Product-market fit. How to find and retain it.
All entrepreneurs and product managers strive to achieve product-market fit. However, not all specialists fully understand this concept.
In this article, which is based on the podcast, we will explain and show how to reach product-market fit and strengthen it over time.
What is product-market fit?
Literally, product-market fit means “correspondence between the product and the market.” Theoretically speaking, product-market fit can be defined as “having a product that meets the needs of a specific market and presents value for consumers.” Additionally, product-market fit is when the customer understands the product’s value. The consumer should be disappointed if your product suddenly disappears from the market.
Some companies, in order not only to understand if you have product-market fit or not but also convert it to a figure, use the approach of conducting surveys among customers with the main question:
“How would you feel if you could no longer use our product?”
Empirically, more than 40% of customers should say they would be very disappointed — not just disappointed, but very disappointed — to understand that your business, most likely, has a product-market fit.
Definition of PMF by Mark Andriessen
Marc Andreessen, one of the partners of the Andreessen Horowitz venture capital fund, known for its investments in companies such as Facebook, Pinterest, Slack, Skype, Stripe, Twitter, and hundreds of other technology companies, described what product-market fit is from the perspective of technology companies and venture capitalism:
You always know when you haven’t achieved product-market fit:
- Customers aren’t getting the full value from the product.
- Word of mouth isn’t working.
- Product usage is growing slowly.
- Press reviews are bland, one-sided, and boring.
- The sales cycle is very long.
- You are losing most deals.
And you always know when you’ve achieved product-market fit:
- Customers are lining up for the product.
- Usage is growing faster than you can buy servers
- Customers’ money is filling your accounts.
- You are hiring salespeople and support specialists as fast as you can.
- Journalists are calling because they’ve heard about the hot new project inside your company and want to discuss it with you.
- You get the “Entrepreneur of the Year” award from Harvard Business School.
- Investment bankers are waiting for you outside your home.
Roman.ua approach to PMF
Simply put, for me, product-market fit is when an entrepreneur has figured out:
- what they are selling,
- who they are selling it to,
- at what price,
- with what features,
- where they are selling it (to which market segment, in which geography, and ideally in which sales channels.
Meanwhile, the consumer feels that they need and value this product, and they are willing to buy it at that price with those features.
And, to be honest, this is not an easy path that requires some inventiveness. We will attach a picture here where the PM has created a minimum viable product (MVP), a couple of pivots, tests, or business model shifts, and is trying to fit an ill-suited product to the market. Thanks to Yevhen Plokhyi for the picture.
Diagnostics of PMF in Roman.ua
As an internet marketing agency that works with performance channels, we at Roman.ua always try to understand if a business has a product-market fit during the briefing process. Because if there are already sales, a product, and a market, and the goal is to scale the business, we can help and deliver excellent results
However, if there is no product-market fit, performance marketing is unlikely to help. There is a chance that:
- the product is not needed
- the market is extremely small, and it’s difficult to find the right customer.
- the product may not be competitive in terms of price and features.
- the business may lack the necessary leverage in the form of existing cash flow, profitability, or access to finances to reduce costs and increase sales profitability to survive the period of marketing experiments and finding a working customer acquisition model.
- the sales process is not established, even if the cost per lead is acceptable, the final sales price may be high, and unit economics won’t align.
How to find product-market fit
What should entrepreneurs do in such a situation? They should roll up their sleeves and start selling. They need to establish the initial sales processes, and sales channels, and build a stable cash flow. Furthermore, they should experiment a lot with pricing, product packaging (not just how it is wrapped but how it is presented to the customer), product features, sales scripts, and stages, and work with direct sales, wholesale, cold outreach, content marketing, SEO, and marketplaces. At this stage, I would advise entrepreneurs to handle marketing themselves because freelancers or agencies won’t build the business for them. I will cover this topic in a separate video. It’s important to learn on your own.
How to strengthen product-market fit
Once product-market fit is found, that’s when you should approach marketers and agencies for scaling. Using my agency, Roman.ua, as an example, I can say that we become most effective when a business is already well-established, with customers and sales, and the goal is rapid growth. That’s when marketing comes into play, generating more leads, acquiring more customers, and accelerating the business while simultaneously expanding the team, production, distribution, and more.
- Product-market fit survey service