Product-market Fit: How to Hit the Right One and Be Happily Ever After With It
May 26, 2023
Finding a product-market fit is the desired goal for any startup. Once you’ve achieved it, you can focus on scaling your business and put all your resources and efforts into it.
The remarkable achievements of Apple, Amazon, and Netflix lie in their extraordinary capacity to develop products and services that genuinely appeal to their customers. With its astounding sales of over 2.2 billion units globally, the iPhone has become a ubiquitous product in homes worldwide. Amazon’s online marketplace is another standout, hosting a substantial user base of 300 million active customers. Netflix has managed to gather over 200 million subscribers worldwide, with a significant share of over 73 million originating from the United States.
The stories of our interviewers are also impressive. Some reached 100% customer retention, others rocketed with resolving a large-scale problem, and others got acquisition offers at their early stages.
All this success was possible because of hitting the right product-market fit. But no more spoilers — let’s move on to the article and discover all the details!
What is product-market fit?
Welcome, Marc Andreessen — an American software engineer, entrepreneur, co-founder, and general partner at the venture capital firm Andreessen Horowitz.
“The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market”.
Often, entrepreneurs can be blinded by the creativity and innovation of their solutions. But it doesn’t necessarily mean that it meets the needs of the customers they want to reach. In such a way, they can find themselves in a situation where they have brilliant ideas nobody wants to buy.
It may be tough to acknowledge, but your business is nothing without people who buy its products or services. Therefore, your life goal as an entrepreneur must be to resolve your customers’ needs.
How to reach product-market fit?
Yet, there are some common steps a company should follow to hit its fit:
- Find your target audience and market.
Define who your potential customers are and what their needs and pains are. Research if their problem is scalable and its solution suits your target market.
- Build your unique value proposition.
It must be based on your target audience needs and problems.
- Develop a minimum usable product or MVP (minimum viable product).
MVP shouldn’t be perfect and 100% functional — it should perform the bare minimum.
- Get people to use it and see what they think.
Give your MVP to your potential customers to validate it and collect feedback. Such testing will allow you to realize whether you’re moving in the right direction and improve the product significantly.
We also asked for advice from someone with solid experience in the tech industry. Meet Revett Eldred, an entrepreneur who founded, ran, and sold Minerva Technology for $25M. Revett has been a successful consultant and a StartupSoft advisor for ten years.
Here are Revett’s thoughts on product-market fit:
“I have never actually developed any steps or processes for doing this, as it has always seemed to me just a matter of common sense and listening to clients and potential clients to try and figure out where there is an opportunity to develop some kind of solution.”
“I know there can be serious pitfalls when you are doing this; For example, it is well known that what people think they want is often not what they actually want, because what people think they want is always based on what they currently have, extrapolated into the future.”
“People thought they wanted the Ford Edsel, but it turned out they didn’t. Nobody ever asked for the iPhone but it turns out everybody wanted one.”
“I also know that another way is just to develop something that seems like a good idea and then see if people buy it. Very inefficient and not the way that venture capitalists particularly like, but sometimes very effective.”
“Facebook is a pretty good example. There were probably several hundred similar products/services developed at the same time, but for some reason, it was Facebook that clicked. And it, of course, has spawned dozens of similar social media that nobody ever thought they needed.”
What are the signs of finding product-market fit?
Product-market fit evidence:
- Your product solves actual customer problems.
- People are willing to pay for your product, and their demand for it is growing.
- You receive positive feedback and rates from your customers.
- You’re gaining organic growth in product usage.
- Your customers become your promoters through word of mouth.
- You started to feel a lack of people and open new positions — your company is growing.
- Your data shows high customer retention and a low churn rate.
- Even after raising the price, your customers still buy your product.
- Your company is gaining market share, which means your product has hit it!
If you find a match with most of these points, you’re lucky to achieve your product-market fit. Of course, you might not get them all at once but keep collecting these achievements and getting the score in this market game.
