Finding Product-Market Fit (PMF), or Product-Segment-Fit as Anthony Pierri 🎸 framed it recently, is the holy grail for startups as they enter new markets and equally crucial for established businesses looking to launch new products.

It's an important milestone influencing customer acquisition, retention, revenues, and, ultimately, securing your next funding round.

However, according to a study by Startup Genome, startups often underestimate the time required to validate their market. In fact, startups typically need 2-3 times longer to validate their market than expected, leading to a risk of premature scaling or even business failure.

That's why we came up with this 6-Step Process to Product-Market Fit for Startups, so you can transform your startup into one that resonates with your target market and drives sustainable growth.

But wait, what exactly is Product-Market Fit?

Product-Market-Fit is the intersection where your product meets a significant, underserved customer need in your chosen market segment. That includes the core solution, value proposition, and feature set.

The crux of finding your PMF is identifying that pressing problem or need and creating an (innovative) solution, that consistently fills a gap within your competitive landscape. PMF is not static, so look at it like an ongoing task rather than a one-time goal.

The Market & your Target Audience

Depending on the market you want to enter, you need to identify different market segments that feature diverse target audiences and have specific needs. For MarTech companies, this could be specific industries or business types that can best benefit from your technology. As this is a B2B market, the age or demographics of potential customers can vary a lot. Their unsatisfied needs, however, often overlap.

The Product

Your product needs to offer a unique solution, targeting the pain points identified in your market research. The answer to these pain points should be written down as your value hypothesis or proposition. It is "a short statement that describes the problems you want to solve and how you will do it differently than anyone else. It considers customer needs and wants, the uniqueness of your product, and the advantages of working with your company” (Source: aha.io)

After you've come up with the value your product can create, work over your feature set to make the vision come true and only then follow with the UX to make the product a pleasant experience.

As an example, Dropbox doesn't just offer storage; it's a storage solution so seamlessly integrated into workflows that it appears as just another folder on your computer. Their comprehensive understanding of their market's needs and their product's unique value proposition led them to a robust PMF in their journey.

Why is Product-Market-Fit important?

Despite having a brilliant idea, compelling story, talented product team, and a fully functional product, without a viable market, a startup cannot thrive. PMF matters because it determines whether your product or service aligns with the needs and wants of your target customers. While you may think product-market fit is primarily a startup issue, it is just as important for established companies with successful product portfolios.

It's crucial for not just driving sales but for building effective marketing campaigns with appropriate messaging and feature focuses. It's also important for product development, ensuring you're not building a product that nobody wants to buy.

How do I evaluate Product-Market-Fit?

Generally, evaluating your Product-Market-Fit involves both objective and subjective elements. Objective measures include KPIs like churn rate, average revenue per user, customer acquisition cost, and the LTV to CAC ratio. For instance, a low churn rate coupled with high average revenue per user can indicate strong PMF.

On the subjective side, qualitative feedback obtained through surveys, reviews, and interviews can provide critical insights. Tools like Medallia or Qualtrics can help analyse such feedback to measure customer satisfaction. The two most popular methods are the Net Promoter Score (NPS) and the Product Market Fit survey by Sean Ellis .

The 6-Step Journey to Product-Market-Fit

If you search up how to evaluate PMF on Google, you'll find a lot of different approaches and resources. So, as previously promised, we've put together the following step-by-step process that takes all that information into account.🤓

Step 1: Write down product ideas and concepts

It makes no sense to randomly start developing a product if you can't show that someone will be interested in it. Validate if there's a problem worth solving by separating the problem from the solution and testing it via interviews with potential customers (or chat with your parents or your friends).

The Problem-Solution-Fit Canvas by Daria Nepriakhina is a helpful tool for that purpose. The goal is to be where your customers are and solve a real problem, either by doing something familiar differently or introducing something new in a way they understand.

Step 2: Identify your market size

Market Validation or Market Sizing is not only a key component in any startup pitch but also for finding Product-Market-Fit. Deep-diving into market research and knowing your

• Total Addressable Market (TAM)
• Serviceable Addressable Market (SAM)
• Serviceable Obtainable Market (SOM)

is vital. Check out our Market Sizing Cheatsheet for more information!

Step 3: Research your target customer

Understanding your target customers is also important to achieve PMF or you'll risk building a product that doesn't fully resonate. Here are some popular ways to collect information about (potential) customers:

• Customer interviews
• Surveys
• Social listening
• Conducting a competitor analysis

Collect feedback from these sources to influence future product iterations or to help design a new product. Develop customer personas based on what you learn.

