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6 min read

Category: Business

24 Jun 2021

24 Jun 2021

6 min read / Category: Business

What is Product-Market Fit and how to achieve it

Angry Nerds


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From this article, you'll learn what Product-Market fit is and why it is important for your business growth. You'll also get practical tips on how to achieve it.

Let's imagine a situation where you've been working on a particular idea for a very long time. It costs you a lot of sleep, and you’ve put in a huge amount of effort.

And here it is. You launch your MVP and wait for the feedback from your first reviewers. Even though they were excited initially, it turns out that the product is less than enthusiastically received.

Even so, you still believe your product is the best and that it solves the problems it was designed to address. Self-confidence is important, but it's the market that wins. Is there anyone who needs your product and would like to buy it?

Achieving a Product-Market fit should be one of the most important goals for all companies. Yet, it seems not to have extended to many other business areas other than start-ups, and it is still a concept that is not entirely understood.

You can use this to your advantage.

What is Product-Market fit?

Product-market fit gives a sense of interaction between three different elements: a business, a product, and its customers. It’s a scenario in which your company's targeted customers are buying and using your product, so they keep recommending it and telling other people about it.

In short, as Marc Andreessen said:

Product-market fit is about hitting the right market with a product that can satisfy it.

The goal is to create a product that meets the needs of customers significantly better than the competition.

What makes it important?

If you achieve product-market fit, you will have a much more significant impact on your business growth. Having a clear grasp of your product and its relationship with the market will help you provide more value to your customers and give you a new perspective on your business.

Without a product-market fit, you may come to the dead-end of investing in something that isn't profitable. You won't know if your product is effective or if it solves a specific market problem.

Before you start developing a product, you need to be sure that your product fills a gap on the market in order for it to sustain and generate profit.

Product-Market Fit pyramid

The definition alone would not be sufficient to understand this concept clearly. That is why Dan Olsen, in his “The Lean Product Playbook”, described a model which should help you.

product-market fit pyramid

Source: “The Lean Product Playbook” Dan Olsen

Your product is described at the top and consists of three layers, each of which interacts with the one that is directly below it.

The first product layer is your value proposition: how do you want to satisfy your customers and how will you do so better than the competition? Feature set refers to a functionality that satisfies an individual customer's needs.

For the final layer, we have user experience (UX), which is how the customer interacts with that functionality of your product.

Based on this framework, you can assess how well your assumptions and strategies (the top three layers of the pyramid) reflect on the market (the bottom two layers).

To achieve a product-market fit, there must be solid execution of every layer.

how to achieve product-market fit

8 tips on how to achieve Product-Market fit

Now that you understand the primary purpose of product-market fit, what can you do to achieve it? Here are some tips that are based mainly on the steps outlined by Dan Olsen.

1. Identify your target audience

It all begins with the people whom you aim your product at. Who do you think will benefit from your idea? At first, you won’t know who is in your target audience, but you can find out by deep market research. Use market segmentation. Based on data and analysis, develop buyer personas that represent your ideal customer.

You don’t just define the target audience once and for all. The more experience you acquire, the better you will be able to determine precisely what your target group is and how you can reach it.

Start with large-scale research, then limit your choices until you find the right target audience for your product.

2. Identify the neglected needs of your target audience

A market in which customers are thrilled with how well existing solutions meet their needs is probably not one you want to enter. There is much more potential for selling products when people still have problems and can’t find the solutions they’re looking for.

What problems are your competitors' clients facing? When you develop a new product or improve upon an existing one, you want to be sure that you focus on unmet customer needs.

Customers will judge your product by comparing it to those of your competitors, so don't repeat their mistakes but learn from them.

what is product-market fit

3. Focus on a single niche

Selling to everyone is a recipe for failure. You should start with a focused area, become an expert, and dive deeper into this industry. Don't try to catch everything at once. Make sure you meet one expectation completely. There's much more value in having one polished feature than many underdeveloped ones with bugs.

Look at this example. When Netflix saw an opportunity to offer legal access to stream movies and tv series for a small monthly fee, the company jumped at the chance.

