Hubspot defines Product Market Fit (PMF) as something that occurs when a company’s value proposition, customers, and distribution channels align. PMF is the perfect balance of all three pieces. A business can sustain itself for an extended period of time only if all three elements are in alignment. If two of the three are aligned, the business will probably enjoy some short-term success, but will struggle to sustain it.

“Product/Market Fit is a funny term, but here’s a concrete way to think about it. When people understand and use your product enough to recognize it’s value, that’s a huge win. But when they begin to share their positive experience with others, when you can replicate the experience with every new user who your existing users tell, then you have Product/Market Fit on your hands. And when this occurs something magical happens. All of a sudden your customers become your salespeople.” — Josh Porter (Rocket Insights)

This step will fall in place when the Business Model Canvas – specifically the Value Proposition Canvas has been created correctly. We are reproducing the graphic from the blog here for to refresh your memory

When the Value proposition canvas has been framed correctly, 3 things happen, that have a direct bearing on the Product Market Fit:

1. Your product’s value is immediately recognised by your existing users
2. Existing users tell others about their great experience with your product.
3. Your company replicates that great experience for new users and thereby build a ‘virtuous circle’ that attracts more and more supporters and evangelists

How do you know if you have Product Market Fit?

Product/Market Fit, a term originally coined by Marc Andreessen, according to Eric Ries, Author of The Lean Startup, is “If you have to ask whether you have Product/Market Fit, the answer is simple: you don’t.”

Entrepreneurs can gauge whether they have a product market fit if they sense any of these :

1. 40% (or more) of your customers would be disappointed if your product went ‘off the shelves’. This data will be surfaced when the business runs an NPS Survey (Net Promoter Score)
2. People are buying your product faster than you can make them
3. The cash is piling up
4. You get investor interest and people/banks have no problems lending to you your business
5. The entrepreneur feels the need to hire more people quickly

How to achieve Product Market Fit

Dan Olsen, a Product Management Expert and the author of The Lean Product Playbook, defines product-market fit as “the end-game where a startup has built a product that creates significant customer value” He also goes on to say that the startup is able to create customer value significantly better than the competition.

Dan Olsen then lists 6 steps to achieve Product Market Fit – the Nirvana for a Startup. Forbes Magazine, in their article enumerates the steps needed to achieve this state

Step 1 : Determine your target customer

 In our Blog Importance of Creating User Personas, we spoke about listing out the end customers that the product was here to serve. Creating personas and cohorts that would then be interested in using the product is the first step.

In this step, the entrepreneur needs to go a step further and segment these customers into smaller sections. These sections need to be researched as they use the product. The Value Proposition Canvas is a critical artefact that will help fine tune/reject/confirm assumptions that have been made about the product and how it will help satisfy the user needs at various points in the user journey.

Step 2 : Gather Intelligence

Question everything. All the time. The entrepreneur will need to take a long hard look at his Value proposition Canvas and be willing to make very key decisions around what his customers really need. “Are these product features ‘nice to haves’, or ‘need to haves’”, “Is this customer segment going to use this product differently from the way we meant it to be used?”, “How will this challenge that the customer group A is facing that will define a re-work of the code we have written, and how how can we ensure that it will not affect customer group B, that has similar pain points, but we are able to satisfy easily”, “Would this tweak in the UI/UX change things for the better?”…and more questions like these will help the entrepreneur create better products on the basis of better research

Step 3 : Focus on a single vertical

Startups are always short of funds. It, therefore, makes sense for entrepreneurs to focus deeply on a specific segment of customers whose needs he is confident of meeting. Dispersing his attention to too many segments would result in the team losing focus and burning cash too quickly to be able to make an impact in the marketplace.

A classic case in example is Spotify : The brand realised that there was a sizeable segment of customers who were willing to pay a small amount of money every month to listen to selected songs. Spotify zeroed in on this niche and ignored other niches such as ‘music discovery services’ such as Pandora or ‘album based services’ such as the one offered by iTunes. This ‘niche-ing down’ paid dividends and propelled Spotify to become a leader in its chosen segment.

Step 4 : Clearly identify, visualize and describe your Value Proposition

Remember here that not all customer problems will fit into the entrepreneur’s value proposition. And that’s a good thing. It means that he needs to identify segments and plan accordingly.

Describing a clear value proposition seen through the lens of the business problem will provide a great way to connect with the customer and help her see value in what the startup is doing and the value they can add for the customer’s life and problems.

In our current case, Spotify’s Value Proposition lays out access over ownership where the company offered their listeners with access (not ownership) of their curated library of 35 Mn+ songs. 

Step 5 : Measure your Product-Market Fit using Beta Testing

Alpha testing involves checking the code internally and ensuring that the product meets the goals of the internal team members in terms of what they had originally set out to accomplish.

Beta testing is a critical phase in the product development and testing process because it is here that a small set of prospective customers are exposed to the product in order to seek their feedback on whether or not ‘everything works’, but also to understand their points of view on whether the product actually delivers the expected results. 

Beta testing is also a great way to look at whether there are any underserved customer-needs that tie in closely with the Value Proposition Canvas and can be taken up for development. Customers sharing their favourite product features also helps entrepreneurs and their team uncover ‘blind spots’ – both good and bad, in their product.

A word of caution : While Beta Testing is useful in creating a ‘buzz’ about a new product, it can sometimes backfire when alpha testing is not done properly. There’s nothing worse than having a beta tester using a product with buggy code, inconsistent screens and laggy responses to her inputs.