Product-Market Fit or PMF was a term coined by Andy Rachleff co-founder at Benchmark Capital and later popularised by Marc Andreessen Co-founder of Andreessen Horowitz and Netscape.
Product-Market Fit happens when a product can satisfy a good market and is the first step to building a successful start-up. PMF is often regarded as the main aim of a Minimum Viable Product (MVP) which you can read more about here. The general idea of product-market fit is a simple one but there is no one-fit-all solution to gain product-market fit; If there were it would make start-ups a lot lot easier, there are however some rules and insights used to see if your product is satisfying a market.
The very first thing you need to establish is your target market. There are few products that are designed to appeal to everyone. Even if your product does appeal to a large amount of people, it is important that you determine your initial target market, the more niche you are the more targeted you can be with your products positioning.
This is the big question that underpins your whole product/business, what needs are you serving for your customer? Being able to clearly identify underserved needs of your users, will help develop the value proposition of your product. Your value proposition is what you’re offering to customers and why they are going to use your product. Defining your value proposition is vital, but also needs to be clear to your customers. User testing is an extremely effective way to better understand if you’ve satisfied the needs of users. Things to look out for are when users group and discuss your product, is it accurate with your competitive offerings and do they understand your value proposition.
Your MVP is how you are going to get in front of your customers and test if you can gain some traction. The philosophy behind your MVP should be agile and iterative as such you need to choose a balance between the underserved needs of your users vs resources needed to produce the MVP. If you’re building features that you don’t truly think will help solve a problem that 80% of your target market suffers from, you need to ask whether it should be in your MVP? Once you have an MVP you're ready to test with your target market and establish whether you can gain some traction with it. There is no single metric that can tell you if you’ve achieved product-market fit as such you need a combination of metrics.
The first metric we’ll cover is known as the 40% rule. If 40% of surveyed customers would feel ‘very disappointed’ if they could no longer have access to your product, or that your product is a ‘must have’ then you’re one step closer to product-market fit. The 40% rule is simple but effective. It is also worth noting that the people you survey ideally should be customers or reflective of your target market.
There are also some more quantitative ways to understand if your product has PMF, they include Bounce rate, Time on site, Pages per visit, Returning users and Customer lifetime value. There are a myriad of resources explaining these aspects in-depth hence why we’re not covering them in this post. Once you know that several of these metrics look positive it’s a good sign that you’re on your way to achieving product-market fit. The most successful products are proactive with being close to the customer and asking what they need? This is something you should strive for, if there are fundamental improvements with your product you want to hear about it as soon as possible.
In this post we’ve tried to take you through a journey to achieving product-market fit for your product. The key takeaways should be; define your target market, understand your users needs and value proposition, and how to test your MVPs traction.
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