They created a platform for people who want to watch movies at any time. There was a gap in the market, so they targeted the people in that gap. They met one particular need and succeeded.

4. Define the value proposition

Is there a way in which your product will meet customers’ needs better than the alternatives? Determine which of those needs you can meet, then find out how you can surprise your audience and how you can outdo the competition. For example, if you wanted to take on Coursera in the education market, you'd have to provide a richer, more immersive online college experience.

A value proposition captures why customers should choose your product, what it will do for them, and why your solution is better than other existing ones. Your value proposition should be unique and exciting so that buyers won't have any objections to choosing your product. Think about something that will exceed their expectations.

5. Determine the MVP feature set

The term MVP (Minimum Viable Product) is important when you are developing the first version of any product. It is also useful when you are redesigning an existing one. An MVP is the minimum amount of functionality the target audience will accept as providing them with enough added value.

There is no sense in developing a product that doesn't fit the market, which is why the MVP approach is so useful. It allows you to better understand your audience's needs and expectations so that you can validate the product during the early stages of development.

Establish the basic set of features that are necessary to release a product and then adapt it according to the feedback you receive.

tips on how to achieve product-market fit

6. Create an MVP prototype

It is possible to obtain feedback faster than waiting for the moment when your MVP goes live. You can build an MVP prototype to represent the product without creating an actual build.

Nevertheless, keep in mind that the prototype must be of very high quality and accurately reflect what you intend to produce. If it significantly deviates from the target product, you will not be able to draw proper conclusions from the feedback. Additionally, some opinions may lead you to take inappropriate actions.

7. Test your MVP with customers

You start at one point, launch an MVP, and then obtain the feedback. Some people may say that certain features are unnecessary; others may tell you what’s missing.

Give free access to your MVP in order to get as many opinions as possible. People might become your customers in the future if you give them a chance to test.

Listen to your testers. Rather than asking "do you like this feature?" and getting a “yes” or “no” answer, ask open questions so that you will be able to learn a lot from them. With each new piece of customer feedback, you can identify new patterns and get a better sense of your product as a whole.

8. Avoid self-approbation

If you manage to achieve a product-market fit, don’t assume that you won’t have to do anything more. The market is constantly changing, and so are your customers. You need to continually keep up with these changes if you want to stay competitive. As we said at the beginning, the market always wins.

Product-Market Fit: how do you know if you have achieved it?

There are some myths about product-market fit that are circulating around the business industry. One of them is that the moment you achieve it is obvious. Next, once you achieve a product-market fit, you'll never lose it.

As a result, businesses ignore the topic of measuring product-market fit because "they'll know when they've found it". Also, they might completely ignore the fact that you need to keep working on this "fit" constantly. Keep reading if you want to prevent your business from holding these distractive opinions.

measuring product-market fit

How to measure Product-Market Fit?

The product-market fit concept might seem easy to capture. However, it's a bit misleading. Measuring it is a challenging task because it can't only be done according to sales growth. The situation is far more complex.

No single set of metrics will indicate when a company has achieved a product-market fit. You need to analyze your business from two perspectives: qualitative and quantitative. The following are some signs that a company is heading in the right direction with its offering. Ensure that you use metrics from both groups to have a big picture of your results.

Qualitative: like word of mouth - what people are saying about your product, reviews, what kinds of emotions it evokes.

• NPS Score (the willingness of customers to recommend a company's products to others)
• Market Share
• Churn rate (the percentage of subscribers who cancel their subscriptions within a given period of time)
• Growth rate

In addition, if you notice that demand exceeds your production capacity or you need to hire more people in a short amount of time, you should consider these factors as they may also indicate that you're getting closer to achieving a product-market fit.

You’ve got this!

Achieving a product-market fit helps you to build a strong background for all your business activities. You will know which elements and features of your product need to satisfy your customers and upon which you should focus your efforts.

Being able to understand the concept of product-market fit, as well as knowing when you've achieved it, is vital, as scaling too early can cause counterproductive effects.

You may be also interested in:

How to build an MVP. A Guide to Minimum Viable Product
How to build a SaaS product? A beginner’s guide
6 common risks in software development projects – and how to avoid them

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