Step 4: Build MVP

An MVP is a basic yet functional version of your product that serves to validate the assumptions you've been making about your market and target audience. It's a low-risk way to test whether your product's core functionality resonates with potential users.

Additionally, you can learn about your customers' needs and gather feedback to guide your product's future development. It de-risks the product development process by ensuring you don't invest heavily in building a product only to find out later that there's no market for it.

But remember Reid Hoffman's words:

"If you are not embarrassed by the first version of your product, you've launched too late."

The essence of an MVP is to start small but think big, taking one step at a time towards achieving your vision. It's all about learning as much as possible about your customers and continually adapting your product to meet their needs.

Step 5: Test, Test, Test

Once you've launched your MVP, that's when the real learning begins. Feedback from your MVP testing will help you understand if your product meets users' needs and how it can be improved.

A potent strategy for gathering feedback is a Product-Market Fit Survey, also called the "Sean Ellis Test" where you ask users how disappointed they would be if they could no longer use your product. The responses will separate users into three groups: Very Disappointed, Somewhat Disappointed, and Not Disappointed.

The ones who say they'd be "very disappointed" without your product are your golden users. They find real value in what you're offering and should shape your target audience.

However, you should pay close attention to the "somewhat disappointed" group. Their feedback can be crucial to unearth improvements that could tip them into the "very disappointed" (or simply put, very happy with your product) category.

Now, for those who say they wouldn't be disappointed at all, it may seem tough, but it's best to let them be. They're not your core audience, and chasing them could distract you from your intended product scope and the people you actually want to attract. Focus and depth are invaluable when creating a product people would truly miss.

Step 6: Create your product roadmap

Based on the insights gathered during MVP testing, you can begin to build your product roadmap, a strategic document that outlines the future development of your product. If you already have one, you'll just refine it.

The purpose of it is to communicate the vision and direction of your product over time. It's an essential tool to help everyone - your team, investors, and even your customers - know where your product is headed and what the journey looks like.

As Rahul Vohra, founder & CEO of Superhuman, wisely points out,

"To increase your product/market fit score, spend half your time doubling down on what users already love and the other half on addressing what’s holding others back."

Remember, testing your MVP and building your roadmap isn't a one-and-done thing. They're iterative processes that help you better understand your users, refine your product, and navigate your product's journey. Your focus should always be on the users because after all, building a great product is a journey, not a destination.

Scaling Product-Market-Fit

After achieving PMF, the next challenge is scaling. It's about growing your user base while retaining, and in the best case scenario improving, the level of PMF you've already achieved.

Why is scaling so critical though? Well, it's a cornerstone for a startup or company's sustainable growth and survival. It helps ensure your product continues to serve the needs of your expanding user base and adapts to ever-evolving market conditions. Get it right, and you're looking at increased revenue, happier customers, and a stronger competitive stance.

The biggest mistake startups can make is to prematurely scale - spending significant amounts of money on growth before truly discovering and developing PMF. So, remember, solid PMF first, then scale.

To scale your Product-Market Fit you should:

• Track your PMF score: As you grow, you'll encounter different types of users. Early adopters may be more forgiving of your product's shortcomings, but as you expand, users may become more demanding. Your PMF score will likely fluctuate as a result. Keeping an eye on it helps you stay on top of user needs and expectations.

• Optimise your resources and processes: Scaling isn't just about growing, it's also about becoming more efficient. Ensure you're utilising your resources effectively and have processes in place that can support your growth.

• Adopt a data-driven approach: Continuously check your PMF and analyse trends and patterns. This will help you identify opportunities, areas for improvement, and potential roadblocks.

• Keep iterating your product: As you gather more data and insights, continue refining your product to enhance the PMF.

• Stay open to feedback and ideas: PMF is ultimately a human experience, so great discussions with people—your team, customers, and industry peers—will propel your knowledge and success. Be flexible and willing to make changes based on the insights you gather.

What's next?

In the end, remember that achieving Product-Market Fit (PMF) means turning your users into your most passionate advocates. When users love your product so much they can't help but share their enthusiasm with others, they become your spontaneous salespeople, spreading the word far and wide. This kind of organic growth is the ultimate goal, a sign that you've truly hit a nerve in the market.

Have you gone through finding product-market-fit for a startup or at an established company? What steps are you taking to ensure your product remains a steadfast companion to your target audience as they navigate their world?

Share your experiences and lessons learned in the comments below!

Got questions, or need advice? Feel free to reach out!

Sources & Resources

• The Product-Market-Fit Pyramid by Dan Olsen
• The PMF Maturity Model by Zephram GbR
• How Superhuman Built an Engine to Find Product Market Fit by Rahul Vohra (input for Step 5 & 6)

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