Product/market fit

Product/market fit is the degree to which a product satisfies a strong market demand.

Product/market fit has been identified as a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).

History

Marc Andreessen defined the term as follows: “Product/market fit means being in a good market with a product that can satisfy that market.”.[1][2][3] Many people interpret product/market fit as creating a so called minimum viable product that addresses and solves a problem or need that exists.

Sean Ellis is often associated with popularizing the term. He placed product/market fit as a precondition for effectively scaling marketing for a company in his startup marketing pyramid.[4]

Steve Blank referred to the concept of product/market fit as a step in between customer validation (step #2 in his book The Four Steps to the Epiphany) and customer creation (step #3).[5][6][7][8][9]

Interpretations

In Alexander Osterwalder's Business Model Canvas paradigm, product/market fit could be interpreted as a business model's value proposition, customer segment, relationship, and channel are fixed without requiring additional pivots.

The 40% rule

One metric for product/market fit is if at least 40% percent of surveyed customers indicate that they would be "very disappointed" if they no longer have access to a particular product or service. Alternatively, it could be measured by having at least 40% of surveyed customers considering the product or service as "must have". Sean Ellis is noted for popularizing this heuristic after examining many startups.[10]

Analytics metrics

There are five metrics any online business can measure to empirically verify if they achieved Product / Market fit. They are 1. Bounce Rate, 2. Time on Site, 3. Pages per Visit, 4. Returning Visitors, 5. Customer Lifetime Value. Low bounce rates means a visitor's expectation is being met. High Time on Site and Pages per Visit indicate that the experience of the user is satisfactory. High Returning Visitor reflects the lasting impact a product has on their customers, causing them to come back, and Customer Lifetime Value measures the profitability each customer brings to the company. If these 5 metrics are above average and your 40% rule is met, you'll know you have a Product / Market Fit company.[11]

Common mistakes

It is important to differentiate between product/market fit and problem/solution fit when measuring a company's customer base. More specifically, when gauging a customer's desire, companies need to be sure they are measuring desire for the product or service—not just for a solution. Misinterpreting customers' desire for a solution as desire for a company's product or service will end up being a false positive for product/market fit.[12]

Product/market fit is not binary. For a fledgling startup, a minimum degree of product/market fit will not be adequate in order to achieve market traction and success. Rather, what is actually required is a high degree of product/market fit, or extreme product/market fit.[13]

See also

References

  1. ↑ Milton Mpinga. "Product/Market Fit - EE204".
  2. ↑ Quora. "How do you define Product-Market Fit?".
  3. ↑ Milton Mpinga. "The Pmarca Guide to Startups, part 4: The only thing that matters". Archived from the original on July 1, 2007.
  4. ↑ Sean Ellis. "Startup Marketing".
  5. ↑ Steve Blank. "The Four Step to the Epiphany - 2006" (PDF).
  6. ↑ Blank, Steve and Dorf, Bob (2012). The Startup Owner's Manual, K&S Ranch (publishers), ISBN 978-0984999309
  7. ↑ Blank, Steve (2008-2015). Blog on entrepreneurship
  8. ↑ Blank, Steve (2013). What I Wish I Knew About Startups - Steve Blank, Consulting Associate Professor at Stanford University (video, 30-min). The audience is composed of the CEOs of the portfolio companies of Khosla Ventures. Talk given in May 2013, posted on the official You Tube channel of Khosla Ventures in May 2014
  9. ↑ Blank, Steve (May 2013). Why the Lean Start-Up Changes Everything, in Harvard Business Review
  10. ↑ Venture Hacks. "How to bring a product to market / A very rare interview with Sean Ellis".
  11. ↑ Compass. "Find out if you have a Viable Ecommerce Business, Before it's too Late".
  12. ↑ Tristan Kromer. "False Positives & Product/Market Fit".
  13. ↑ Ben Wiener. "The Black Hole of "Meh."".
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