You might’ve come across product-market fit under the alias of ‘product/market fit' or even just simply ‘PMF’ but forward slash, acronym, or hyphen, it all means the same thing.
In this article, we delve into the depths of its definition and beyond. We provide you with all the key tools and granular insight you need to become a product-market fit pro.
Grab yourself a drink ☕️ and make sure you’re sitting comfortably because we’ve got a fair bit of ground to cover, including:
- What product-market fit actually is
- Why you need a strong PMF strategy
- How to achieve product-market fit
- Measuring the success of your PMF
What is product-market fit?
Like, what does it actually mean? 🤔
Unfortunately, there isn’t one succinct definition of product-market fit that would slot neatly into the pages of a pocket dictionary.
However, in the name of starting somewhere, we’ll give it a damn good try...
So, in a nutshell, product-market fit is the intrinsic combination of two major things:
- The demand for your product (the gap in the market you have identified)
- How your product satisfies this appetite and plugs that gap (features, pricing, etc)
It’s all about honing in on your target demographic (the demand within the market) and then providing that niche audience with a must-have solution to a problem they collectively experience (your product).
It’s all about gauging an appetite for what you have to offer.
Entrepreneur, Marc Andreessen describes PMF as being: “The only thing that matters”, because without an available space in the market for something to fit into, even the most impressive, well-designed, generously funded product will be a flop.
Before we continue to break these two vital elements down further though, let’s first put product-market fit into some context.
The history of product-market fit
The concept of product-market fit is believed to originate with Andy Rachleff - Benchmark Capital co-founder and CEO and co-founder of Wealthfront. In the mid-nineties, Rachleff coined product-market fit as an umbrella term under which the following aspects of start-up venturing and business development could huddle:
- The What: What your product is - what you’re offering.
- The Who: Your target audience - whose problem you’re trying to solve.
- The How: Your plan of action - the strategy that will bring your product to the right market.
This holy trinity of product marketing forms what Rachleff describes as the ‘value hypothesis’ of a product.
“A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do.” - Andy Rachleff.
To be precise.
The strategic benefits of product-market fit
Product-market fit is an invaluable art to master because it sits at the intersection between you, your product(s), and your customer. Getting to grips with it will not only help you better understand your customer needs and how to meet them, it’ll also help boost that bottom line.
Nailing product-market fit means:
Sales, sales, and more sales
You’ve launched an awesome product into a great market that’s hungry for it so you start to see this reflecting in your revenue.
Customer churn is under control
Your customers stick around cause they like what they see (and they want to see more) so you start to see a downturn in attrition.
Positive customer feedback
Customers start shouting about how epic your product is and sharing their positive experiences. Et voila - the magic of word-of-mouth marketing.
Doesn’t it feel great when your customers start selling for you?
How to tell if/when you’ve found product-market fit
Product-market fit never strikes as an obvious A-HA! moment (unfortunately). It’s more about the process and going through the motions.
Sometimes, it’s easier to access your PMF by looking out for indicators that suggest you haven’t cracked it yet. With these red flags still waving, you can be pretty confident in assuming you’ve still got work to do.
5 indicators you HAVEN’T found product-market fit yet:
👎 Customers aren’t getting real value out of your product
👎 You’re getting no feedback or even worse - negative feedback
👎 Customers are falling out of the sales funnel
👎 Leads aren’t turning into sales
👎 Customer churn is on the rise
Signs your PMF strategy IS working:
👍 Customers are snapping up your product like hot cakes
👍 Revenue is on the rise as a result of the product
👍 You’re not relying on marketing to see growth
👍 Customer feedback is on fire - reviews and recommendations are rolling in
👍 You’re no longer having to question whether or not you’ve found PMF
When you know, you know.
How to achieve product-market fit
As we said, finding PMF is a non-linear process. It’s about exploration and discovery, and your findings will steer your strategy along the way.
That said, there is a loose framework around which you can start to build your process on the plight for strong product-market fit:
- Fine-tune your value hypothesis - what, why, who, how?
- Revisit your personas - who are your audience? What do they want?
- Align your team - everybody has a part to play in PMF, from product developers and PMMs to sales, marketing, and the C-suite
- Conduct customer feedback research to evaluate and respond
- Measure the strength of your PMF and react accordingly - pivot or plow on
Measuring the success of your PMF
Net Promoter Scores (NPS) are an invaluable - and recommended - way to measure the success of your product-market fit when it comes to management tools. It’s the modern alternative to more traditional customer satisfaction research.
Through an NPS tool, you can ask your customers to rate how likely they are to use or recommend a product on a scale of 1-10. Your NPS is then calculated based on 3 different types of responses:
- Promotors - Those scoring 9-10 and likely to spread positive feedback and promote growth.
- Passives - Those scoring 7-8 and are therefore satisfied but still receptive to the lure of your competition.
- Detractors - Those scoring 0-6 and are presumably unhappy and therefore able to negatively impact you in some way.
This customer-led insight will give you a good sense of how strong your PMF is.
Customer advisory boards and feedback loops are also effective ways to tap into this kind of information.
Some final food for thought…
The important thing to remember about product-market fit is that you can lose it and it shouldn’t be taken for granted. Fail to listen to customer feedback, keep an eye on the competition and adapt in response, and your PMF can go down the toilet.
If you do feel your PMF has slipped or that your value hypothesis has changed, it’s time to keep pivoting until you consolidate it again. Reconfigure teams, change names, redefine the product - do whatever it takes to strike gold.
You should only start to scale-up once you’re product-market fit is rock solid.
It’s still a relatively new concept so the various definitions and processes floating around are pretty vast. You know us lot at here at PMA though, we’ll work our socks off to make sure you stay in the loop.
Watch this space for more PMF pearls of wisdom 👀