10 minutes to fully understand “product-market fit” and save 10 months of detours

Author's note: Product-Market Fit is an interesting and important concept. Achieving product-market fit marks the transition point of a company's life cycle. In theory, the life cycle of a company can be divided into the "pre-product-market fit" and "post-product-market fit" stages. These two stages have completely different goals and require companies to adopt very different strategies. Marc Andreessen said, "Before you reach product-market fit, focus on achieving product-market fit." Once you achieve product-market fit, you can start focusing on user growth, finding customer acquisition channels, optimizing product pricing, recruiting personnel, etc. In practice, there is usually no clear dividing line to distinguish between the pre- and post-product-market fit stages of a company, and companies generally gradually improve their product-market fit. This article will discuss the definition of product-market fit, how to move towards product-market fit, and how to measure the degree of product-market fit.

What is Product-Market Fit?

Let’s first look at how industry insiders describe product-market fit.

Paul Graham simply describes it as "making stuff that people want."

Marc Andreessen goes a step further, product-market fit means "being in a good market with a product that can satisfy that market."

Clement Vouillon describes product-market fit as "It happens when the product - a set of features that have a clear value proposition - resonates with customers which are of a certain type and have defined needs that you know how to reach and convert through marketing and sales."

Andrew Chen believes that "when people who know they want your product are happy with what you're offering."

In summary, we can define product-market fit as: a product that can solve problems and meet needs for a considerable number of independent users is product-market fit.

How to get to product-market fit?

There are many strategies to help achieve product-market fit, but the most important thing still starts with truly understanding your target audience.

Create a user persona

Understanding the market means understanding the people in the market. We call the idealized target user a user persona, and your company can have multiple user personas. Leading PLG companies know that it’s critical to delight users as quickly as possible. The best products create an aha moment about the product’s value without unnecessary friction. There’s no need for a lengthy onboarding process involving complex sign-up forms or promise-filled demos. Instead, PLG companies allow users to try the product right away and experience its benefits firsthand so that value conversion is almost instant.

Canva is a company that does this very well. Creators can start designing in seconds through Canva’s drag-and-drop platform. All it takes is an email address, a Google account, Facebook, or Apple account, regardless of the device being used. Similarly, Shopify allows users to create a store on its platform in just one click by providing an email address and a store name — no credit card information required.

Talk to your ideal users in real life to find value

Once you have identified your user personas, you need to learn as much as possible about them and talk to them. Although it is easy to communicate online, you should find opportunities to talk to your ideal users in person or at least on the phone.

The goal of your conversation is not to introduce them to your product or service unless they actively ask about your company. Your goal is to find out all the ways in which your product can provide value to them. You also need to pay attention to how your ideal users describe the problems they want to solve or the goals they want to achieve. Their language can create the most perfect marketing message for you.

Understand your users' current and future product needs

Product-market fit changes as the market changes. To maintain product-market fit, you must anticipate changes and stay flexible to keep up with the trends. Many companies failed because they failed to adjust product-market fit in time. For example, BlackBerry's full keyboard was the key to product-market fit in the early days, but it was also the reason why users left later because their needs changed.

Focus on a specific value proposition

Although it sounds tempting to launch many features at once, it is more effective to focus on the most important one. You need to find the feature that users can't live without or the feature that is better than the competition. Ask yourself, what is the biggest pain point of your ideal user right now? That's where your value proposition is determined.

Build Brand Credibility

The fastest and best way to build brand credibility is to tell a good story. What is your brand about? How did your product or service come about? Why should users care about you? In addition, you can publish a variety of content to the market, blogs, magazine articles, etc., to show users that you are very knowledgeable about what you are doing.

How to measure product-market fit?

Judging whether product-market fit has been achieved has always been a headache for companies. Although there is no perfect method to give the golden line of judgment, the following two methods can at least provide you with a relatively accurate reference.

Sean Ellis's Indispensability Survey

Sean Ellis's Indispensability Survey is very simple and applicable to a wide range of industries.

Sean only asks existing users one question: How disappointed would you be if the product was no longer available tomorrow?

