A year after its launch, Uber’s growth was so strong that it managed to gain one new rider for every seven rides—without spending a single penny on marketing.
Dropbox went from 5,000 to 75,000 sign ups for the waiting list within a single day after launching a beta video.
Instagram had 25,000 signups on the very first day of its launch.
What did these companies get right in the first place that a lot others don’t when targeting growth? Each one of them had product-market fit. That is the reason they grew so fast.
Product-market fit is when a company’s offering provides such significant value to a segment of a particular market that people absolutely can’t do without it. They crave it. If you don’t put enough thought into your product-market fit, you’ll only keep taking shots in the dark since you won’t really have the data you need to drive sustainable growth in the long run.
In this piece, we will be looking at how businesses can determine product-market fit in their respective markets.
Indicators of Product-Market Fit
Forbes Magazine defines product-market fit as a hair-on-fire problem that a visible group of people have. It’s that particular layout in which a company’s offering satisfies customer needs in a way that its substitutes do not.
Look at it like this, if more than 40% of your customers would be very disheartened to see your product depart from the market, there’s a good chance you’ve created a must-have item.
Similarly, if your customers are investing in your offering faster than you can produce it, you’ve achieved product-market fit in all likeliness. Other signs include the need to hire more people quickly or a noteworthy amount of press coverage.
Marc Andreessen, who coined the term “product-market fit’ in 2007, is of the opinion that companies who have attained this ideal state can feel it, because money is piling up and investment bankers are staking out the company.
On the other hand, companies that haven’t achieved product-market fit can feel it as well, because deals aren’t closing, word of mouth isn’t spreading, and press reviews are flat.
Plan of Action
A number of startups fail today because they invest in products/services nobody wants. Taking your business from an idea to a successful venture needs a good understanding of customer needs and expectations.
Once you’ve identified the source of demand, growing your offering and moulding it according to the requirements of your market becomes a lot easier.
To avoid the fate shared by startups that fail to rise above their competition, you need to make sure you understand the pain points your offering solves as well as the challenges your customers are seeking to solve. You can do this by focusing on these primary areas:
1. Determine your Target Customer
You can only start your business right when you’re certain your offering won’t be out of demand anytime soon. Work to identify the target customer who represents the market that will most likely profit from your offering. Use market segments to define your ideal customer. Develop prototypes for those customers so your team will precisely understand who it is building to please.
The process usually involves four steps:
- Analyzing your offering
- Making yourself familiar with your competition
- Choosing segmentation criteria
- Performing thorough research
The research phase itself is attentively formulated around detailing out your buyer persona, deciding which part of that persona you’ll target, performing market research with related research questions, and condensing your findings into comprehensible takeaways to share with your executives, individual contributors, and board.
2. Gather Intelligence
Next up, you need to talk to your existing customer base to identify their pain points and how much they are willing to pay for a solution to those challenges. You can also gather insights from your marketing and sales teams to pinpoint repeated customer complaints and queries.
Data-driven insights are the foundation of a successful customer relationship. Having access to the right data can help in managing expectations and overcoming objections which result in successful client onboarding.
Your goal should be that of gathering sufficient data to provide meaningful feedback. In doing so, you also need to remember that face-to-face conversations will often generate feedback of a far better quality than online surveys.
3. Focus on a Single Vertical
Most businesses, both small and medium, have limited budgets at hand. This means trying to sell your products/services to everyone you think might be a potential client will likely lead to drying up of the sales pipeline sooner than you can contemplate. This is why starting off with a streamlined focus is important.
Dive deep into that particular industry. Work hard to establish yourself as an expert in a single domain with a goal to stimulate a viral spread. Only when you pay enough heed to this, will you be able to set your company on a path to success.
For example, Spotify saw that people were ready to pay a small fee for unlimited access to music, legally. They didn’t go into the market trying to take on existing music streaming services. Instead, they created a platform for people who wanted to listen to any album, any time by only paying one fee. They identified a gap in the market and targeted the people in that gap.
4. Specify Your Value Proposition
In today’s highly competitive market, creating a value proposition for yourself on the basis of explaining how you are better than your counterparts, is extremely important when targeting growth.
Try to look up customer needs you can best address with your offering. Then figure out how you can surmount your competitors and leave your customers surprised. Don’t lose sight of your product roadmap when determining which challenges you’ll address. Not every problem will fit into yours.
For instance, Apple’s value proposition positions the giant as providing data-driven personalization, the opportunity for content unbundling and above all, offering access over ownership.
5. Measure Your Product-Market Fit
Assessing yourself time to time and making sure you’re on the right path is essentially the first rule to becoming successful.
Identify key data points that will help you track performance. Start by identifying your total addressable market (TAM) otherwise known as the total number of people who can benefit from your offering (i.e., if every single person who could use your offering, started using it).
TAM is calculated by multiplying your average revenue per user (ARPU) by the total potential customers in the market. Once you have your TAM, find out what percentage of your TAM are currently customers.
6. Avoid Complacency
Once you’ve managed to achieve product-market fit, don’t settle down and assume you’ll always have it. Your customers’ needs keep changing with time, and you must constantly re-evaluate market conditions in order to continue meeting those needs.
This could be something as simple as sending out a simple survey that asks customers, “How would you feel if you could no longer use [your product/service]?”
Another way to constantly keep yourself up-to-date with your target market is by gathering customer feedback every time you sell out something. You can then study patterns within the congregated data and do whatever you can to ameliorate your service.
Product-market fit is really the essence of all marketing. It is all a matter of time before you figure out what works well for your industry.
You just need to be patient and invest constant effort. Once you’ve achieved product-market fit for your company, you’ll see how all your determination was completely worth it.
About the Author
Ben Walker is the CEO of Transcription Outsourcing that provides transcription services for the academic, medical, legal, law enforcement, and financial industries globally. A resident of Denver, Colorado, Ben enjoys tennis, hiking and watching college football. Also, he loves to help companies grow and has made relevant contributions to publications like Entrepreneur Magazine, Inc, Forbes, and the Associated Press.