Every company has some service or product that they want to sell to their customers. Often, when sales increase, the company might feel the need to hire more employees and optimize their product. When the sales start overwhelming the company to the point that they are unable to make major changes to the product, it can be assumed that it has reached its product fit.
What is Product-Market fit?
Being in a good market with a product that can fulfill that market is referred to as product-market fit. It entails identifying market demand and developing a solution product to meet that need, so that customers may contact the firm and purchase the product, hence increasing sales.
Although this notion may seem self-evident, it is critical to ensure that there are enough individuals who desire what your company has to offer and to establish your value proposition accordingly.
Product-market fit is more important to the success of your company than innovative ideas, talented teams, or any other element, and it should be taken into account when developing the product. People must be willing to buy what a company sells for it to exist.
When a company finds its product-market fit, its customers become its salespeople. They start spreading the word around and telling others about their experience with the product. This chain continues with the new customers as well. In this context, product-market fit can be also defined as when the company’s products fit the needs of the market and become self-sustainable in the long run.
Product market fit triangle (source: dan-olsen.com)
How to understand product-market fit?
In theory, you may determine product/market fit by conducting surveys to determine what proportion of your consumers consider your new product to be a "must-have." But, more often than not, product/market fit is more about an in-depth and actual grasp of who your consumers are and how they feel about you and your product than it is about hypothetical statistics and percentages.
Your product/service will most likely satisfy a tiny part of the market as a startup or early-stage firm. As you gain experience, your grasp of the problem you're tackling will improve, and your client profile will likely change as a result. So, it is crucial to develop a stable relationship with your customers.
Now, how can you now take control of your consumer relationship?
It is simpler than you think, and you can do it by the following few methods:
One-on-one interviews with your consumers and customers aid in the identification of problems, the generation of ideas, the improvement of your product, and the development of relationships. It also serves as the foundation for your initial client segmentation ideas. It may appear unsettling at first, but you can navigate it utilizing digital platforms or other modern modes of communication.
You can inquire about the customer's history, such as who they are, where they work, and what their usual workday entails. You may also discuss what your consumer is attempting to accomplish and how your product can assist them in achieving their goals.
Another option to get data is through your internal team members, particularly customer service representatives. If you have a small team, you should provide support yourself; as your company grows, maintain customer support employees in-house if you can: it's the only front line you have where people can come in and talk to you, and this may help you learn what your target market and consumers want.
Set up a method for your product team to submit and store consumer requests and issues. If you get feature requests or complaints about product functioning or website usability, use them as a hint that you need to learn more about demand and start a dialogue. Talking about how and why your product works (or doesn't) will help you come up with practical solutions that may or may not reflect the demands or improvements your consumers first recommended.
Now we believe you know what product-market fit is and how important it is for the growth of your company. If you own a startup and want to grow your business, you must follow some goals that we have discussed further in this blog. These goals will not only help you understand the value of a product-market fit but also help you achieve it faster.
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How to achieve product-market fit?
Startups should put product-market fit ahead of all other goals because those that achieve it have a far better chance of succeeding. To prevent this destiny, make sure you know what problems your solution addresses and what problems your clients are trying to solve. You may do this by concentrating on six key areas, which we'll go over shortly.
Determine the target audience for your product:
Determine who your target consumer is, and who your product would most likely help. Market segmentation may be used to identify your ideal consumer, and buyer personas can be created for those customers so that your team knows exactly who they're aiming for.
First, evaluate your product/service and determine which kind of clients are likely to be interested in it. It's also crucial to acquaint oneself with the competitors in the industry. The research phase is structured around defining your buyer persona, determining which segment of that persona you'll target, conducting market research with prepared research questions, and distilling your findings into digestible takeaways to share with your contributors, executives, and board of directors.
Gather information from your customer base:
Consult your consumers to learn about their problems and how much they would be willing to spend on a solution. To discover reoccurring consumer issues, get input from your sales and marketing departments.
Collect a large enough sample of data to offer useful feedback There are a variety of options, including phone calls and social media sites. Also, keep in mind that face-to-face talks frequently provide more input than internet questionnaires.
Focus on a single domain at a time:
Startups are renowned for having minimal funds, thus trying to market your items to everyone will almost certainly fail. Start with a certain industry and delve deep into it. Develop a reputation as an industry specialist in a specific subject to cause a viral spread.
