Product-market fit is a temporary situation when your ideal customer profiles are crystallized, their needs are underserved by your competition, and your value proposition conversion rates and cohort retention metrics are far above industry standards.
Most startups fail before finding the product-market fit.
Even if you will be one of the lucky ones, it usually takes years.
Meanwhile, the lack of product-market fit is the root cause for most problems you’re facing.
As long as your target audience isn't saying, "Just take my money. I need this to solve my problem immediately," the odds are against you.
This is true even if you are already profitable or raised significant capital.
Product/market fit means being in a good market with a product that can satisfy that market.
This definition was popuralized by venture capitalist Marc Andreessen of Andreessen Horowitz.
The shortcomings of this definition are that:
1) You can’t measure it so…
2) It means different things to different people.
Therefore, the founder of Product-Market Fit defined the term as follows:
Product-market fit is a temporary situation when your ideal customer profiles are crystallized, their needs are underserved by your competition, and your value proposition conversion rates and cohort retention metrics are far above industry standards.
Product-market fit term was originally introduced by Andy Rachless who was inspired by investing strategy of Don Valentine, the founder of Sequoia.
Product-market fit is often mystified as a magical event after which everything changes and life smiles. However, this view is disagreed upon because the market changes so rapidly these days that no company can afford to forget the importance of product-market fit, even if they have momentarily found it.
Venture capitalist Ben Horowitz puts it this way:
• Myth #1: Product market fit is always a discrete, big bang event.
• Myth #2: It’s patently obvious when you have product/market fit.
• Myth #3: Once you achieve product/market fit, you can’t lose it.
• Myth #4: Once you have product/market fit, you don’t have to sweat the competition.
“The market matters more than anything” is the key message of the brains behind the concept of product-market fit.
Don Valentine's strategy prioritized market, team, and product, in that order.
By understanding the market first, you can identify its needs, assemble the right team to address them, and consequently develop a fitting product.
The most frequently referenced article on product-market fit, written by Marc Andreessen, explains it as follows:
In a great market—a market with lots of real potential customers—the market pulls product out of the startup.
The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.
And when you have a great market, the team is remarkably easy to upgrade on the fly.
Also Andy Rachleff, formerly of Benchmark Capital, has crystallized this as follows:
The #1 company-killer is lack of market.
When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.
The term "market" refers to the group of consumers or organizations that are interested in and capable of purchasing a particular product or service.
There’s one major obstacle left on the way.
This is approach introduced by the founder of Product-Market Fit:
Together with the representatives of the ICP reps, you can start continuous discovery process to figure out all the problems on the way of perfecting the compelling value proposition and building a product that satisfy the market.
Your cohort retention rate is the most important product-market fit metric.
As previously stated, it usually takes years to find a product-market fit.
Therefore, you can't actually measure your product-market fit reliably without months of history.
While waiting for the results, it's better to focus on your high-expectation customers.
Engage them in continuous discovery by talking to them on a regular basis, surveying them, and hosting workshops with them to get qualitative signals about product-market fit.
If your high-expectation customer is not satisfied with something, you should not jump to conclusions that you failed the product-market fit.
It's a great opportunity to better understand their problem.
In fact, if they care enough to state that they are not satisfied with how the problem is solved, it's a signal that the problem your company is solving is important to the customer.
This is why satisfaction metrics like NPS cannot predict poor product-market fit if the high-expectation customers' concerns are taken seriously and addressed properly.
If they start using alternative solutions and consider churning, it signals issues with product-market fit.
As long as they keep using your product or service, it's clear that their needs are still underserved by the competition, and you are on the right path to product-market fit.
