Achieving a product-market fit (hereinafter PMF) is often considered a significant milestone in a new company's journey. It helps in evaluating the value of your product and determining if the time is right to start scaling your business.
So what is product-market fit, and why is it considered so important? In this article, you will learn the answers to these questions as well as how to measure your PMF using surveys.
Table of Contents:
What is a product market fit?
Product market fit describes a stage where a company has successfully identified its target customer (the market) and created a product that fits their needs. It means that users consider a particular service a must-have, and they are willing to pay for it.
Marc Andreessen, a Silicon Valley entrepreneur, coined the term and defined it as follows:
Satisfying the market and demand for your product indicates that you're successfully solving a real problem for a particular audience.
It is clear to identify when you don't have the fit yet: the usage isn't growing fast, sales cycles take long, reviews aren't that great. However, it's a myth that achieving PMF is a discrete, evident event - for most companies, it isn't. As it is an organic process overall, it's hard to pinpoint a specific time, though there are certain indicators of being on the right track: fast-growing sales, word of mouth spreading, the need to expand your sales and customer support teams.
PMF typically occurs in the first 2-3 years of a company's lifespan. Premature scaling without achieving your fit is a common start-up killer, therefore actually measuring this brings extremely valuable data and insight, crucial in planning your business strategy.
Note that this metric is great for many products, but the prerequisite is an existing market.
Why is it important?
PMF is considered an important concept when creating new products. It helps to measure your proposition's value and evaluate whether what you are building is commercially viable. Without clarity on your market fit, you could be investing money and efforts into something with low potential for success.
A common misconception assumes that having a certain number of paying customers equals the product-market fit. When the lead velocity speeds up and conversions rate goes high this is a strong indication that you have the fit. However, while customer count validation is important, the quality behind the number of clients is even more important. Are they the target ones, are they staying with you?
Last but not least, checking how important your product is to them is a useful insight and the core metric for the PMF.
How to measure it?
Multiple metrics could be used as indicators for the PMF: acquisition, activation, retention, churn, referral - all being an essential part of the puzzle. But there is a much faster way to measure your product's fit with a simple yet effective survey.
Product market fit survey
It is a qualitative survey collected from the business customers, asking a simple question to determine how important/ irreplaceable your product feels to your users. It's also known as the Sean Ellis test.
While working as a consultant for developing start-ups, Ellis also known as the creator of "Growth Hacking", came up with a survey format that soon became industry standard.
The test is straightforward and asks one particular question:
The option "Very disappointed" indicates that the product is a must-have for the user - that's the goal.
First, you need to define the right target group to do the test. Not every person who has experienced your product can qualify. Ideally, try to target respondents who fulfil the following three requirements:
1️⃣ Experienced the core of your product or service
2️⃣ Used your product at least twice
3️⃣ Used your product in the last two weeks
Users who fit these criteria are more likely to understand how your product or service works and will be able to see the higher value it offers.
Analysing your results
After you've run the test, and have a stack of responses ready, it's time to interpret the results. 🔬
If over 40% of your respondents would be very disappointed not to be able to use your product anymore, it means there is a good chance for your product's growth and scalable customer acquisition rate. The 40% mark, established by Ellis, was based on results acquired from hundreds of start-ups. Companies that fell significantly below this number struggled to attain sustainable growth.
➡️ Very disappointed
Suppose 40% or more of your users picked this option. It is an excellent indicator that you're on the right track. It confirms that your product/ service attained its product-market fit. 🎉
Treat it as a confirmation of moving in the right direction, but not yet a guarantee of success. Use the momentum to solidify your position in the marketplace and continue pursuing your long-term goals.
➡️ Somewhat disappointed
You are close to attaining your product-market fit. Dedicate your efforts to finding out which factor made respondents choose "somewhat" over "very." The cause of the divide might be something that makes all the difference. Follow up to get the details, ask open-ended questions or perhaps schedule an interview.
➡️ Not disappointed
If it turns out that most of your users are not concerned about your product, you need to act. ⚠️ It's still the right moment to rethink your current offerings. You need to reevaluate and check if your product is actually solving a problem that the user has. It's best to organise a follow-up survey targeting the unsatisfied users; find out:
- How you can improve your products and services?
- What product/service features the consumers appreciate the most?
- What product/service features the consumers like the least?
Once you can pinpoint why your product is currently a misfit on the market, think about enhancing it, redeveloping the features and how you present your service.
The idea of product-market fit has been adopted across the business world. It is a fantastic data that can indicate whether your product and your business, will be successful.
❗ Be aware though, this is a metric designed to evaluate how a product fits into an existing market, assuming consumers have a certain idea of it already. It might not be best for new innovations; revolutionary products which users haven't experienced yet. Standing out in the market or creating your own market category requires a different approach.
Achieving a market fit is a huge win but at the same time is a never-ending journey. Therefore ongoing research is essential. As your business expands, and customer's expectations shift, be sure to review if you still have the right fit.
🚀 If you're ready to find out what your product-market fit is, you can start right away with our survey template: