Product-market fit is the alignment between the company’s value proposition and customer segment. In other words, do the products and services match the type of customers targeted and can this provide the foundation for a successful company?
Successful product-market fit requires three attributes.
The value proposition—the value offered by a company’s product or service—needs to be desired by customers. While this seems basic, I have seen many entrepreneurs dive into creating a product that they think is amazing, only to end up with a solution looking for problem. Unfortunately, in these situations, target customers don’t feel a burning desire to have the product. Marketing efforts are not the solution.
For a value proposition to be desirable, it needs to address a strong customer need—functional or emotional. Sometimes customers will not know they feel a need for something until they experience it, such as a team task management tool like Asana. In addition, the need may be an emotional one, such as the longing to be connected to friends that is fulfilled by Facebook.
A feasible value proposition needs to be able to be executed efficiently and effectively to bring a product-market fit to life. It has to delight, not disappoint customers. Setting unrealistic customer expectations can be fatal for startups. The result is lots of customer trials and limited retention.
Startups usually fall into this trap of creating an unfeasible solution for two reasons:
- Rely on third parties to meet unrealistic standards
- Technology development is unable to meet the expectation in time
A viable product-market fix provides financial results that are substantial and sustainable. The financial results are not always needed immediately, for example, Twitter survived on investor funds for many years before implementing a revenue model. However, at some point the startup needs to make money to survive. Moreover, investors will only invest in a non-profitable startup if they believe that they will still make a return.
When forecasting a company’s revenue, consider two main levers.
- Volume: How large is the target customer segment and what market share is realistic?
- Price: What will the price per customer be (pricing model, price points)?
Can you inoculate your startup to increase its survivability rate?
Since the pre-historic times in the startup world (circa 2008), a number of approaches have developed to help startups find product-market fit and test if each idea is desirable, feasible, and viable. Two main ones are:
- Gain deep customer empathy—really understand them
- Generate lots of ideas before zeroing in on a few
- Get customer feedback early on and frequently
- Focus in on running experiments to refine the startup’s hypotheses
- Launch an MVP (minimal viable product) to get feedback rather than investing heavily in a product customers reject
Next time you work on a startup—within a large company or as a standalone—be sure you find a successful product-market fit. If your product-market fit meets the required attributes above, there is good chance you nailed it. This way, you can avoid falling prey to the #1 startup killer, the grim reaper of poor product-market fit.
Do you have some product-market fit stories? If so, we would all love to read about them in the comments section.