Achieving Product-Market Fit (PMF) is essentially the holy grail of the startup world (and frankly commercial world as well), however it can seem incredibly difficult to explain, let alone achieve and validate. For startups who are beginning from a standing-start with no immediate connection to the market, this can seem like trying to achieve the impossible. But rest assured, it's not.
The following product market fit guide has been created from first hand experience and validated further across a number of startups in varying global industries (so I hope it helps!).
Firstly, what is Product-Market Fit?
The 40% rule is a popular metric for understanding product-market fit survey results. It states that if at least 40% of customers say they would be “very disappointed” if they no longer have access to your product or service or consider it a “must-have” (wouldn’t use an alternative), you’ve created a product that fits into the market (Source: HubSpot).
In it's simplest form, product-market fit means you've created something that the majority of your market actually want and are willing to pay for.
In it's simplest form, product-market fit means you've created something that the majority of your market actually want and are willing to pay for. It is when your efforts to PUSH into the market suddenly get overtaken by the markets demand that PULLs you towards them.
A practical example is when your inbound inquires begin to outweigh you outbound, and the product begins to sell and retain clients purely from it's functionality and word of mouth. I.e. the product's value and use case(s) are abundantly clear to customers, they want it, and it delivers consistent tangible value to their life.
The below adoption curve is another common example of what product market fit can look like (at least from a marketing perspective). There is a point of inflection as you cross the chasm between Early-adopters and Early-Majority (labelled PMF below), whereby the rate of adoption vs. effort begins to pivot exponentially in your favour. In other words, this is this stuff investors froth over - it's essentially the main thing they are looking when considering startup investment.
Product market fit guide: a standing start
There are many things that can be done at first stages of the journey, however my advice is always to stick to building a solid foundation first. We can try ‘force customers into buying from you asap’ to try to achieve some quick numbers, however this is dangerous as this could generate bad customers or a bad reputation if we aren’t sure if the RIGHT–FIT - weighing you down in the long-run. This is critical, as the goal is to create long term, happy customers who will pay indefinitely from ongoing value (plus, we want customers that we can show off to investors and introduce them to speak well on your behalf).
Particularly for products like SaaS, we need to think of it like starting a marriage (or perhaps a close long-standing friendship, or like eating an orange), which means it takes time to develop, honesty, and a lot of work to sustain a connection long term. I.e. try not to think as perhaps a furniture salesperson who just needs to get a sale over the line at all costs. Of course I would recommend moving quickly (urgency is everything), but also make sure to be thorough so you can tell your future prospects with confidence how much you are helping others and what specifically you do different to competitors, so they don’t think twice before jumping onboard.
Now, as for the guide - let's get started.
Step 1: Making your first Hypothesis (MVP?):
As shown in the PMF Pyramid diagram below, the starting point of taking anything to market is to make an informed and calculated hypothesis of 'what we believe your audience will want'. In a perfect world we would go get feedback from our users... but since we are only just starting, there are none... So we need to use any available and relevant data that indicates what our market segment may want.
Unfortunately, simply walking into the market and asking for feedback, doesn't seem to work... People's time is precious, and will typically only give you some if there is something in it for them to see, touch, experience before they will take time out of their day and talk to you.
People's time is precious, and will typically only give you some if there is something in it for them
This is typically where the idea of a Minimal Viable product (MVP) comes from. This is also an contentious topic, as what actually constitutes an 'MVP' is debatable. For me, it's in the name MVP. I.e. what is the smallest, simplest 'thing' that will provide value to your target user(s). Gartner states "to reduce development time and effort, an MVP includes only the minimum capabilities required to be a viable customer solution".
However, in the first instance, PMF should be entirely focused on achieving market feedback for validation. So depending on your time, budget, capabilities, an MVP could be as simple as (in order of most effective/expensive to least):
A functional product the user can take and use.
A visual, 'clickable' prototype that can be demo'd and explored by you and the customer (i.e. can tell a story).
A slide deck of graphics and prompts walking the customer through experiencing the product (or idea).
The point is - the first hypothesis simply needs something to give a clear understanding and experience to the customer, in order to generate viable feedback 👍👎.
In my experience, the best founders are those who come from the industry first-hand and thus can develop a solution accordingly. Since they are already intimately familiar with the target market/buyer/use case - they can draw on their tactic knowledge and networks. I.e. a nurse would have a great understanding of what good 'nurse' software looks like, whereas, a lawyer may think they know what a good solution for a tradesman looks like, but there is always substantial tacit knowledge gaps that can be their downfall. (B2C is different in this way, but we can get to that in another blog).
As the old founder arch-type story goes "I was working in X role in Y industry, and I was tired of dealing with Z issue over and over again! I searched the market and could find a solution, so I decided to create my own {insert product here}".
The best founders tend to be those who come from the industry/role and develop a solution accordingly.
