Did you know that a whopping 42% of startups die because they work on products with no market need? Building a product and running a company is one of the hardest things you can do in life.

However, putting all that effort into something that no one actually wants is a tragedy.

This is why you hear companies, especially startups, talk a lot about product-market fit.

Product-market fit usually happens during the first 2-3 years of a startup’s lifespan. If it fails to achieve product-market fit during this time, the company usually is forced to pivot or shut shop due to a lack of funding.

While many businesses struggle to get to product-market fit, others have a hard time identifying whether they have achieved it or not.

In this blog post, we are going to cover everything there is to know about product-market fit – what it is, how to measure it, and key elements of a product-market fit. Read on…


What is Product-Market Fit? (Definition)

Product-market fit is a relatively new concept, and hence, has a few overlapping definitions.

The concept was first introduced by Marc Andreessen, co-founder of a prominent Silicon Valley venture capital firm Andreessen Horowitz. Marc coined the term in a 2007 blog post titled “The only thing that matters”.

Marc defines a product-market fit as “being in a good market with a product that can satisfy that market.

In other words, when a company has successfully identified a target customer and serves them with the right product, it is said to have achieved a product-market fit.

Achieving a product-market fit implies that the demand for your product is much greater than its supply- something every startup company dreams of achieving.

Marc further explains,

“You can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account.”

Now that we are clear on the definition, let us see how startups can achieve product-market fit effectively.


How to Achieve Product-Market Fit?

As we discussed earlier, one of the leading reasons why startups die is because they waste time and effort on products the market has no need for.

To avoid this outcome and achieve success, you must take care of the following six elements:

#1. Determine your Target Customer

The first step is to define your target customer – someone who will benefit from your product/service the most. Without a target customer in mind, you cannot craft marketing strategies effectively.

Start by collecting the demographic information of your target customer such as:

  • Age
  • Sex
  • Country/city they live in
  • Ethnicity
  • Household income, etc.

By knowing who you want to target, you can create marketing messages catered particularly for such an audience, and hence, increase your conversion rate.

Read more: 10+ Powerful Sales Tips Every Sales Rep Should Know!


#2. Identify Customer Pain Points

Once you have identified your target customer, the next step is to gather intelligence.

Talk to your ideal customer and ask them about their challenges and how much would they pay for a solution to those challenges.

Finding underserved customer needs leads to good market opportunities.


#3. Get Laser Focused

Since early-stage startups are often bootstrapped and have very little budget to play with, being laser-focused with your workflow is key.

Start your product journey with a tight focus on a singular customer problem.

Once you have become an expert in that niche, you can think of scaling and introducing new products/services.

Identify the gap in the market and serve that market with a specific goal in mind.


#4. Differentiate Yourself from Competition

A key factor in achieving product-market fit is the ability to differentiate yourself from the competition.

Identify your competition in your target market, their price points, and how your product is better than theirs.

Only when you know such key details about your competitors can you outperform them in the marketplace and stand out from the crowd.


#5. Create your MVP

The next step is creating your MVP or Minimum Viable Product.

A minimum viable product is a version of your product with just enough features that it can be tested in the market with a limited sample size.

Many startups create MVPs so that they can get instant feedback from early adopters before going all-in on the product development.

This way, they can tweak the product along the way and make changes as per user feedback.


#6. Don’t Get Carried Away

Once you achieve product-market fit, don’t get complacent.

Customer needs change over time and hence, you must keep evolving in order to meet those changing needs.

Read more: Market Targeting: What is it & How to do it Perfectly? (Steps Included)


How to Measure Product-Market Fit?

“What gets measured gets managed” — Peter Drucker 

There are many ways to measure whether your company has achieved product-market fit. Some of the most common ones include:

#1. Net Promoter Score (NPS): 

NPS or Net Promoter Score indicates customer satisfaction and measures how likely they are to recommend your product to others.

The respondents are asked to select a rating on a scale of 0-10, with 0 being the least likely to recommend and 10 being the most.

According to Survey Monkey’s report, you can then calculate your NPS using the formula:

NPS = % of Promoters — % of Detractors 

People who rate the product six or lower are called “detractors,” while those who select nine or ten are called “promoters”.

Calculating NPS is crucial as it indicates how happy your current customers are with your product/service and how likely they are to bring in new customers via word of mouth.

Read more: Best Customer Analytics Tools and Software in 2021


#2. Sean Ellis Survey Method:

Sean Ellis is a serial entrepreneur who coined the term “growth hacker” in 2010 and has worked on startups like Dropbox, LogMeIn, and Eventbrite.

The Sean Ellis method involves conducting a survey of your current customers and asking them how they would feel if they could no longer use your product/service.

Respondents are asked to pick one of the following four choices:

  1. Very disappointed,
  2. Somewhat disappointed,
  3. Not disappointed (it isn’t really that useful), and
  4. Not applicable (I no longer use your product)

According to Sean, if 40% of the respondents answer that they would be ‘very disappointed’ if they could no longer use your product, your company is on the right path.


#3. CSAT (Customer Satisfaction)

Another metric for measuring whether you have reached product-market fit is the customer satisfaction survey or CSAT.

The survey involves asking customers how would they ‘rate their overall satisfaction with the product/service or business interaction they received?’

The answers to the survey can be:

  • Very Unsatisfied
  • Unsatisfied
  • Neutral
  • Satisfied
  • Very Satisfied

Comparing both NPS and CSAT will give you a better understanding of where you stand with your customers.


#4. Retention Curve

According to Mobile intelligence company Quetta, the average Android app loses about 80% of its daily active users within the first three days and about 90% by the first month! Shocking, right?

While most businesses run after acquiring new customers, smart businesses work on retaining the existing ones. This is what the retention curve measures.

According to Projectbi.net, the retention curve is “a visualization that represents the average retention of some dimension, usually users/accounts, for a certain set of time periods.”

How many customers are you actually retaining is a great metric to know whether the product/service you are offering is worth your customer’s attention.


#5. Churn Rate

The churn rate, also known as attrition rate, is the number of subscribers who leave a product over a given period of time, divided by the total remaining subscribers.

Many startup founders believe that churn rate is arguably one of the most important metrics of measuring the initial success of a company.

A low churn rate could mean that a company is very well on its path to achieving a product-market fit.


#6. Lifetime Value of Customers

Want to know how much value a customer brings to your business over a period of time?

Start calculating CLV or customer lifetime value.

Customer lifetime value is directly proportional to the value a customer is receiving by using your product.

If the customer lifetime value of your business is on the rise, it means that your customers are highly satisfied with your product/service and are less likely to look for alternatives.

All the above-mentioned metrics, when combined, can you give a deep insight into your business fundamentals. They can also dictate whether or not your company has achieved a product-market fit.


Final Words

Product-market fit is a never-ending process.

Even if you do everything right and achieve it quickly, you still have to constantly evolve to maintain it.

The only way to achieve long-term success in business is to always be on your toes, keep getting feedback from your customers, and stay on top of market trends.

The more value you provide to your customers, the more you will receive in return!

We hope you are ready to conquer the business world by taking tips from this blog. In case you have any further questions, don’t hesitate to reach out to us at @bit_docs.

Good luck!

Further reads:

Software Development Process: Steps To Follow

Product Mix: Definition, Dimensions, Importance & Examples!

Product Launch Plan: What is it & How to Create it?

Business Verticals: Definition, Benefits & Examples!

Market Requirements Document (MRD): What is it & How to Create it?