Ever heard of the term product market fit but never really understood what the term really means or how the process works? This article will be your go-to guide to understanding what product market fit really is and how it can help your business and marketing strategies.
Product market fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability. A definition from Marc Andreesen, who originally coined ‘Product/Market Fit’ in his post “The Only Thing That Matters”:
"Product/market fit means being in a good market with a product that can satisfy that market"
So, why is achieving it so important? Why do many venture capitalists demand evidence of product-market fit before investing in a company? Why does Andreesen, in fact, believe in the division of every startup’s life into two key stages: before product-market fit (BPMF) and after product-market fit (APMF)?
It's because before you develop a product that you confirm enough people are willing to pay for, your team cannot afford to focus on other important strategic objectives such as growth or upselling existing users. Those initiatives could even be counterproductive, in fact, if you haven’t first determined that your product has enough of a market to sustain itself and generate a profit.
The founder of the concept, Marc Andreesen has quite a few notable quotations on how to figure out if your product market fit is working or not and how it should be measured.
"You can always feel when product market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close".
"And you can always feel the product market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it".
There is no perfect or solid method to measure product market fit, however, there are a few methods and advice that can be used to assess whether your technique is being successful or not.
Below is a video to help you understand 10 significant steps to achieving accurate product market fit.
Simply said, product-market fit occurs when your solution satisfactorily answers the problem of your target customers, and there are many more customers where they came from. There’s isn’t a reliable and predictable route to achieving PMF, but there are many ways to get there. Here are the top approaches:
According to MailChimp Insights, the entertainment media company first gained traction in the early 2000s. Movie watchers were starting to get tired of paying late fees from brick-and-mortar DVD rental stores. So Netflix sent them DVDs by mail as part of a subscription service, letting people keep a disc as long as they wanted.
But if Netflix had remained a DVD-by-mail operation, it would have faded out when DVD players did. Instead, Netflix positioned itself as the easier, cheaper alternative to whatever currently dominates the entertainment market: brick-and-mortar rentals, DVDs, or traditional television. Netflix alters its product every time the market need changes, maintaining its fit. Netflix’s success is a great reminder to stay flexible in changing markets and keep an eye on the future.
Secondly, another example would be that of Google. In the early days, Google competed with lots of other search engines for market share. Like the other players in its market, they made money by offering ad spots next to search results. But in 2003, they jumped ahead of the competition when they introduced a new concept, AdSense.
Google’s leaders realized that businesses would pay to display their ads beyond the search page, and they developed AdSense to meet that demand. AdSense used new technology to scan webpages and automatically display relevant ads. For example, if you had a business that sold suitcases, you could pay for AdSense to automatically display your ads on travel websites.
By 2017, AdSense's 11 million users were paying Google $95 billion a year. Google identified a need no other search engine was meeting, and they met it.
The process of reaching product market fit can seem daunting and you will have to fight the urge to scale before you have validated and measured your product market fit. Don't start growing until you're certain you've arrived at your business objectives.
Be methodical in your approach. Patience is required. Remember that product market fit isn't the goal. Rather, it's a never-ending search for the right fit and expanding your business model to new heights.