A startup's only purpose should be to address an issue for which others are willing to pay — or, as Marc Andreessen puts it, "to be in a good market with a product that can fulfill that market." Before contemplating bringing on a venture capitalist, the issue, its solution, and the connected market should all be clearly defined. Although Product-Market-Fit seems to be a simple notion — why would anybody construct something that no one wants? – lack of market demand is the reason why 42 percent of unsuccessful firms wind up in the cemetery of brilliant ideas, according to CB Insights.
What exactly does "product-market fit" imply?
Every startup's initial aim is to discover product-market fit. But, first and foremost, what is product market fit? How do you know if you've got it? Marc Andreessen created the most well-known and commonly accepted definition of product market fit in a 2007 blog post: "Product-market fit implies being in a good market with a product that can satisfy that market." Product market fit, according to Andy Rachleff, is defined as determining who you're attempting to serve (the market), what you're going to provide (your product), and how you're going to execute on that offering in a manner that enables you to capture the value produced by the product (your business model).
What methods do you use to find/achieve product-market fit?
Finding product-market fit entails analyzing market demands and experimenting with alternative approaches to meet them. You must think carefully about how you can service consumers and iterate rapidly on your product in response to their feedback. It's also vital to comprehend your proposed company model and how it pertains to the target market. The principles below will assist a company in achieving product-market fit.
Identifying Your Ideal Client
The first step in determining product market fit is to define your target consumer. This phase entails deciding on a market. You won't know what to construct if you don't know who you want to serve, and you'll waste time and money creating a product that no one wants. It's critical to choose a market that's sufficiently promising.
Don't simply intend to fight this battle along the road; get upfront alignment with investors (Venture Capitalists) on when you'll attempt to build your firm.
Defining Your Unique Selling Proposition
You'll need to design a value proposition to test in the market after you've selected a market and consumer you'd want to service. It is not necessary for this value proposition to be flawless. In fact, you should anticipate iterating on it and maybe changing it entirely. After all, the Twitter team began by developing a podcasting program, while Slack began as a video game. You can finally uncover the value proposition that makes sense for your market if you put together a competent team that works well together and don't stop iterating.
Developing Your MVP
The MVP is intended to be your first foray into the market. An MVP, as popularized by Eric Ries and his Lean Startup Playbook, is a tool for evaluating your value proposition. Many businesses are now employing no-code or low-code platforms like WebFlow and Bubble to develop basic product versions and test them in the market. These technologies allow non-technical entrepreneurs to test their ideas in the market before hiring a team of engineers to construct a full-fledged product.
Before scaling, be sure your product and market are a good match.
Before you worry about finding the right growth plan, you should attempt to solve for product market fit. According to 2011 research by Start-up Genome, 70% of the 3200 businesses surveyed grew too quickly. Concentrate on establishing product market fit before you focus on developing your company to avoid becoming one of the 70%. It's tempting to raise large quantities of money and aim for the stars; but you must first ensure that you've produced something that people really desire in the correct market.
Product Market Fit Indicators
After you've published your MVP and begun iterating, you'll probably be wondering how to tell whether you're getting closer to product market fit. Indeed, according to Facebook CEO Alex Schultz, one of the most common causes of company difficulties is when founders believe they have product market fit when they don't.
It's easy to get caught up with vanity metrics that don't tell you whether your product is successful or not. You should figure out which indicators are true predictors of market development - new revenue, customer retention, and NPS are all solid examples of metrics to pay attention to. The capacity to expand without a significant expenditure in sales or marketing is perhaps the most important indicator of product market fit. Increased word of mouth is a strong indicator that you're on the correct route. However, product market fit is generally obvious at the end of the day. "If you have to wonder if you have product-market fit, you don't," argues Eric Reis.
It's critical to establish and convey with your investors what measured product-market fit will look like in your firm (Venture Capitalists).
Growth via Word of Mouth
'Word of mouth' is a broad phrase used by marketers to describe the phenomenon that occurs when your product expands organically as a result of favorable consumer feedback. It's hard to quantify, but many people think that it's one of the most potent factors in marketing. If your product gains traction via word of mouth rather than advertising, it's a good indicator that you're approaching product-market fit. Keith Rabois tells a great tale about Square's exponential growth as a result of each new hardware device sold. Other prospective clients became customers after viewing the square point of sale gadget in person. This was a strong indicator to Keith and Jack Dorsey that they were discovering product market fit. They had also discovered a clear avenue to viral proliferation in their situation.
Continue to test for product-market fit.
Looking at the process through the prism of the scientific method is one of the finest methods to determine product market fit. You may create a hypothesis about what people desire and then put it to the test in the market. Finding product market fit may become a game if you approach it this way. This liberates you from your fear of shipping. Rather of attempting to create the ideal product from the beginning, you may develop as you get more insight based on market input.
When experts like Reid Hoffman speak about the necessity of shipping early, they don't suggest that you should do something bad on purpose. Instead, you should err on the side of exposing your product to the market since the response you get will either confirm or refute your premise. Sometimes the input you get might lead you down an entirely different path. Startups are cash-strapped and must achieve product-market fit before running out of funds. It's frequently preferable to release too soon and receive this critical input than to spend half of your money on what you think is the great concept only to have it backfire.
Investments are attracted to products that are well-suited to their markets.
Investors (Angel Investors/ Venture Capitalists) are searching for one thing above all else in today's cash-strapped financing climate: product-market fit. That means being in a strong market with a product that can please, according to Marc Andreessen, founder of Silicon Valley investment firm Andreessen Horowitz.
To be clear, you don't have to deliver the finest answer for that specific market; any product may be better. However, product-market fit necessitates that your product meets consumer demands as well as, if not better than, that of your rivals.
When demand outstrips production, the web raves about your "hot new thing," and sales can't employ enough people, you know your product has found its market fit. Other times, though, it is less evident.
What do venture capitalists search for?
Venture Capitalists are looking for startups that can demonstrate early Product-Market-Fit that is distinct from the possibly deceptive early growth indications. They're searching for businesses who can demonstrate the benefit of technology that's packaged into a comprehensive solution with additional features and services, reducing the customer's deployment and integration work as much as feasible.
To summarize, finding Product-Market-Fit is challenging, and it's critical to recognize that it's a variable that changes with the market, competition, and economy. The original Product-Market-Fit should be evaluated, iterated, and validated via a Minimum Viable Product during the very early stages of a firm.