Whether service-based or product-focused, every new startup strives to achieve Product-Market Fit (or PMF). PMF is defined as the market demand for your product/service demonstrated by people buying it, using it, and telling others about it.
EXPLAINING PRODUCT-MARKET FIT
Product-Market fit is a term used by businesses to describe the alignment between their product’s value proposition and the needs of their target customers. There are different ways to measure PMF, but you’ll know you’ve achieved it when customers are enthusiastically buying, using, and sharing your deliverable.
Investor and Netscape co-founder Marc Andreessen popularized the term in a 2007 blog post where he stated “Product-market fit means being in a good market with a product that can satisfy market demand. You can always feel product-market fit when it’s happening. The customers are buying the product as fast as you can make it—or usage is growing as fast as you can add more servers. Money from customers is piling up in your checking account.”
“Product-market fit means being in a good market with a product that can satisfy that market.”
– Marc Andreessen, Investor and Netscape Co-founder
There are numerous ways to determine if a deliverable has PMF, but understanding why a product is even a good fit for your market is the first step.
The Importance of PMF
Venture capitalists often want evidence of PMF before investment. Marc Andreessen categorizes startups in two ways: before product-market fit and after. So, finding PMF creates opportunities for company growth as well as a chance to upsell to existing customers.
Achieving a Product-Market Fit
Finding PMF may look different depending on the product, service, or industry. Data mining from questionnaires can lead to valuable insight:
- Establish Your Target Customer
Identify your primary or core audience and discern what motivates them to buy or act - Identify Underserved Needs
Ask what consumers are unhappy with, then position your company to address those needs - Define Value Proposition
This is essentially understanding how your product can be better than competitors’ products - Minimum Viable Product Feature Set
Every product needs to have a baseline of features before it’s released - Create a Beta
Gain consumer feedback that can be applied to the next iteration of your product - Test With Customers
Getting feedback from consumers is a crucial step to achieving product-market fit
Once responses to your questionnaires have been gathered, you can look for insight by which to determine PMF.
GAUGING PRODUCT-MARKET FIT
A common metric for determining whether you’ve achieved product-market fit is The Net Promoter Score (or NPS). This score is an indication of how likely a user is to recommend your product to others. On a scale of 1-10, those who rate your offering a six (6) or lower are called ‘detractors,’ those who give you a seven (7) or eight (8) are called ‘passives,’ and respondents who rate you a nine (9) or 10 are ‘promoters.’ These responses are then plugged into a formula for a score.
Mike Mason, a product manager at online grocery/delivery company Mercato, uses NPS to diagnose service gaps and PMF:
“We’ve never really seen a huge increase in the NPS just based on a feature we added,” Mason said. “It can be misleading, too, because you might have exceptional customer service but not a great product, or vice versa. It doesn’t tell the full story.”
Additionally, according to Alex Willen, a 10-year project management veteran of early-stage enterprise SaaS startups:
“People giving feedback may not be your end users; that is to say some respondents may not be the people paying for your service.”
While the NPS may not confirm PMF, it’s a useful measure of a company’s customer experience and perceived ethos.
So, whether you’re a startup or a mature enterprise innovating on an existing product, gauging product-market fit is essential for capturing viability and scaling your product or service.
About the Author
Vince Dorazio has 20+ years of experience in the recruiting and tech industry. He is currently the Founder & CEO of UpRecruit, a recruiting platform that intelligently matches tech talent to innovative companies. He has a passion for the start-up community and serves as a mentor, advisor, and board member to multiple SaaS companies and non-profits.