leave, how soon, and why.
Some marketers define product-market fit based on customer retention and churn.
3. Repeat usage and engagement metrics
Some specialists validate product-market fit based on how often customers use the product over a given time.
Key indicators of product-market fit
To find out whether your product achieves product-market fit, you need to combine qualitative and quantitative measurements.

1. Qualitative indicators
The starting point with measuring product-market fit is deploying qualitative indicators.

To get a qualitative understanding, the Net Promoter Score (NPS) is a great metric to start with. If the product truly solves the audience’s problem, then they should be willing to recommend it to others. The main downside with qualitative information is that it carries a probability for generating a false-positive result.

2. Quantitative indicators
There are two basic metrics to understand product-market fit: retention curve and direct traffic. In simple terms, flat retention curves typically indicate product-market fit. Direct traffic is typically the signal of word-of-mouth working.

You can also take a look at these three signals:

1. Retention. 20-40% of users should regard your product or service as a must-have.

2. Referrals. You have referrals brought to your company by existing users or from organic marketing campaigns instead of paid marketing campaigns. Shoot for acquiring at least 50% of your users with referrals or non-paid campaigns.

2. Growth channels: You have at least 3 growth channels with positive economic units that are not only identified but tested. Why 3 growth channels at once? Growth is not something that comes from a silver bullet. It has a limited life span. Make sure to have multiple growth channels.

Here is one of the most popular tests of product-market fit: ask people who use your product frequently enough one particular question.«If this was to be taken from you, would that be a problem? Would your life be worse?». If at least 40% of users say it would be a problem for them, the product has real product-market fit.
Searching for product-market fit the right way
The most common mistake when trying to achieve product-market fit is focusing on the product first. Here are four main market elements you should take a look at:
— Category. What category of products is your product in?
— Target audience. Who are the users within the product category?
— Problems. What problems does your target audience have?
— Motivations. Why are those problems significant to your target audience?

Here are additional elements that are crucial to define before generating product hypotheses:
— Core value. What is the core value proposition of the product? How is it tied to the user problem?
— Time to value. How quickly can you get users to experience value?
— Stickiness. Why will customers stick around? What are the retention mechanisms of the product?
Conclusion
Products that have achieved product-market fit bring real value to users. Eventually, products that don’t bring value are not sustainable.

Product-market fit is strongly connected with referrals and word-of-mouth. If the product solves a real need in someone’s life, it’s natural for them to talk to other people about it and recommend it to others.

Do not try to scale your business before you hit product-market fit. Otherwise, you will run into the leaky bucket phenomenon. All that effort you put to bring people to the product will be a waste of time and resources as users will just end up churning. So make sure your product achieves product-market fit before you turn to scaling.

The key takeaways
Start with the market problem rather than the product solution. Not the other way around.
Create your market hypothesis defining product category, target audience, user problems and motivations.
Create your product hypothesis defining core value, time to value, stickiness.
To achieve product-market fit, combine the qualitative and quantitative indicators.
Use benchmarks to measure product-market fit.

Author’s bio: Anna Grechko is a marketing enthusiast and knows the field inside out. She is the marketing specialist at Smart IT. Sharing knowledge is a big part of her career, so Anna actively seeks to spread good vibes, and collaborates with the great tech and marketing minds of the world.

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