The only thing that matters is getting to Product/Market Fit, which means being in a good market with a product that can satisfy that market.
– Marc Andreessen
When developing a new product or service, growth leaders are ultimately searching for the condition that venture capitalists like to call Product/Market Fit (or PMF for short). It is the ideal situation where you have identified the solution to a significant problem in a defined market and validated that prospects are willing to pay for it.
Product/Market Fit is the ultimate objective for entrepreneurs in startups and for growth leaders of more established companies. From this starting place, they can commercially develop their solution, build the go-to-market program and team, and begin scaling the business.
Investing in any scale-up or growth effort without having found Product/Market Fit is a guaranteed path to failure. Finding it is not easy, but it is vital.
In fact, many growth strategists (this one included) believe Product/Market Fit is the best predictor of future success for a company.
Definition of Product/Market Fit
There is some interesting venture capitalist history behind the creation of the Product/Market Fit concept.
The classic definition is the degree to which a product satisfies a strong market demand. Product/market fit has been identified as a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product.
The Process to Find Product/Market Fit
While finding Product/Market Fit is not always simple, it is easier if you follow a proven process. The basic formula is: Develop a hypothesis. Test it. Observe/learn. Continue or Pivot. Iterate.
The best way to test, learn and gain market validation is to share an actual prototype with potential buyers, what is often called a Minimum Viable Product (or, MVP for short).
The process looks like this:
- Determine your target customer. Who is the buyer, and what does the market look like?
- Identify underserved customer needs. What is the problem you expect the product or service to solve?
- Define your value proposition. Why should they buy it?
- Specify your Minimum Viable Product (MVP) feature set. What do you need to share with potential buyers in order for them to evaluate your solution and provide feedback?
- Create your initial MVP prototype. Designed to test your most critical assumptions first.
- Test your MVP with customers. Observe and listen to test your hypotheses.
- Continue to iterate, or pivot. Based on the feedback you receive, make the decision to continue refining the MVP, decide you are ready to go to market, or pivot in a new direction.
Here’s what it looks like in practice: Growth leaders must first identify a significant problem and a target customer profile. Then they must get out of the building and have conversations with real life prospects to validate their key assumptions. Based on what they learn they refine their solution, fine tune the value proposition, and repeat the process until they either arrive at a winning solution or change directions.
This validated learning process is challenging, but not impossible. Ultimately, it leads to great outcomes because it provides growth leaders with the confidence and insight to define the solution and a market, so that there is no guessing when it comes time to build or sell.
Business strategists will recognize and appreciate this measured approach as a great risk mitigation strategy. It allows you to learn quickly as you move towards your objective while limiting your downside exposure.
Which Comes First, Product or Market?
The number one reason why startups fail is that there is “no market need” for the product or service they are offering. It is hard to believe, but this reason for failure even ranks ahead of running out of money. It is for this exact reason that finding Product/Market Fit is so important.
Many growth leaders wonder which element is more important to validate first, product or market?
The quick answer is: Market.
Here’s why…
According to Marc Andreessen, “product/market fit means being in a good market with a product that can satisfy that market.” Unfortunately, in many cases the focus is too much on the latter part of the sentence (a product that can satisfy the market) and not enough on the former (in a good market).
Market matters the most. Andreessen went on to explain why that is the case: “You can obviously screw up a great market — and that has been done, and not infrequently — but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure.”
That is also why time spent building a business around the product alone is pointless: “In a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter – you’re going to fail. You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.”
You can have the best product or service in the world, but if there is no market, there is no business.
Market wins. Always.
Two Key Hypotheses to Validate
As growth leaders and their teams are iterating their MVP in the market, they should focus their research on validating two key hypotheses:
- A “value” hypothesis – to test what solution will delight customers enough to buy. The process of developing and testing your MVP will help you define the ideal combination of features and benefits to include in your offering, the value proposition for customers, and the best way to articulate them in your marketing.
- A “growth” hypothesis – to test how to get more customers and scale the business. Your field research will help you to refine your targeting and develop a clear profile for an ideal client, the buyer personas you will sell to, and how best to reach them.
Validation of these two hypotheses reinforces the lesson that “market” comes first and then the product comes second. Your solution offering (your product or service) is intended for a market, and the market will confirm what to create by the interest of potential customers and their willingness to buy.
Leverage the 40% Rule
Searching for Product/Market Fit can often be a long and complicated journey, with many detours and dead ends. It is seldom a straight line.
Growth leaders should remember that it is more about the journey than the destination. Why? Because it is often not clear, or completely obvious, when you have found it. Unfortunately, Product/Market Fit is not a binary state; it is more a matter of degrees. You should be looking for more than the minimum degree of fit, ideally finding a high degree of Product/Market Fit.
One proven way to validate that you have found an acceptable level of PMF is to survey potential buyers and apply the 40% Rule. If you find that at least 40% of surveyed prospects indicate that they would be “very disappointed” if they no longer have access to your particular product or service, then you are in a good spot.
An alternative way to structure the question is to ask if surveyed buyers consider the product or service a “must have.” Again, if more than 40% respond positively, then you are looking good for PMF.
Avoid This Common Mistake
One mistake many growth leaders make is to confuse Product/Market Fit with problem/solution fit. This sounds a bit confusing, but it is actually simple.
You need to be very careful that you are measuring desire for your product or service (the MVP you are testing) and not just the desire for any solution. This can be easy to misinterpret if you are not careful in your validation testing. Many buyers will express enthusiasm for a solution to a problem, but not necessarily the one you are proposing at the price-point you need to be profitable. This can create a dangerous “false-positive” metric for validating PMF.
Conclusion – What Comes Next?
Product/Market Fit is often considered the best predictor of future success for an organization. It is a prerequisite for sustainable growth, because it represents alignment between supply and demand, and when you achieve it, you have the foundation for growth.
This makes a lot of sense when you consider that without validating PMF you may invest a lot of time and money into developing a product or service that nobody will buy.
After achieving Product/Market Fit, the next step is to scale the business by finding more customers within the target market.
Time for a growth strategy and plan!
-Onward
About the author: Kimball Norup is the founder of 1CMO Consulting, a business strategy and growth advisory firm based in Sonoma, California. To read prior articles, or sign up to receive future ones by email, click here.
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