The term product/market fit was popularised by the lean startup movement a few years ago and tends to be something we glibly trot out when referring to a runaway success or a miserable product failure. But what does it mean? How do we get to it? And what is the product manager’s role in maintaining it?
What is Product/Market Fit?
Marc Andressen first introduced the term in 2007. He called it “the only thing that matters for a new startup” and defined it as "being in a good market with a product that can satisfy that market”.
If product/market fit is the degree to which a product satisfies strong market demand, then it can be measured. A few years ago,
Sean Ellis, founder of
growthhackers.com, developed what’s become known as
the Sean Ellis test for product/market fit. It’s a simple survey question, and asks customers “how would you feel if you could no longer use our product? - very disappointed, somewhat disappointed, or not disappointed (it really isn’t that useful)”. After benchmarking lots of startups Sean found that the magic number for product/market fit is 40%: that is if the proportion of customers who answer very disappointed exceeds 40%, then you have found product/market fit.
Stephen Culligan, former head of product at
Glofox, now a product consultant and
ProductTank EMEA Coordinator, describes product/market fit as something a bit more nuanced than the degree to which a product satisfies market demand. In line with lean startup thinking, it comes after problem/solution fit and before scaling, and he characterises it as “when you find out that you’ve built something people want with a viable business model to make it worth your while”. You experience it after you think you may be on to something but still have to iterate more to prove it’s a viable and sustainable business. “A lot of companies mistake some demand for a product with a viable business,” he adds.
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Piply worked with dieticians to deliver healthy low-calorie food to customers (Image: Shutterstock)[/caption]
Stephen tells the story of Dublin-based food business
Piply, from a few years ago, as a company which failed to reach product/market fit. Piply had worked with dieticians to deliver healthy low-calorie food with what Stephen describes as a “really enticing order to table experience”, and it appeared to have all the makings of a great product. Says Stephen: “The food was great, the experience was great (they controlled the whole experience between order, kitchen and delivery to ensure it arrived to their high standard) and the demand was high. From the outside, it looked like the founding team had successfully identified a problem, created a solution, and were working their way towards the next stage, product/market fit.” But within about 12 months the business had closed.
The founders realised that the margins and the numbers didn’t work and they couldn’t turn Piply into a worthwhile business. Stephen adds: “They got past problem/solution fit and were iterating towards product/market fit through changing the product and testing the market. Ultimately they discovered they couldn’t get to a satisfactory product/market fit.”
Product/market fit then is about more than just solving a problem or meeting a need. As
Laure Cast, Head of Research at
Marco Polo points out, Facebook has been known to copy other up-and-coming apps and fail, despite having pretty much the same features and a much larger distribution channel. “This reflects a common misconception,” she says, “that what product/market fit depends on is ‘features’ or even ‘having a large market’.”
Successful companies, she says, pair a deep understanding of what their customers value with a product that isn’t so tailored to one group of people that it's impossible to expand its scope, or when the problem or need to be met only matters in a limited context.
Airbnb, for example, started as a way to afford the exorbitant rents in San Francisco, but only truly achieved product/market fit when it found ways to increase trust-building features like customer and host ratings and professional photography in order to reach customers who would be best for the business - those with money to spend or attractive properties for rent.
Why Does Product/Market Fit Matter?
Product/market fit matters because it’s fundamental to understanding the product and the business - and we can all see that companies continue to launch products no one wants. There are some classic bad examples of this - with
Google Glass and
Juicero among the more famous ones - where products were launched with little consideration for product/market fit and failed as a result.
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Google Glass - Google's wearable smart glasses (Image: Shutterstock)[/caption]
Google Glass, says
Bridget McMullen, partner at product consultancy
Upfront Work, was “a rapid push for new technology without serious considerations of privacy, legal concerns and user’s sense of security. Not to mention, it was not the most attractive looking glasses at a seriously high price point”. Investopedia’s account of
how and why Google Glass Failed gives details of the missteps that led to the product’s failure as a consumer product.
Google Glass is still around, reimagined and relaunched as an enterprise product aimed at jobs in construction, on the factory floor, and in medicine which only adds to the point - it didn't achieve product/market fit in the consumer space but it did when they pivoted to industrial use cases and customers.
