Product-Market Fit is a term which is thrown about in the startup world. In its most basic form, what it means is that you have built a product which is a valuable solution for a market who knows about it and purchases / uses it.
Breaking it down into the key terms, we see why it is vital to a business:
Valuable solution:The market must find that it solves a problem for them. Otherwise they would not use it or spend time on it.
Market: A group of people which has certain common traits from which you can identify them. This allows you to better communicate with them and reach them with your messaging.
One caveat - there can be 'good markets' and 'bad markets'.
Good markets would be large enough to support your business goals, be easily reached and distributed to by your business, and be growing in size. Bad markets are the opposite.
Knows about it: Your market needs to know about your product, otherwise they would not be able to consider it or purchase it.
This is an important point because it indicates that you have a way to communicate your messaging to the market which needs your solution,
Purchases / uses it: Your market needs to support your business model. This will usually take form in either purchasing the product or actively using it in a way which allows you to monetize through their usage.
This term encapsulates that you are able to distribute your product to users, and / or retain users.
Why it is important:
Every business should aim to reach Product-Market Fit before scaling up customer acquisition.
If you prematurely scale your acquisition strategy before finding a level Product-Market Fit which can sustain the business, you will find that your costs to acquire users are incredibly high. the value of each user is low, or that user retention is low.
By being familiar with the concept and its key terms, you can better troubleshoot each aspect in order to find Product-Market Fit.
A few methods of troubleshooting Product-Market Fit:
Talking to any existing customers to find out what makes your solution valuable to them
Find patterns among customers which retain and find value in your product so you can identify the right market to target
Ask customers how they found out about it or where they get information on the industry from so you can better communicate / spread the message to other potential clients
Observe how the product fits into existing customers' process and how they use the product. Then streamline the product to better serve those areas.
How do you know if you have Product-Market Fit:
Two common indicators:
When your product either has a good retention rate.
Your product is spreading organically within an industry / market.
Related topics I will cover in future weeks:
Unique Value Proposition
Further reading from around the internet
The only thing that matters - The first article which coined the term 'Product/Market Fit'. To understand a concept, it is important to dive into the logic of why the term was created and the original thinking behind it.
What is good retention - This article by Lenny describes benchmarks for a good retention rate is based on what existing companies are achieving. This will allow you to know if you've reached a sustainable level of retention before scaling up your customer acquisition strategy.
Just some cool things
The Slice [Newsletter] - I've been a subscriber to The Slice for a while now and it has always been a breath of fresh air in my inbox every week. Nic's unique voice and choice of curation always gives me something new to chew on and leads me down internet rabbit holes I would not expect. Highly recommend.