Below is the PMF Pyramid we will use as the guide for this topic:
Step 2: Find WHERE to experiment
Now, before you rush ahead and start trying to sell your product, we need to also make another hypothesis on your Sales Market Fit (SMF). I have worked with organisations who have rushed straight to “sales and marketing effort” (SME) by doing countless cold calls and a multitude of emails before taking the time to understand exactly who their ideal customer profile (ICP) is and how specifically they want/need to purchase it (sales market fit) and use it in their day-to-day operations (PMF).
For example, if you are selling highly complex data models to the construction industry, I don't think a TikTok ad will bring you much luck. Likewise, if you are selling a $5 fitness app, I don't think paying $5,000 for a networking event will be an immediate best use of your resources (unless perhaps to set up channel partners). However, this extends far beyond just marketing channel engagement.
Having a great product is only half the battle, finding the most efficient and effective way to sell it will be the missing link to either sinking or succeeding. At this stage you need to explore, experiment and validate:
Marketing & sales channels (e.g. cold emailing, social paid ads, affiliate marketing, referrals, etc).
Messaging & positioning (are you explaining the value you actually offer the buyer in a way that makes sense to them?)
Pricing (the never ending debate! more content to come on this soon).
Sales process (do you need to help your client to create a business case for larger ticket items? Should you be pushing them directly to a self-service check out for low-ticket items?)
Customer journey map (how will your customers find you, understand your value, know how to buy you, and finally purchase you).
Step 3: Test, test, test!
Now that you have your product & selling hypothesis, it's now time to get out and test the sh!t out of it.
Referring back to our PMF Pyramid, now is the time to head out and start refining your pitch and product to explore and establish what does and doesn't work in the market. I.e. repeat steps 1-3 over and over again (PMF > SMF > SME > Repeat), using each iteration to gather more information. I.e.:
Find a lead
Pitch your lead (or provide free trial)
Hear their feedback and ask as many questions as possible (another blog on this)
Did they like it and want to buy? Great, progress to a sale!
Did they not like it? Reflect on the quality of the interaction:
Firstly, were they the right person?
What didn't they like?
Why didn't they like it?
What did they prefer?
Was it the price?
What would need to change in order to make them buy?
Is it possible they didn't understand the value?
If they were the right person - consider modifying the product or pitch accordingly (PMF refining).
If they weren't the wrong person - consider modifying your market approach, target customer and respective channels (SMF refining).
Repeat this over and over again, until you establish 1 incredibly crucial thing - How far off is the product to being exactly what your intended users want to buy?
This will give you the information necessary to consider the dreaded P-word: Pivot...
Scenario 1: Are you getting more and more customers or commitment at an increasing rate?
Consideration: Pivoting may not be needed. Keep improving your strike rate and push for growth.
Scenario 2: Is the list of required product modifications growing terrifyingly long and no one is committing?
Consideration: It may be time to pivot...
And before you ask, the first question that follows this guide is always:
Question: "How many times do I need to do this process to achieve PMF?"
Answer: "as many as your heart can take..."
The more data for validation, the better. In a previous role, I hit over 1,000 demos before I was absolutely certain of what PMF looked like. As a rule of thumb, if you find the same type of buyer persona is saying yes more than they're saying no, you may be on the money. Nevertheless, keep pushing for that strike-rate higher - an 80% conversion rate is a better market fit than a 60%...
As a rule of thumb, if you find the same type of buyer persona is saying yes more frequently than no, you may be on the money.
Conclusion:
The end goal for this is evident when looking at successful start-ups and scaleups who work for many years to refine their product so that they can sell more, faster with less effort buy nailing exactly what their customer want and how they want it – then branch out into other products that complement this – i.e. growth!
Growing a startup will require momentum – meaning the first 1-50 customers will be just as hard to get as the next 50-200, which will be just as hard to get as the next 200-500, and so on. Pioneering a new product will mean you will have to understand first how the customer wants to purchase your product and what they need from you in order for the product to be successful. Make sure to keep a close ear to customer feedback and usage patterns at all times as this may change over time with new tech, new countries, new regulations and changing buyer behaviour.
Being able to shine a light on those who LOVE and those who HATE your product and WHY, should be 99% of your focus in the early stages
Being able to shine a light on those who LOVE and those who HATE your product and WHY, should be 99% of your focus in the early stages. Once we get a good strike-rate, it is just a matter of amplifying this and scaling it as high as possible.
It is important to note, the content in this guide is purely a simplified recommendation of how startups could take action to achieve PMF and subsequent growth. The reality is, there are infinite variables to consider that may contribute or prevent a startup's success. The purpose this guide is to hopefully provide early stage founders with something practical and actionable, that may in fact help them build momentum in their journey.
If you would like to chat more about this guide, feel free to click below and reach out for a free 30 minute consulting session!