In retrospect, it’s hard to fathom how Juicero managed to attract a hefty $120 million in VC funding. The Juicero Press was a $400 WiFi-connected juicer that used packets of pre-juiced fruit and vegetables available on subscription, with the company founder styling himself as the Steve Jobs of juicing. But the packs could be squeezed just as effectively by hand, as this Bloomberg article,
Silicon Valley’s $400 Juicer may be Feeling the Squeeze, relates, and the rest is history. This Slidebean article,
What Happened to Juicero, Startup Forensics, unpicks the problems at the company.
What about good examples? Bridget cites the
Dollar Shave Club as a great example of product/market fit. The company delivers razors and personal grooming items to customers by mail, and was started after its founders met at a party and talked about their frustrations with the cost of razor blades. Says Bridget: “It’s a simple example that shows not every product/market fit has to be new technology but rather common sense.” She adds that Dropbox is another great example, and shows this
Dropbox Intro Video to students learning about product/market fit. “The company understood that a new opportunity was emerging as the market changed,” she says.
What’s the Process Behind Product/Market Fit?
This #mtpcon talk by
Lean Product Playbook author Dan Olson,
Mastering the Problem Space for Product/Market Fit, looks at the key components to product/market fit and how to achieve it.
A lot of research, testing and iterating will get you to product/market fit, and as Laure comments, the fastest way to find product/market fit is to understand three key things:
- What business decision are you making? If you’re an OKR-user, this could be your current company objective. It’s the main needle you’re trying to move by developing your product. This could be growth, profit, or another key goal.
- Who is your customer? More specifically, who is the customer you most want to serve? Inherent in this decision will be considerations about how much this customer can afford to pay you, how easy and expensive it is to reach the customer, and how many of them there are.
- What does this ideal customer value? What matters most to them? The more you can discover about what they value before you build anything, the easier it is to prioritise features and marketing projects that affect things your customers will pay for.
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Achieving product/market fit requires a lot of research, testing and iterating (Image: Shutterstock)[/caption]
Who’s Responsible for the Process?
Everyone in a business has some responsibility for product/market fit, not just the product team. Leadership is responsible for answering big questions like critical business goals and outcomes and which customers to serve, and the product team must translate these answers into features or products that serve the business goals and are feasible to build, and still represent users. Laure comments that
the opportunity-solution tree that Teresa Torres talks about is a good way to think about this, when combined with value discovery.
Responsibility for product/market fit can vary according to context. Stephen Culligan comments that he once worked at a company with a good product where the challenge was to lure small customers away from a more established competitor. He says: ”Even though the product team and Product Manager thought a lot about product/market fit, really it was the sales and marketing team that were focused on proving it.”
How do you Know When You’ve got Product/Market Fit?
Product/market fit means you have a good product, priced properly, with a successful go-to-market strategy. You have costs under control, and a repeatable process to acquire and retain customers. In practice, however, says Bridget McMullen, it can be hard to know when you’ve got it: “Each product manager needs to identify success metrics for hypothesis testing – this can be derived from similar products from your company or within the industry. The success metric results are your guide to determine whether the product should or should not go forward. If the product passes testing, these results are your best bet to forecast outcomes.”
This Mind the Product post from Rajat Harlalka,
In Search of a Better Way to Measure Product/Market fit examines some of the benchmarks and difficulties of measuring product/market fit, and this further post from Rajat,
How do you Find Enterprise Product/Market fit?, looks at the additional issues with finding product/market fit in an enterprise business.
Laure Parsons adds a note of caution about product/market fit in venture-backed companies when large investments are involved. A highly leveraged company, backed by VC money, will be under a lot more pressure to show growth than a company that’s self-funded. It may appear that a VC-backed company has reached product/market fit when in fact what it has is just a successful marketing strategy and money to throw at it - and a high cost of customer acquisition rather than the low cost of customer acquisition associated with product/market fit.
Stephen Culligan says that at B2B SaaS fitness platform Glofox he could feel the product/market fit when sales were consistently above-target. “Customers valued the product and they were converting at rates way higher than the expected industry average,” he says.
