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What is product-market fit, and why does it matter?

Last updated

23 March 2023

Reviewed by

Tanya Williams

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Does your product generate a lot of buzz? If your customers constantly talk about your products and you’ve filled in a market gap, you’ve achieved product-market fit (PMF).

If sales cycles take too long, most of your deals never close, and your product use is barely growing, you’ll need to research PMF a little further.

If you’re just starting, don’t feel dissuaded. The likelihood of reaching product/market fit as a startup is slim. According to creator Marc Andreessen, PMF is the only thing that matters.

"You see a surprising number of really well-run startups that have all aspects of operations completely buttoned down—HR policies in place, great sales model, thoroughly thought-through marketing plan— heading straight off a cliff due to not ever finding product/market fit."

Creating and marketing a product that satisfies market demand can be simple. Let’s learn about product/market fit and how to capture your market. 

What is product/market fit?

Andreessen defines product/market fit as "finding a good market with a product capable of satisfying that market." 

In other words, if you want to achieve product-market fit, your goods or services must meet the needs and wants of the consumers in your market. 

The process involves: 

  • Substantial research throughout the entire product development life cycle

  • A series of testing and collecting customer feedback

  • Continuous evolution to meet the ever-changing needs of consumers in your market

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What is an example of product/market fit?

Arguably, the most popular example of product-market fit is Netflix. 

Co-founders Reed Hastings and Marc Randolph identified a gap in the DVD rental market, noticing growing frustrations over late fees at DVD rental stores. They foresaw a need for convenient DVD renting processes. 

Netflix was born with the option for consumers to subscribe to their service, receive DVDs in the mail, and keep them as long as they like.

However, the startup company demonstrated how well they understood their market by achieving product/market fit twice

Before DVDs became obsolete, they evolved their product into a streaming service, positioning Netflix for success once more.

How to measure product-market fit

There’s no exact science to measuring your product/market fit. 

However, you can use these methods to gauge whether you're going down the right path:

  • Analyze your data-based indicators: Evaluate how well your offerings are performing by answering questions like: 

  • Is your target audience engaging with your marketing?

  • Is your product receiving word-of-mouth referrals?

  • How high is your customer retention rate?

  • Continuous research: Regular analysis of your products, business, customers, and industry is a must to achieve and maintain PMF.

  • Track and measure your metrics:

  • Quantitative: Churn rate, growth rate, market share, net promoter score (NPS), and user retention rate

  • Qualitative: Word-of-mouth referrals and publicity

Why selecting the right market matters

To succeed, your business needs to produce goods or services with market demand. 

The definition of 'market' varies slightly depending on who you ask, but NetMBA ultimately defines it as a group of consumers or organizations that:

  • Are interested in purchasing a product or service

  • Have the resources to purchase, and

  • Are permitted by law and other regulations to acquire it

It’s important to consider the market you’re creating a product for as it determines your success. 

After all, the wrong market won't be interested in your offerings. The right market at the right time will have consumers rushing to purchase from you. 

How to establish a good product/market fit

You can establish a good product-market fit by:

Getting to know your target audience

Conduct market research and competitor analysis to pinpoint your ideal consumers and inform your buyer personas. 

Understanding their needs and pain points

Go beyond your personas and 'who' your audience is to uncover pain points your competitors aren’t addressing. From this research, you can deliver the solution. 

Finding your value proposition

Identify your unique selling point (USP) by asking yourself what features and benefits your products offer that the competition does not. What sets you apart and makes you more valuable?

Creating your Minimum Viable Product (MVP)

Combine these steps and build an early, basic representation of your product (the MVP). Your MVP must prioritize core features that will resonate most with your customers.

Conducting tests

Test your MVP on a small portion of your market and repeat your tests. Collect product feedback and customer analysis to avoid biased assumptions. You can conduct interviews, send out surveys, and more. 

Making improvements

Using your consumer insights and data, note where customers believe things are lacking and require changing. 

Experts recommend a product roadmap of continuous product discoveries to deepen your understanding of your target market's needs.

What are the best questions to identify product-market fit?

The top five questions are: 

  • How often do you use our products?

  • What problems are you trying to solve by using our product?

  • Which features are most valuable to you? 

  • What key features are we missing?

  • How would you compare our products to our competitors'?

FAQs

How to define product market fit for a SaaS product

A SaaS product reaches product-market fit when you can sell it and target it to the right market, successfully solving the pain points of SaaS users. This confirmed viability can make your company real money.

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