Product-market fit – when your product truly satisfies an underserved need present in a good market – is arguably the biggest factor contributing to a company’s success. It’s not always clear when you’ve hit product-market fit, however. In fact, research from CB Insights reveals that a lack of market need (35 percent) ranks only behind a failure to raise new capital (38 percent) as a reason for startup failures. 2022 can be your year to break out of those statistics.
Why does product-fit matter so much?
In Principles of Product Design, Josh Porter asserts that good product-market fit involves three things:
- Existing users recognize your product’s value.
- They tell others about their great experience with the product.
- Your company replicates the excellent experience for the new users.
In other words, good product-market fit means not only that you’re producing or doing something that meets a need, but also that the customers have an awareness of and respect for your ability to fill this gap. They don’t just buy, either. They help you out with marketing through word of mouth so that more people buy. And when those new customers come to you, you don’t drop the ball. Instead, you maintain the quality, consistency, and value so that the new customers love what you’re doing, too. All of this creates a continuous circle of growth.
3 steps to great product-market fit
Finding product-market fit is generally a three-step process:
Research your target audience.
Dan Olsen created a pyramid that shows the importance of different elements – UX, feature set, value proposition, etc. – in product-market fit. The target customer is the foundation and serves as the base on which you develop all your ideas.
Identifying your target audience requires getting data through targeted panel research studies. The more targeted your panel is, the more likely it is that you’ll get an accurate, clear picture of the people who could buy. Ideally, use online research panels that have 90+ data filters (e.g., zip code, education, age, household income, interaction with product, etc.).
Once your panel is ready, ask such questions as:
- What’s the biggest perk the product is giving you?
- Why did you try the product?
- What improvements could we make to the product?
- What makes the product essential or “must-have” for you?
Find the value proposition.
This is where you zoom out and take a look at the status of the market. Is the market new? Monopoly? How does the competition operate, and what does their current catalog look like? Compare what’s available to what you learned in your research. How does your offering fill the gaps people helped you identify, or what could you change to drive customer engagement and get them to buy from you? Your value proposition is a differentiator. It is something the customers like and need but that they can’t get elsewhere.
Keep iterating to improve your product-market fit.
It’s highly unlikely that you’ll hit the perfect product-market fit on the first try. Instead, you’ll have to keep getting feedback through surveys to see how customer perceptions are changing. The rate of change can vary a lot based on the sector you’re in. Technology, for instance, is known for its rapid iterations, whereas the pace of shift in manufacturing is slower. Things happening in the world influence what people think, too, as we can see with increasing calls for sustainability in the face of climate change. But the key to getting it right is that you shouldn’t ever think you’re “done.” Markets are malleable, meaning that to stay relevant, you have to keep updating your product and value proposition over time.
Knowing whether you’ve hit the jackpot
You’ve still got work to do if your customer journey remains muddy, there’s no clear buyer identity, sales cycles are slow, free users don’t use what you’ve got, or customers ditch you after their trial is over. But if you follow the above steps closely, then growth and product development should happen exponentially, driven by your customers. They’ll spread the word and communicate when it’s time to pivot. Other signs of good product-market fit include high user retention (over 40 percent), a 3-1 return on customer acquisition cost, and having at least 40 percent of your customers say they’ll be “very disappointed” if your product ceases to be available.
For legacy success, focus on market fit over time
Product-market fit can be a tricky animal. You might need both your gut feeling and metrics to tell you where you’re at with it. Finding it is your ticket to stabilizing and expanding your startup into a legacy business, however, because as Andy Rachleff asserts, it’s difficult for other businesses to edge in on your product-market fit once you’ve got it. Once you’ve hit product-market fit, repeat the process outlined above to make sure you stay relevant. The more closely you pay attention and respond, the stronger your position in the market will be.
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Original source: Entrepreneur