Big Problems and Challenges
Let's now take a look at some of the biggest issues product managers face:
1. Not Enough Research, Innovator’s Bias
Ego often gets in the way of research, says Bridget, and leads to groups of users being ignored. As she says, “if you ignore your users your product will fail”. Linked to this is what entrepreneur Ash Maurya calls “
Innovator’s Bias” - the idea that the solution you thought of should work. Product people can fall into the trap of thinking that the problem is that their solution doesn’t have enough features, but as Laure comments: “If your product addresses the most important aspects of what your customer values, the core features will be enough to get you to product/market fit.” A great product idea should stand up to scrutiny and the removal of bias. Ask whether the product truly matches what customers value and whether any communities of users are being ignored or not fully understood.
2. Quantity over Quality Mentality
There can be a tendency to rush out new features and platforms to keep up with competition and keep leadership teams happy, but this can also mean skipping over research and testing and ignoring what users want. User needs will also be more important than pleasing a boss and it’s a product manager’s role to educate others about them.
3. Mistake Demand for Product/Market Fit
As in the case of Piply mentioned earlier, you don’t have product/market fit until you have a sustainable business - though Piply did it right and iterated to find out if they had product/market fit. So you can believe you’ve got to product/market fit because a group of customers like your solution. But they may be using the product for any number of reasons - they may like the company or be early adopters who will try anything but won’t stick around. As Laure says: “If you can’t easily acquire customers outside of your existing networks you probably want to investigate whether you’ve picked the right segment to serve and you’re addressing something that matters to customers.”
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It's important to be sure you're getting feedback from customers who are right for your product (Image: Shutterstock)[/caption]
Bridget adds that you should be sure of your sample sizes and user personas: it’s no good testing a product for stay-at-home moms on single 20-something men, as she’s seen happen. “Access to the right users is challenging,” she says, “how do you get honest feedback and a large sample size without wasting product development time or money? It’s a struggle.”
An abundance of capital can bring what Stephen calls “murkiness” to testing product/market fit. He explains: “Uber probably has product/market fit but a likely worthwhile question within Uber at the moment is ‘how do we get to profitability if the main reason our market chooses us is cheap fares subsidised by venture capital?’. If you define the product as all the reasons that customers choose you then Uber has a lot of product/market fit questions still to test.”
He echoes Laure’s comments about fintechs. “Fintechs have challenged traditional banks with a better experience and then sustained the challenge with VC-subsidised low or no customer fees. The next few years should be interesting.”
4. Customers Don’t Understand Their Needs
A product’s buyers may not fully understand their needs and rely on marketing messaging to tell them what they should be looking for, perhaps because the area is new or complex, like blockchain or AI. Says Stephen: “The product might ultimately be a terrible fit but until the buyer knows what they’re trying to achieve a well-funded company can be pretty successful in convincing them the product they sell is exactly what is needed.”
5. Trying to Be All Things to All People
Another classic challenge with finding product/market fit is defining your market too widely, especially for start-ups. If you're a new CRM aiming to take on Salesforce, you don't start by competing with everything they do - instead find a highly underserved niche in the market that you can win in and that you can then use as a starting point to scale from.
The Realities of Product/Market Fit
Finding product/market fit may be essential but it’s not sufficient for a product’s success. Other forces also come into play - factors like size and addressability of the market, pricing, competition, etc.
Product/market fit is not just about a product’s features. You also need the right business model, go-to-market strategy, and to fit into the overall company vision. Product/market fit needs to balance cross-functional elements. If a product is too engineered, the price may be affected. If a product is over-designed, launch timing could be missed. Each element is a delicate balance that evolves over time and requires flexibility and discipline.
And as if that's not hard enough, finding product/market fit is just the first step to continued growth. If you've done it right you focused in on one niche market and hit product/market fit there - but now your strategy is about finding the adjacent markets, customer segments, etc that allow you to grow - making for a series of product/market fits you need to achieve.
And what about product/market fit in a post-COVID world? What will be different? Market trends are changing and it’s likely that fewer companies will have the luxury of trying lots of different options while subsidised by venture capital. Customers may change, and where there once was product-market fit, there may be a need to discover a new approach or product direction. As Bridget says: “The biggest question product leaders need to ask themselves is ‘how will our product be affected, understanding that the future is not stable?’.
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