A. Very disappointed

B. A little disappointed

C. Not disappointed

D. Not applicable, abandoned

Sean believes that achieving product-market fit requires at least 40% of users to express "very disappointed", which is a good time to grow. If it does not reach 40%, we don't have to give up, we can look at the opinions of different groups: what women think, what men, students, and white-collar workers think, and then continue to optimize.

Sean Jacobsohn's Five Questions Test

In addition to Sean Ellis's Indispensability Survey, Sean Jacobsohn from Norwest Venture Partners also designed a short test to help companies determine the level of product-market fit. Jacobsohn's method is more suitable for SaaS companies. The test content is as follows:

Please select the description below that best describes your company's situation.

Q1: User Diversity: How many users do you not know?

All users are my classmates in the startup camp. More than 30% of the class are my users.
All users are from other companies in the park where the company is located.
My users are all over the country, and they seem to have a very strong demand for my solution. They find me by searching for solutions to their problems.

Q2: Interactivity: How core is your product to users? How often do users use your product?

Users use it once or twice a month, for 10 minutes each time, to solve small emergencies.
Users use it several times a month, sometimes deeply, and sometimes they don't.
Users use my product every day. If they don't use it, they will lose a lot of productivity.

Q3: Churn rate: How fast are users churned?

We haven't started measuring churn yet. I estimate 4% per month, which means we lose half of our users in a year. We need to look at pricing, service, competition and other factors to find the reasons for churn.
We lose 2% per month, which means we lose 24% of our users in a year. We plan to reduce our churn rate to less than 10% next year, and our users have been actively giving us feedback on how to improve the product.
We lose 0.5% per month, which means we lose 6% of our users in a year. We have a user service team that looks at the metrics every day.

Q4: User commitment: How many users are in the trial?

My users have committed to a three-month trial, and they say they will consider signing a long-term contract after the trial. I know they are also testing other products on the market at the same time. These trials are also paid.
My users have committed to trying the product on a monthly basis. We are starting to discuss signing an annual agreement.
My users have committed to a one- to three-year contract.

Q5: Spread: How do you acquire new users?

All from paid channels.
A combination of paid promotion and user-initiated search.
Most of it comes from user search and word-of-mouth recommendations.

For the above 5 questions, give 1 point to answer A, 3 points to answer B, and 5 points to answer C.

0-9 points: You are in the product testing stage and are using your own network resources to test ideas. The next step is to get real feedback from the market to verify the product. You don't need to hire salespeople at this stage. If the user's pain point is strong enough, it won't be difficult to get early users. In the end, you may need to change the product or change the current market.

10-17 points: Preliminary verification that your product can solve a potential pain point. Spend as much time as possible with potential users, get their product feedback, and continuously optimize the product until there are no satisfactory alternatives in the market. You can hire 2 salespeople. If both salespeople have good performance, then your product matches the market, and you can consider hiring more sales. If both salespeople have poor performance, it is likely that product-market fit has not yet been achieved. If one salesperson has good performance and the other has poor performance, it may be a problem with the salesperson, so change people quickly.

18-25 points: It is likely that you have achieved product-market fit. You are solving important pain points for a group of users who didn't know you before, and you are making money. Now you can invest more money to accelerate growth.

In addition to the two systematic methods mentioned above, Andrew Chen also provides some indicators for SaaS companies to achieve product-market fit. For SaaS companies, they include:

5% paid conversion rate, less than 2% monthly churn rate, and $100,000 in monthly recurring revenue MRR.

Summarize

In this article, we learned about the concept of product-market fit: a product can solve problems and meet needs for a considerable number of independent users, which is product-market fit. We also outlined the five steps to product-market fit: build user portraits, talk to ideal users to find value points, understand their product needs, focus on a value proposition, and establish brand credibility. We also introduced two methods to measure the degree of product-market fit, namely Sean Ellis's indispensable survey and Sean Jacobsohn's five-question test. I hope that these contents can help new growth hackers advance the product-market fit process and start vigorous growth work as soon as possible!