Success stories of hitting product-market fit
Mark Volchek, founder of Higher One:
“We understood the problem and we thought we had come up with a good solution.” “Once we started gaining some traction, we went from one customer, then two customers, then the 6th customers, then the 13th… Four semesters in, when we got the 13th customers, I think that’s what I would say where we really felt like we had product-market fit.” “We had 100% retention of university clients… When thinking about the product-market fit, not only the number of customers, but also to have that high retention rate. In our case, a 100% retention rate.”
Sean Byrnes, founder of Flurry:
“In the initial days, I would jump on a developer forum and answer questions and recommend Flurry as a solution. And when people started to promote Flurry without me being involved in the conversation that’s when you understand that it’s really started taking off.” “We knew we hit the product-market fit when people started to sign up for Flurry analytics without us promoting, without us talking to them.”
Sean mentioned that for product-market fit to happen, there need to be three ingredients in place:
- A real problem.
- A real solution to that problem.
- A way to distribute that solution to the people who have the problem.
Tim Jenkins, founder of SendGrid:
"The product-market fit is when the product you're developing fills the needs of the market that you're trying to adopt." "We as developers know what developers need and kind of think that way. I think that really helped along with the fact that a lot of times people try to create companies that fill a portion of the need that some of the competitors don't fill. We were really feeling the industry that didn't exist."
They hit their product-market fit very quickly, which is a huge milestone to hit for any startup. When they started SandGrid, they were solving a problem they had. In fact, they were the customers of their own product and knew the needs. They created a product that fit 80% of their potential customers.
But what comes after?
If we were asked to name just one thing to focus on after hitting your fit, we would say it’s all about your customers:
- Preserve the customer retention rate as high as possible and gain new customers.
- Create and develop your customer success and support services.
- Constantly collect feedback and implement the most valuable to improve your product.
In addition to focusing on your customer needs, don’t forget to develop the whole business comprehensively:
- Involve your sales and marketing resources to scale up.
- Empower the current team with new professionals and divisions.
- Grow your market share and think over the option of expanding into new markets.
- Find new ways to develop your product.
- Don’t forget about process optimization — the balance between profitability, product quality, and customer satisfaction.
- Be sustainable — people will always respect and remember you for that.
Mark Volchek, Higher One
After hitting their product-market fit, Higher One faced an explosive growth:
“In some ways, it was almost like double… When you double every semester, that’s like your very very fast growth. We grew very very quickly from 2002 all the way to 2008 for those six years. And then we started getting very large. In 2008, we ended up selling a third of a company to a private equity firm. And it came more — we started diversifying the product as well.”
“So the first product was that card integrated solution…In a few years later, we also launched electronic bill presentment, electronic bill pay… So we started diversifying our product set — we felt like we can add more value to existing clients rather than just go after new clients.”
Sean Byrnes, Flurry
“It started to grow pretty quickly. At first it was 10 developers a day, then it was a hundred developers a day. And it grew really quickly over time. And was what we really saw was happening — it was that kind of organic lyft…”
“The minute the app store launched, Flurry as a company started to double every six months for the next six years. It was amazing!”
“In the hyper growth market everything is exploding. It’s really hard to tell if your product is really good and working, or if the market is just growing.”
Tim Jenkins, SendGrid
“The need that the industry had at that time that we launched was so big. It was really overwhelming.”
SendGridgot got an acquisition offer for $10M, and, at the same time, they also had an investment offer from a very well-respected VC, the Founders Group. Ultimately, they decided to take the Founders Group’s investment and not sell.
Welcome to the finish line! We’ve figured out what the product-market fit means as a classic term and what it means for those who’ve gained it. Higher One, Flurry, and SendGrid shared their unique success stories, but all of them were into resolving actual customer problems. And we saw where it brought them — hyper explosive growth, product diversification, 100% retention rate, and offers for acquisitions.
In this turbulent recession, you should be careful and thoughtful about choosing the right product-market fit, or you might lose your chance to hit it.
But if you feel like you’ve found your product-market fit and need more professional minds to help your business scale — we are here for you to hire top talents and hit the ground!