Let us talk about a very popular brand that used this technique. Spotify saw that customers were willing to pay a little amount for legally limitless access to music. They didn't enter the market to compete with current music streaming services like Pandora, which focuses on the discovery, or iTunes, which has a more typical pay-per-album model. They built a platform for customers who wished to pay a single charge to listen to any music at any time. They recognized a market gap and targeted the individuals who lived in it.
Determine your specialization:
Determine which consumer wants your product or service best. Determine how you may exceed your competition while also surprising your customers. When deciding which issues to tackle, keep in mind your product roadmap; not every issue will fit into yours.
Using Spotify as an example, its value proposition portrays the streaming service as delivering access over ownership, data-driven customization, and the ability to unbundle content.
Assess your product's fit with the market
To manage your success, you must measure your performance. Identify critical data elements that will aid in performance tracking. Begin by determining your total addressable market (TAM), or the total number of individuals who could benefit from your product/service if everyone who could use it did.
The total available market (TAM) is computed by multiplying your average revenue per user (ARPU) by the total number of possible consumers. Determine what proportion of your TAM is existing clients once you know your TAM.
Triumph or smugness can always ruin everything:
Don't assume you'll always have a product-market fit once you attain it. Your clients' requirements will evolve, and you'll need to re-evaluate market circumstances regularly to keep up with them. As a result, the organization must continue its research and development to meet the market's and client base's future needs.
Now that you have also learned about the steps you need to follow to find your product-market fit, let us look at some companies that have already achieved it and are now booming in their respective industries.
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Some examples of product-market fit:
Uber first achieved product-market fit by providing free rides between regional tech events in San Francisco. The co-founders of Uber understood that the cab system was unnecessarily costly and ancient and that only a small percentage of the population used it. Uber gave first-time customers a 50% discount as the app gained traction.
Experts praise Uber's ability to both address a problem and generate demand. Consumers did not demand improved taxi service, but once a more convenient and straightforward choice became available, consumers grew to rely on it. Users began sharing their experiences on social media, giving social proof for the firm as a result of the network effect. Uber has around 93 million users, and in 2020 alone, the firm logged 4.98 billion rides.
Google is the one corporation that is a must-have technological requirement in today's world. In the beginning, Google battled for market share with a slew of other search engines. They gained money, like the other participants in the industry, by selling ad space next to search results. However, in 2003, they raced ahead of the competition by introducing AdSense, a revolutionary concept.
Google's executives anticipated that companies would pay to have their advertising displayed outside of the search results page, so they created AdSense to accommodate that demand. AdSense uses new technologies to scan web pages and deliver appropriate adverts automatically. For example, if your company sold bags, you could pay for AdSense to display your adverts on travel websites automatically. By 2017, Google's 11 million AdSense users had paid the company $95 billion a year. Google discovered a need in the market that no other search engine could fill and then filled it.
In the early 2000s, the entertainment media firm began to acquire traction. Late fines from brick-and-mortar DVD rental outlets were starting to irritate moviegoers. As part of the membership service, Netflix gave customers DVDs by mail, allowing them to keep a disc for as long as they desired.
Netflix, on the other hand, would have withered away with the advent of DVD devices if it had remained a DVD-by-mail service. Instead, Netflix positioned itself as a more convenient and less expensive alternative to whatever is presently dominating the entertainment market: physical rentals, DVDs, or traditional television. Netflix adjusts its offering as market demand shifts, ensuring that it remains relevant. It is now the most widely used OTT platform for binge-watching television series. Netflix's success serves as a timely reminder to remain adaptable in rapidly changing marketplaces while keeping an eye on the future.
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BottomLine: Product-market fit is a two-way street.
If you're a cash-strapped early-stage firm, you might be tempted to say "yes" and add more features to attract more paying customers, but this isn't always a smart idea.
Short-term revenue is not the business measure you should be aiming for and comparing yourself against if you want to develop a long-term firm. As a general guideline, keep in mind that you won't be able to please everyone, so don't try.
Customers will make a lot of feature requests as your firm grows. Before you go ahead of yourself and create a go-to-market plan, be sure they fit into your roadmap. Then, based on the impact and effort, prioritize. Be honest and transparent if the requests do not fit with your vision and intentions.
This has been all from our side. After reading this article, you have learned about product-market fit, the steps you should follow to attain it, and looked at some unicorn brands that have followed small steps to attain massive success.