What is Product/Market Fit?
“Product/market fit means being in a good market with a product that can satisfy that market.”
Another way to think about it is finding alignment. You want your value proposition, customer needs, and distribution to be in a state of balance. In order to sustain growth, finding this sweet spot is crucial.
How Do You Know You’ve Achieved it?
It’s actually pretty easy to tell if you’ve achieved product/market fit or not. If you have, there will be steady demand for your product without much marketing, and maybe even more demand than you can currently meet. You can quantify it by using customer surveys. If a significant portion of your market would be very disappointed if your product went away, you’ve found the right market for your product.
Other ways you can tell you’ve found your product/market fit:
- You’ve got repeat customers
- Word-of-mouth is spreading
- Press is reaching out to you
- You’ve had to scale up your hiring
Finding Your Product/Market Fit
No matter how good your product is, if it’s not reaching the right market, it will fail. To find your niche, you must be able to answer these questions:
- Who is your target customer?
- What are their needs?
- What is your value proposition?
Outlining Your Target Customer
Your target customer is the person whose problem your product solves. To define your target customer, you’ll need to utilize “market segmentation.” This is the process of divvying up the market into subsets that share commonalities like behavior, buying habits, age, life stage, and more. These smaller segments will eventually become your “persona archetypes,” for example, the busy working mom or the young professional.
To begin, your target customer is really just a hypothesis that must be tested and proved. As you gather information, your target persona will become more refined.
Surfacing Customer Needs
Once you have an idea who your target might be, it’s time to dive into their specific needs and how they’re not being met. What’s currently on the market and how does it meet their needs? How does it fall short? How can your product fill that gap? Your value proposition should fill that gap in an indispensable way.
Defining Your Unique Value Proposition
Your value proposition is what differentiates you from the competition and it is integral to finding long-term success. It’s what only you can do for your target customer, and it should be obvious.
Testing Your Hypothesis
Once you’ve got a handle on who your target is, what they need, and how your product meets that need, you can move on to the testing phase. In last week’s blog, we went in-depth into what a minimum viable product (MVP) is and how to develop one. The MVP is crucial in finding your product/market fit as it allows you to test your product with your hypothesized target customer. As you receive feedback, you can improve your product and narrow in on your target.
Measuring Your Success
A simple way to measure your product/market fit over time is to figure out how much of the total addressable market (TAM) are already customers and watch how that number grows (or fails to grow).
TAM is calculated by multiplying your average revenue per user by the total number of potential customers in the market. Once you have that value, you can easily figure out what percentage of that number are customers. If a high percentage of the TAM is currently a customer, or you are seeing growth in that percentage when tracked over time, that is a positive indicator of your product/market fit.
First to Market Wins
At this point, creating a brand new market is quite difficult. It’s more realistic to reinvent what is already there, or “disrupt” the market. It’s more about nailing your product/market first than it is about arriving first.
Once You’ve Found it, You Can’t Lose it
As nice as it would be to find your perfect product/market fit and never have to change it, that’s not reality. Consumer needs are constantly evolving, the marketing is always in flux, and the competition will aim to keep up. If you want to stay relevant, your product/market fit will need to evolve as well.
As the saying goes, if you try to be everything for everyone, you’ll end up being nothing for no one. As your business grows, you’ll better understand the unique problem you’re solving. The key is to focus on it early and avoid complacency once you’ve found it. Your consumer will evolve, and so should your product.