You’re talking to a friend, let’s call him Steve, he says, “I’ve been looking for a reliable nurse for my daughter for over a month but I don’t seem to find the right person”. You say, “Steve, I know exactly the right person for the job!” What just happened? Steve’s needs have been met by your matching solution. You’ve just created a product (matching)-buyer (Steve) fit. Similarly, let’s say, many parents like Steve have the same exact problem and, with your connections, you can find a person for most or many of those parents who seem to have a similar need. You’ve now gone from product-buyer fit to product-market fit. Something every business owner does knowingly or unknowingly.

So, would you agree with me that one of the main objectives of starting a business (tech or non-tech based) is to find product market fit? In fact, in How to Bootstrap a Startup? I cited a research by CBInsights showing that the number one reason (42%) behind startup failure is lack of market need. No market need essentially means that there exists one side of the equation, product. A product that has no one to serve. In the words of Matt Howard at Norwest, “you can make an unsuitable product fit the market, but you can never make the market fit an unsuitable product.”
Where does product market fit fall in the whole venture initiation and growth process? Take a look below.

We often believe that everything starts with an idea but, in reality, it is a personal or external discomfort coupled with an entrepreneurial instinct that initiates an entrepreneurial journey. Let’s continue with the example above. The idea of matching parents with nurses originated from a friendly discussion with Steve who expressed a pain point.

What is an idea? What does it mean to have a business idea?

If you think about it, an idea is usually a solution to a problem. The common What If question is simply an invalidated assumption about a solution to a problem people (may) have. Therefore, our ideas are essentially a series of assumed or hypothesized products-targets fit that yet to be tested.

Let’s get into the details of finding product-target fit through our venture initiation and growth timeline. But first, why product-target and not-market fit? Your market consists of a large number of targets with similar sets of needs and thus we can use target and market interchangeably though I feel target is a more accurate and realistic word at the beginning of the venture. Another important business consideration that I will address in a later section is market size and opportunity, that is, how many of those targets are out there in the market to buy my solution? For now, let us get into how to find the fit between your target and solution.

We know that after the discomfort comes the idea. We want to validate the idea; we want to make sure our product fulfills the needs of a buyer with a pain that requires a relief. The logical next step would be to define our product and characterize our buyer. I propose a minimum of three product-target fit validation steps.

First Customer Interaction

What’s our product?

It could be tangible or intangible, in either case, it consists of features. Therefore, to the best of our knowledge, we write down all the features we see essential for this product to address the discomfort.

What are the needs of our buyers?

Similarly, we list (hypothesize) what we believe buyers need solved. I propose we list the needs beginning with the most urgent and ending with the least. It is for the most urgent/burning needs that people are more willing to pay.

Rarely will your listed features perfectly match the needs of potential customers. This is the first stage of customer interaction. One to one customer interaction is essential in all stages of business development but, in my opinion, even more at the beginning. Surveys and especially interviews are your channels at this stage.

 

Second Customer Interaction

What have you learned from the first? Adjust your hypotheses based on the first stage of customer interaction then use non-scalable resources for product simulation. In How to Bootstrap a Startup? I shared the story of Stanley who used a quick landing page, his own car, Find My Friend app, and personal phone to deliver food. Stanley, the founder of Doordash, used non-scalable resources after meeting with over 150 business owners (first stage customer interaction).

Third Customer Interaction

Earlier, I mentioned that I propose a minimum of three product-target fit validation stages. For some products, it can take three while for others it can take more, what’s more important is to keep the end result in mind. We are searching for a fit between our product (features) and target (needs).

In the third stage of customer interaction, we should have a much better understanding of user needs and the features that will satisfy those needs. We are now ready to build the first version of our product that only includes validated features.

Defining potential buyers by their common needs is not sufficient. Two completely different individuals can have the exact same urgent need but are they both your buyers?

I now introduce an extra layer to the Product-Market Fit timeline, Customer Persona.

Personifying your potential buyers starts by thinking about a particular real person you know or read about then asking detailed questions about who they really are. This is where the demographic and psychographic information comes in. Educational background, income levels, habits, gender, race and other characteristics are all extremely important but unless you know what a typical day is like for them, how they receive information, and what products they commonly use to meet their existing needs, you haven’t well defined your target yet. Starting with a person you know is always easier. You can then ask, how similar is the potential buyer to [name of selected person]? Give your ideal potential customer a name and start defining who they are.

Your initial drawn and defined target persona is rarely final. The stages of customer interaction will help you better define who they are and if your solution is really addressing their needs. What if they don’t have that big of a problem in the first place? Spend quality but not a long time in each stage this way you can iterate and adjust quickly.

To use the framework Download it here.

In addition to physically meeting with customers for a quick one to one interview, here are some of the testing tools you can use.

1. Google Forms

I used Google Forms to generate and distribute a survey about the reasons behind entrepreneurs’ resistance to venture initiation. It is a quick and free tool you can use to get potential users’ opinions.

