In this guide to product-market fit, we’re going to look at what product-market fit is, a relevant case study on it, why you need it, and how to get it so that your customers will continually use your product or service.
We’ll be covering several topics:
- What is product-market fit?
- Why do you need product-market fit?
- Case study – Uber
- How to get to product-market fit
- Steps to reach product-market fit
- Using the Lean Startup methodology to get there
- Continually experimenting to reach product-market fit
- Using the scientific method to experiment
- Creating a habit-forming product with triggers
- Internal triggers
- External triggers
- Four reasons why you may not have product-market fit yet and what to do about it
What is Product-Market Fit?
The most successful startups achieve what’s called product-market fit.
Product-market fit occurs when your product or service solves a problem that directly affects your target customers/audience. But it can’t be just a few people. It’s got to fill a gap and fix a problem for a large market. So when approximately 40% of your customers say that they can’t imagine living or working without, then you know you have product-market fit.
However, there are times when there’s a gap in the market, but most of the target audience doesn’t know about this gap. That is, they don’t know about the problem until you show them how your solution improves their lives. By doing this, you create the need for the market and you directly solve an existing problem in their niche or market.
This Venn diagram infographic below shows how product-market fit is formed by the overlapping of critical components in the market.
Therefore, when you can get the overlap of your product solving the problem, generate or feed the demand by the market, and show why your product is superior, you’re most likely to achieve product-market fit.
Why Do You Need Product-Market Fit?
42% of respondents in the post-mortem study listed “no market need” as the top reason for their startup’s failure.
So it would make sense that if you want to build a successful startup, then you want to prevent yourself from making a product that the market doesn’t want.
Moreover, you want your product to be optimized for your target market.
The more your product is in-line with your target audience and their needs, the better of a position your product or service will be to thrive in the long-term.
You want to make a product that your target audience wants — even better, a product or service they need.
And it’s for these reasons, you need product-market fit. Makes sense — right?
Case Study of Uber
Before Uber came out, there weren’t people marching on the streets asking for a taxi company like they created.
There was no movement on the internet of people demanding the service Uber provides.
Uber solved a problem and created the need at the same time.
As it spread, demand increased because of the convenience the service created for customers and because of the simplicity for almost anyone to become a driver.
Uber has single-handedly destroyed the Yellow Cab Medallion industry because the cars are nicer and you can always hail a ride using your app. People don’t have to flag down taxis anymore.
It took three years (2010 – 2013) for Uber to start becoming a household name in cities. It wasn’t until its fourth year (2014) that it started to exponentially take off.
What’s more, Uber achieved product-market fit when its popularity surged and a large portion of their customer-base became heavily reliant on their service in their daily lives.
Their product didn’t change, but its demand and supply did.
Look at that growth. It’s staggering how fast it grew.
While they got venture capital funding to help them grow faster, what also happened was what’s called, a network effect.
A network effect is when an individual like yourself tells another person about it. And when you do that, you’re usually telling them about how great the product/service was for you.
That provides social proof for the person you’re telling and it triggers a reaction from the person on the receiving end that makes the product/service more credible in their minds.
And it’s that kind of product/service quality that you want so that it can go viral in your niche/audience.
So let’s get into how product-market fit is created in this next section.
How to Get Product-Market Fit
There are times when founders proverbially hit the nail on the head and get the idea right the first time without making any changes.
You want people to check out your product/service and for them to say “Wow, this is amazing. This is what I’ve been wanting for SO LONG!!”
It’s amazing when that happens, but it doesn’t always happen immediately.
Moreover, don’t expect that to happen for you on your first try.
The first steps towards reaching product-market fit
Part of reaching product-market fit (in the pre-launch phase of a startup) includes creating a minimum viable product (MVP) and marketing it to further test the waters of the market which truly validates or invalidates your product or service.
Validating your startup idea is a part of achieving product-market fit, so I hope you take the steps in the link provided to this.
Your MVP should ideally be created after you’ve interviewed many of your target customers to see if your idea is something that’s worth putting your time into. That would mean that in doing so, you’ve also created your customer profiles and buyer personas, as well.
However, there are throw-together MVP’s that don’t require much effort at all. So if that’s the case for you, then you can work on idea validation after that.
Three Ways to Improve
Regardless of your startup-stage, it’s important to be doing three things to help you reach product-market fit:
- Fine-tune the features you have with your users and ask them for feedback until they’re excellent.
- Keep track of users and features analytically so you can let the numbers tell you how well they’re performing. Data can be very revealing.
