What Is Product-Market Fit?

There are many factors that determine the success of a startup. These include a passionate team, a competent leader, devising a good marketing plan, and having enough capital to sustain the business. However, one important concept that is crucial to the fate of startup companies, but sometimes overlooked, is product-market fit.?

What is product-market fit??

Product-market fit is when your business has a product that can satisfy the demand of your market segment. This requires you to pinpoint what problems your startup is trying to solve. Also, clearly outlining buyer personas to understand who your customers are, helps better position the product to address the need of these buyers.?

However, more often than not, founders are so focused on other aspects of the business, such as brainstorming ideas or assembling a masterful team. While these factors certainly influence the success of a budding company, without a demand for the product or service, the business will not survive.?

Why is product-market fit important??

Most startups fail because they are not able to reach product-market fit. Running a business is expensive as components like marketing, research and development, and administrative expenses can burn through your cash trove quickly. When the initial venture capital runs out, requesting another funding rounds won't be easy, as investors want to see progress in your startup and have an idea of when the business will generate revenue. As a result, you would want the company's offerings to have enough demand in the target market to gain sustainable profits.

Marc Andreessen, an entrepreneur, and investor wrote in one of his blogs that a business can unravel despite having "HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30" monitors for all the programmers, top tier VCs on the board." Without having an adequate interest in the product, even the most prepared startup can go under.

How to achieve product-market fit??

There are scores of practices that can help your startup achieve product-market fit. For example, changing the core product to gain new market shares, determining the market demand, reshaping the old ideas, or even creating a new market (such as SpaceX endeavoring to create supply and demand for commercial space travel). While no one single formula will work for all companies, the following recommendations tend to be beneficial for a broad range of businesses:

Figuring out the customer needs: Most of the time, you need to identify what problems your buyers are suffering from. And what can the startup do to provide the solution? For example, understanding the weakness of traditional taxis, Uber started revolutionizing the industry and providing the service that customers didn't know they wanted. Uber has made booking a cab more convenient, quicker, and less expensive for the customer, allowing the company to be among the most successful startups out there. Additionally, analyzing your products or services, scrutinizing the competition, and performing market research are the best practices that help identify customers' needs.?

Establishing value propositions: Pinpointing buyer demand is not enough to gain traction for your business, as there is always competition offering similar products. So you have to demonstrate how your product is better than the alternatives. The demonstration can be done through different approaches, such as delivering superb quality, providing a more affordable service, or creating more eye-catching and exciting packaging. These plans will distinguish your offerings from the rest of the crowd.?

Also, you would be well-advised to narrow the startup's focus to tailor to a specific demand rather than aiming for the general market. For instance, Tesla introduced the Tesla Roadster when it first entered the automobile industry. The Roadster was an opulent car targeting high-income earners, allowing Tesla to penetrate the market of otherwise dominated lower-priced vehicle segments by traditional automakers.?

Creating minimum viable product (MVP) and testing the MVP: Before you release the product to the market, this approach can backfire quickly, especially when you have already spent a good chunk of capital on product development, only to find out the product attracts no interest. So companies typically identify the minimum features required for a product to work and integrate them into an MVP.?

Introducing the MVP to early adopters will not only validate that there are demands for the product but also acquire valuable feedback from those buyers. Companies will take advantage of any complaints to further tinker with and improve the quality of the MVP. However, if you receive unfavorable data and responses from the customers, be ready to pivot and adapt to the market needs, or even re-evaluate the whole business model.?

How to measure product-market fit

According to MailChimp, there are questions you can address to determine if the product has reached product-market fit. For example:?

• How quickly do customers make up their minds about a purchase??
• Are reviewers mentioning your product to family, friends, or social media connections? What is your customer retention rate??
• Are customers interacting with your marketing efforts??
• How many customers have unsubscribed or stopped using your product?

These questions will help guide you in determining the potency of your startup products in terms of satisfying the market demand. ?

Conclusion

Product-market fit is a scenario in which a startup's product or service meets the need of target buyers. While many factors are involved to ensure the survival of a business, generating revenue by bringing in customers is the main objective of any company. However, when market data indicates that there might be no interest in your startup's offerings, you will need to pivot promptly.?