I used Google Forms to generate and distribute a survey about the reasons behind entrepreneurs’ resistance to venture initiation. It is a quick and free tool you can use to get potential users’ opinions.

2. Peek

peek

Peek assigns real people to test your product/ service and provide valuable feedback. You can start by taking advantage of the free trial to quickly test your assumptions.

3. Crazyegg

Using a heatmap, Crazyegg shows you were people are clicking, how many scroll down and where they come from.

Using a heatmap, Crazyegg shows you were people are clicking, how many scroll down and where they come from.

What are some of the common pitfalls?

Firstly and in fact most importantly, assuming that our products will meet the needs of existing customers just because these customers are already using a competitor’s product, is not an effective strategy. First, you risk of missing an opportunity of doing something radically different and better. Second, what is your switch cost? Would buyers switch to your solution just by realizing its existence? You won’t be able to hack your way up just because others did something similar. Yes, we learn from the competition to build (not copy) our own solution.

Second, selling doesn’t get you the fit. When your product is addressing an urgent customer need, you will realize that your sales’ closing time is short. Often, potential buyers go through the following stages before making a purchase: need, research, awareness, interest, understanding, trial, then comes purchase. Customers with a burning need for your solution will not wait long until making a purchase. Aggressive selling at the beginning of the venture initiation timeline does not guarantee a fit. Always keep your mind open for small and big changes in the product and its buyers. I suggest a minimum of three customer interaction stages. Let it be 20 if needed.

Third, the customer is there but the market is small.  This comes down to you. Are you looking for a million, 10, 100, billion or a hundred billion dollar business? It’s your call.

Fourth, assuming the rest of the market is like the 10 first buyers is misleading for one simple reason: those first buyers are early adopters and do not accurately represent the rest of your potential buyers. In fact, I have adopted the mentality of never will you wake up the next day doing the same exact thing. Yes, the business process gets clearer and somehow repetitive around the validation and scalability stages but it’s never a 1+2=3 process. Always keep an open mind.

How do you know when you’re there?

You’re putting a football team together. You have a few members so far but you need more. You ask existing members to recommend others. You bring potential team members for a test. You ask. how good are you? They say good. You then ask, how often do you practice? They say 3 times a week. You ask, can you tell when exactly did you practice this past week?

In the above scenario, we are simply backing the behavior with the data. Finding product-market fit is doing just that. Is user behavior consistent with their product description?

Product Description: If you have a chance to ask one question, let it be this one: how would you feel if you could no longer use the product? As a rule of thumb, use 40% of respondents answering by ‘Very Disappointed’ as a measure of success, Brian Balfour suggests. You may also use Net Promoter Score (NPS) to measure customer happiness through tools like Wootric.

User Behavior: What we need to check here is whether the things users say are true. Are they spending a lot of time using the product? Are they recommending (sharing and inviting) others to use the product?

Finally, internally, is customer acquisition cost going down? Products that meet the needs of customers will attract other customers like them cost effectively.

It’s never a 1+2=3 process. Brian notes that the process doesn’t end primarily for one reason- your market doesn’t sit still; it’s always moving.

Story worth Sharing

“If you’re not 100% sure you’re solving a real problem, you’re almost certainly not.” Those are the words of Peter Reinhardt, Co-founder and CEO at Segment. Peter and his co-founders went through two failed businesses before unexpectedly succeeding at Segment. Booxor was a tool for students to read and annotate lecture notes. ClassMetric was a tool for students to press a button to anonymously say “I’m confused!”. Segment was originally an analytics too like Google Analytics. Peter notes that, in each of these cases, he deluded himself and the team into believing that professors really cared about students reading their lecture notes, that professors wanted deeply to improve their lectures, and that companies needed a better analytics tool. They realized they were wrong in all cases.

Before I share the link with you for the complete story, here is what I consider a highlight, “rather than months and months of engineering effort, all we needed in the end was a landing page.” Find the complete story here.

You can also check Jason Lemkin’s first five hires after product-market fit for another example.

Conclusion
One of the main, usually the first, objectives of a business is to prove that the product (solution) matches the needs of the market (group of similar individual targets), also known as product-market fit.

Achieving product-market fit can be accomplished in a minimum of three customer interaction steps.

  • In the first step, based on research and existing knowledge, write down target needs and product features that will satisfy those needs. Use surveys and one to one meetings to adjust your hypotheses.
  • In the second step, based on initial customer interactions, adjust your hypotheses and use non-scalable resources to present and offer your solution in a more realistic, if possible, live way.
  • In the third step, based on second customer interactions, adjust your hypotheses and build a product with the minimum set of validated features for further testing and customer acquisition.

Some of the common pitfalls include forcing a market into an unsuitable product through aggressive selling, assuming the rest of the market is like the first 10 buyers, and assuming many important steps can be skipped just because potential targets are using a competing product.
A good way to measure fit is by asking then quantitatively validating customers’ answer to: how would you feel if you could no longer use the product?

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