- Retain your customers! Customer retention is incredibly important because you get more customer lifetime value (CLTV) and you will hopefully have happy customers who will share your product or service with their friends.
When you are doing these three things, they’ll help you considerably.
The lean startup infographic in the next section shows you a variety of ways to help you do these three things.
Using the Lean Startup Methodology To Get Product-Market Fit
Below, you’ll see this infographic to help you understand the lean startup methodology of how you can achieve product-market fit.
Practicing the lean startup model requires three phases with several sub-phases.
Breaking it Down
- Think of your startup ideas and write down hypotheses about them.
- Then you build the ideas into an MVP and create key performance indicators or metrics for measuring their effectiveness.
- You can view the following post to see 34 types of key performance indicators to measure your startup.
- If it’s software-based, then you’ll have to code in the event tracking code snippets into each data collection point. You’ll often use split testing or A/B testing to see how different content or copy performs.
- Once done, you market the product or service (it sounds so easy doesn’t it?) and collect your data. There are, in reality, a boatload of things that go into how you market your product/service. Below are five (5) marketing resources which I wrote to help you with this.
- After you’ve completed your marketing experiments and collected ample data (hundreds of views per test), you then learn from your data and learn from talking to your customers or users. You’ll want to ask them all sorts of questions about using your product/service.
- Then repeat the process.
Continually Experimenting to Reach Product-Market Fit
Sometimes your product or service just needs tweaking to achieve your product-market fit. Then it will match what your target customers want.
But these tweaks need to be based on feedback from potential users who are from your target market, from beta testers, sales, and what your analytics are telling you.
However, products or services which are not gaining traction (traffic to your site, signups, daily/monthly active users, purchases) by target customers are not inherently bad products.
You may need to position your product differently with your wording. You may need to change your pricing. Or, you may need to simplify things with your product/service.
If you are thinking of doing so, then I’d suggest you interview the people from your email list and get their take. Ask what it is that they want to see in your product or service and learn why they aren’t buying. Sales are the ultimate indicator of traction, after all.
But hey, sometimes you get lucky when your idea/product/service and your messaging is perfectly positioned.
However, most of the time, that won’t happen. But I hope it happens to you!
Instead, you might need to tweak your product over time to get a higher percentage of users buying your product or service and retaining them at higher rates, as well.
And if you can’t make a minor change, then you might have to make a sizeable pivot so it aligns better with the overall needs of your target customers.
Moreover, with any experiment, it will help you greatly if you follow the scientific method.
While you may have learned the scientific method in chemistry or physics, it applies here, too, and not just in science labs.
The Steps of the Scientific Method to Use for Experimentation
The testing of the experiment is often performed through marketing or the fulfillment of a feature on your product/service. Either way, you have to drive people to use it so you can get data to draw conclusions from.
You want to have a statistically significant sample-size for your experiment, so the more people you can get to be subjects of the experiment, the better your data will be.
So, you’re going to have to measure these experiments using analytical tools such as Google Analytics, Mixpanel, or Kissmetrics and install event tracking within your experiment so you can measure the behavior of your subjects.
And speaking of behavior, in the next section I’ll discuss how to influence those behaviors using triggers to help you acheive product-market fit.
Creating a Habit-Forming Product/Service with Triggers
Since you want people to use your product or service, you want to remain in their minds and keep driving them to use it to create habits.
Habits are hard to form and hard to break. The more people who have formed habits using your product or service daily will become part of the percentage of users who can’t live without your product.
Like anything worth-it in life, you need to work to achieve it, and you’ll need to work to get your users to form a habit of using your creation.
You can get your users to form those habits by creating both external triggers and internal triggers.
When you create external triggers, you tell users what to do next with calls to action.
For instance, maybe you have a new feature that you want your users to check out. So to do this you’re going to have to tell them about it.
How do you tell them about it?
You tell them through the places you can find your users.
External triggers are created by sharing that new feature via:
- Your email list
- In your application
- In your Slack or Facebook group
- Push notifications
- Popups in-app or on your website
- Podcast episodes
- Word of mouth
- Direct contact with individual users
- Paid Ads
- Press mentions
- Social media
With internal triggers, you have to lay the groundwork by creating mental associations with your product through their memory.
However, internal triggers can be the strongest drivers for habitual use of your product. So understanding why people use your product will play a big role in helping users to create these strong triggers.
Memory is often queued by emotions and will drive users to use your product/service, especially negative emotions.
When you remember something, there’s not just an image that pops up in your head. There are emotions attached to that memory.
