“If you build for yourself, you’ll always have product-market fit.” — Naval Ravikant
When you’re exploring the startup ecosystem, one term that you will discover sooner or later is Product Market Fit. It’s the holy grail of early-stage ventures and seems like the secret essence every startup is chasing. But what truly constitutes product market fit? And how can your early venture get there? This article discusses the fundamentals of the Produkt Market Fit equation with practical takeaways for founders.
Marc Andreessen defines Product Market Fit (PMF) as following:
“The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.”
In other words, product market fit is a seemingly magic state of any company to the point where you’ve developed the right product for the right market in a way that fulfills an immediate customer pain point which ultimately drives superior demand.
As mentioned, Product Market Fit can make the difference between success and failure for startups. According to thought-leaders like Michael Seibel, there is a huge divide between highly successful startups, fairly successful startups and plain out failing startups. The differentiator? The state of Product Market Fit. Hence, finding PMF should be the single biggest objective for any early-stage startup.
Although there are many exciting tasks, projects and ideas to pursue with never-ending todo lists, it’s crucial for founders to put first things first. And in the context of startups, this is finding product market fit.
Marc Andreessen famously described the three core elements to any startup: Product, Market & Team. Naturally, the question arises of which element correlates most with startup success.
Product and market are difficult to assess, especially in the early days due to lacking exploration of both, that’s why many early-stage investors focus nearly exclusively on the team. A team is not necessarily evaluated based on experience (especially in tech) but on its ability to produce a product that serves a market need. No startup starts out by having found Product Market Fit, however, the competence of the team is a major determinant for startup success.
Next, the product is another success factor. How polished is your product? Is it easy to use? Are customers engaging with it frequently? Product quality is required to satisfy a market need, however, it’s important to keep in mind:
A bad product can be successful in a great market while a great product cannot be successful in a bad market.
This leads us to the most important driver for startup success: The market. The market is what ultimately decides how successful a startup can be. But what makes a good market?
“The aim of the wise is not to secure pleasure, but to avoid pain.” — Aristotle
There is a metaphor cited often which is finding customers who have their hair on fire. This essentially means that your goal is to identify customers that have an immediate and painful problem. If your hair is on fire, you don’t care about finding a new pair of shoes that match your outfit, you only care about putting out the fire. This metaphor helps guide your search for customers: Who is having immediate pain?
In essence, the way to find product market fit is an iterative process. This means you will come up with different versions of ideal customers, problems to solve, and product solutions that are tested in the real world. It’s important to make the iteration loop as quickly as possible to accelerate the speed at which you potentially find product market fit.
However, the most important aspect in the product market fit process is the customer development process. You need to talk to customers to understand who has “their hair on fire”. Identify the right customers with a pressing problem in search of a solution will be your guiding compass in the pursuit of product market fit. Steve Blank has many great resources on how to structure a customer development process in his book “The Four Steps to Epiphany”.
At startups, we like to measure things. It’s important for us to know what metric to optimize for to drive real progress. Luckily, there is one indicator you can measure to quantify product market fit which has been made known by Superhuman’s founder Rahul Vohra.
Ask your users how they’d feel if they could no longer use your product. The group that answers ‘very disappointed’ will unlock product/market fit.
This simple question reveals objective insights into how close you are to your pursuit of product market fit. Further, taking a closer look at how the answers vary split by customer segments will show you a clear picture of which groups to double down on.
As we’ve learned in this article, product market fit is the single objective any startup should optimize for. This journey starts with the question of which market to focus on. This can be answered by finding customers who have their “hair on fire”. Further, the product market fit metric can be quantified by a simple product survey which allows you to systematically optimize for that metric which ultimately allows you to thrive in any market.