Product market/fit means being in a good market with a product that can satisfy that market.
The PMarca Guide to Startups
The Origins of Product Market Fit
Product market fit is a term first coined by Andy Rachleff of Wealthfront and popularized by Marc Andreessen, inventor of the web browser and leading Silicon Valley Entrepreneur, in a famous blog post in 2007. Any product manager developing a new product needs to understand this term.
Most great entrepreneurs and product managers zero in on product/market fit faster than a kid can set up a lemonade stand next to a marathon, but getting to true product/market fit can be a long and crooked path in the real world.
Ironically, the term is so over-used today that many people are fuzzy on the fundamentals or use it the wrong way. This article is meant to be a primer to give you common ground to talk about product market fit issues with your team.
Which came first, the product or the market? It’s the classic chicken or egg question of product development.
The product manager’s job is to create product satisfaction and maintain it. This means developing the product to have:
- Features that solve the market problem in a way that creates tremendous value and can’t be easily copied
- Product positioning that clearly stands out from the competition
- Messaging that your market can clearly understand
So which did come first? The product or the market? It all depends. For our kid with the lemonade stand, the market came first when she realized 50,000 runners would be running by her home. Then she thought of her offering.
Most product management frameworks today would recommend you start with an attractive market and its problems, but not all products start this way.
Technology and engineering centric companies often start with a product in search of a market. Spencer Silver, the inventor of Post-it-Notes, famously developed the technology for sticky adhesives in 1967 and evangelized it for twelve years until his colleague Arthur Fry helped him develop a market for it. Once they identified a market, things took off. The first consumer test of Post-Its in Boise, Idaho showed that 94% of consumers would be repeat buyers.
The Post-Its story is a classic case study of a product in search of a market fit, but today’s companies are expected to evolve faster. Ironically, 3M missed more than a decade of exclusivity on its patent, which eventually expired in 1990. Though nobody can sneeze at their success, how much more money could they have made if they found their product/market fit 10 years sooner
There are more ways to do a product wrong than to do it right, but here are the most common reasons why things go wrong:
- Execution: Product is hard. If you picked an easy challenge, anybody would be doing it. Many startups simply fail with product development. Getting it right means getting passed technical hurdles and building the product with the right features for your market.
- Product Fails the VRIN test: Don’t ignore the fundamentals of Resource Based Strategy. To maintain sustainable advantage, a product has to be Valuable, Rare, Inimitable, and Non-Substitutable. If your developers say “We can totally do that!” Your competitors might be saying the same thing.
- Product in search a problem instead of solution: This is best characterized by the famous myth that NASA developed a space pen when they could have used a pencil (not exactly true, but great story). Engineers are famous for building something cool when something simpler would have worked.
- Battle of the Frameworks: Focus and execution is important. This is a problem for organizations that aren’t aligned and argue endlessly about frameworks that best suit different power centers in the company instead of picking what is best suited for the market opportunity. This turns into circular discussions around Pure Agile (Eng) vs. Market Research (Marketing) vs. Design Thinking (UX) vs. Lean (Startups) vs. Cranney’s Value Framework (Sales).
- Wrong product positioning or messaging: Designing and marketing a product that just isn’t perceived the right way by your market.
A good market is simply a market that is:
- A large market in revenue and target customers
- An attractive market with few competitors
- An addressable market you can reach
Market Sizing is the first step toward evaluating your market. Vision and Bricks has a whole primer on this topic.
An attractive market means a market you can compete in and gain sustainable advantage with the resources you have.
An addressable market is a market you can reach. Don’t go after China just because the market is huge, when you don’t have the first clue about how to go about it.
- Not sizing your market at all. Some teams don’t know how to do this, or don’t trust the process entirely. They end up wasting valuable time they could have saved with a few hours work.
- Generic market segment clichés like “Digital Consumers”, “The Fortune 500”, or “The Global 2000”. Everybody is going after these markets. Why will they buy your product?
- The China Fallacy. Assuming that just because a market is big, you’ll reach even a small percentage of it. You see this in business cases that the startup will achieve X% of the X billion XYZ Market (insert Gartner/Forrester Estimate here). Define a market that is truly your segment. If we could all sell to 1% of the world, we’d all be rich.
- Mistaking velocity for market size. Don’t assume the market is huge because the product is selling fast. You can always sell a product for half the price twice as fast. This doesn’t mean you’ve found a huge market. Overfunded startups often do this and claim early success, only to find out their investors have just subsidized a market size reduction.
- Ignoring market forces. Look at your fundamentals. In the effort to be lean, too many startups build a product that is easily imitated, or enter a crowded, unattractive market.
Having a fit means simply that your customers value your product enough for the company to profit.
Knowing if you have a fit can be an existential question for a startup. There is a long history of startups that took off and lost their fit when market conditions changed, and startups that were days from bankruptcy and found their fit in a desperate pivot.
How do you know? Well there are some fundamentals, know as the trifecta:
- The product has rapid growth
- Customers are using the product and cannot imagine being without it
- The product has repeat buyers, or for a subscription product, a low churn rate
Great, how do you know you have product market fit? What tools do you use to track and measure it? Some of the most common tools are:
- Sales. Duh. But as a product manager, you need to be following sales reports as close as anyone.
- Customer Interviews: Talk to customers every chance you get. There is no activity more important for a founder or product manager.
- Net Promoter Surveys to determine how many of your customers love your product so much that they will promote it.
- Kano Model Surveys to determine what features of your product your customers just can’t live without
- Digital Analytics from mobile and web analytics tools that you can mine for customer behavior
- CRM Tools with customer profiles and revenue
Product Management is becoming more data driven than ever before. There is a world of literature on how to track progress toward product market fit today.
Ben Horowitz, Marc Andreessen’s partner, published a famous blog post on the elusiveness of product fit called Revenge of the Fat Guy . In the startup world, there is always an ongoing debate:
Which comes first? Product market fit or funding?
The fat startup argument says if you have a great product, funding will help you find the fit. The Lean model says that hungry startups find their fit faster than fat ones.
In defense of fat startups, Horowitz argues there are four myths about product/market fit:
- Product market fit is always a discrete, big bang event
- It’s patently obvious when you have product market fit
- Once you achieve product market fit, you can’t lose it.
- Once you have product-market fit, you don’t have to sweat the competition.
If only it were that easy for entrepreneurs and product managers to know when they have a product market fit. For most of us, it’s not always that obvious.
You can bet that for the first 30 minutes of the marathon, our kids with the lemonade stand were waiting anxiously for enough runners to stop so they could turn a profit. They weren’t the only ones. The path to a successful product is a long and winding road that makes us all wait a lot longer.
Below are some articles where you can learn more about frameworks for achieving product market fit and tools to track your progress.