Internal triggers are unique to your product or service, so it’s hard to tell you what exactly will be an effective internal trigger because of that.
So you’ll have to experiment with this, as well, but there’s an exercise you can try from the book, Hooked: How to Build Habit-Forming Products.
The exercise is called the “5 Whys Method” by Taiichi Ohno from the Toyota Production System by repeating “why?” five times to figure out the root of the problem and solution of why people are using your product or service.
Creating these triggers with the right audience and right product will most certainly build a user-base of habitual users and will help you in your quest to reach product-market fit.
In the next section, I discuss four reasons why even triggers won’t help you get product-market fit.
Four reasons why your product might not have product-market fit yet and what to do about it
1) The Product Doesn’t Fit
There are plenty of times where the users don’t like the product.
So it doesn’t live up to your expectations…
Rather than pout about it, you can make lemonade out of lemons.
Talk to those people who’ve viewed your site and set up an exit-intent survey asking them for their feedback so you can make the experience better for them for the next time.
You can study your competition more and find out what gaps they don’t fill and create something to fill those gaps.
Additionally, you can look at reviews of your competition’s products and see what people say — especially looking at the negative comments.
These are proactive ways you can take to try and remedy your situation.
One proactive way is to make alterations to the idea which represents your product or service and ask your target users if this revised idea would fit better.
Once you’ve re-built something that you think works better, then you can start real the experiments again with customer onboarding.
2) Bad Marketing Approach
The approach by your marketer(s) may not be working or your website needs tweaking to position your product or service better.
You’ll often see newbie founders position the product on their websites by talking all about the product’s features but not mention how it’ll help the end-user.
However, language that isn’t customer-centric can prevent you from reaching product-market fit.
Meaning, the text on the website and in your marketing campaigns isn’t worded well-enough to show how the product or service will help them / fulfill their need.
Rather, you need to market the benefits that your users will get from it.
Your sales copy needs to create the desire for your product.
It will when you tell them how it will help solve a problem they have.
And then you need to compel them to take action to sign up for a waiting list or purchase it.
These are the basics of copywriting and they’re a vital aspect of marketing and selling your product. Study copywriting and test out different phrases or words to see what works best.
In addition to the above, you could actually be marketing your product to the wrong audience.
That could be another reason why you may not be getting the results you desire.
And that’s why it’s immensely important to do your customer personas (or profiles) and test out each one of those personas as a hypothesis.
3) Ineffective Sales Funnel
Your lead acquisition and sales funnel could be crappy and need improvement.
You need to have several areas on your website that have calls to action for them to buy.
Your email list needs to have optimal email flows for new subscribers so that they are primed to purchase.
If you don’t have email nurture campaigns set up, you can get your startup moving in the right direction using this guide:
Even your social media accounts can act as email subscription funnels, but they also need to be optimized to act as good sources for leads.
However, it’s for these reasons that your sales funnel (or lack thereof) could be why your product isn’t being bought or used.
4) Poor Pricing Model
Pricing is part of having product-market fit.
If users aren’t paying, then your pricing could be one of two extremes and it may stifle your ability to get customers.
You could be either:
- Undervaluing your product or service by making it too cheap
- Overvaluing your service by making is too expensive
When you sell it too cheap, people will disregard it. You need to have faith in the quality and real value of your product/service so others will have faith in it too.
When you sell your product for too much, you’re at risk of alienating potential customers, but they may come back to see if you have any coupons or sales or drop your prices.
Instead, you want to be competitive with other brands but valued high enough so you can support your brand and make ample profit.
That’s why it’s helpful to have a completed competitive analysis from your market research so you know where you stand in comparison to your competitors.
You will find a lot of value from this video with regards to pricing your product.
Your customers are the ultimate gauge of whether or not your product will be successful in the market, but ONLY when you do the right things.
And you’ll be able to gauge your success qualitatively by talking with your users and quantitatively with analytics.
Analytically, you’ll be measuring things like signups, purchases, daily or monthly active users, virality (through campaign URL tags), and month over month (MoM) growth.
Based on your efforts with the above, you’ll be in a great spot to achieve a product-market fit with your startup and succeed in the long-term.
Moreover, if you want to achieve product-market fit, then we recommend checking out the 14-day free trial of our Online Accelerator Program. There, you will build your company’s foundation so you can thrive under pressure and scale more easily, learn effective marketing and product positioning, find your early tribe of customers, and learn how to fundraise.
How have you worked towards product-market fit or what obstacles have you overcome in your journey towards achieving it?