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Product Market Fit Explained & How To Do It [Step By Step]

This is what we will cover:
  • What is product market fit?
  • How do you achieve product market fit?
  • How do you measure product market fit?

What is product market fit?

 
Product market fit is the stage of development of your product where your ideal customer thinks that your product is valuable and worth paying for.
 
This is what Marc Andreeson said about product market fit:
 
“You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.”
 
“And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.”
 

How do you achieve product market fit?

 
The steps required to achieve product-market fit happen to be very similar to the steps you would follow using the Lean Startup methodology.
 
These are the steps that I think you need to follow:
 
  1. Define your target customer
  2. Identify your customer needs
  3. Define your value proposition
  4. Define Minimum Viable Product (MVP)
  5. Create version 1 of your MVP (prototype)
  6. Test your MVP with customers
  7. Create a new version of your MVP based on feedback from the test
  8. Iterate until you achieve product-market fit
 
 
Step 1: Define your target customer
 
The starting point is always the same. Who is your customer? The best to answer this question is which customer research that leads to a buyer persona.
 
A buyer persona is just a description of your typical customer. I made a separate article/video that goes into more detail about how to do customer research and create a buyer persona.
 
Your customer persona should be as specific as possible as you can possibly be but keep in mind that this is an iterative process.
 
The feedback you get during this process might result in adjusting your buyer persona.
 
That’s okay. This is just a “hypothesis” that you plan to test. Just create the most accurate buyer persona you can create based on your existing research and knowledge.
 
If you think your product will appeal to different types of customers then go ahead and create a separate segment for each of them.
 
Step 2: Identify your customer needs
 
Now that you’ve defined your customer, you need to get clear about what they really want.
 
At the risk of stating the obvious, you want to identify everything that might want.
 
You need to identify things they want that also represents an opportunity.
 
The most organized way to approach this is to ask your customers to tell you about their biggest pain points and do your best to prioritize them on a list of most painful to least painful.
 
Then narrow the list down to the pain points that you can solve and represent an opportunity.
 
The heavy lifting you need to do here is understanding the problem and solution.
 
I made a separate article/video that goes into more detail about the problem/solution framework.
 
 
Step 3: Define your value proposition
 
Your value proposition is just a statement about how your product will solve your customer’s problem in a way that’s better than your competitors.
 
The value proposition is usually expressed in terms of “the problem your product solves”, “who you sell it to” and “why it’s unique”.
 
Again, I made a separate article/video that goes into more detail about how to create a unique value proposition.
 
 
Step 4: Define Your Minimum Viable Product (MVP)
 
Now it’s time to figure out what you will include in version one of your MVP.
 
If you’ve done a good with your research you probably have a long list of pain points that you want to address.
 
But you need to focus on just solving one (or at most 3 related) problems with version one of your MVP.
 
This is where theory and reality might have to diverge a little.
 
Deciding what to include in your MVP is NOT an easy decision.
 
The problem you decide to solve with your MVP could be the most painful problem.
 
It could be the problem with the biggest commercial opportunity.
 
It could be the most important problem that you can build with your existing budget.
 
This is one of those points in time where you don’t want to get bogged down in theoretical and academic crap.
 
Use a combination of the data you collected in the previous steps, your time constraints, your budget constraints, and your entrepreneurial instincts to make the best decision about what to include in version one of your MVP.
 
And remind yourself that this is an iterative process so you don’t have to get everything right in version one.
 
Now, here’s another critical thing that academics forget about.
 
If you’re planning on creating version one of your MVP and you agree that this is an iterative process, then by definition, you eventually need to create version two, three, ten…whatever.
 
You need to think about how much time needs to be allocated to do this.
 
If you have an arrangement with your investors to get access to more capital after creating an MVP then you need to plan everything according to your agreement with the investors and make sure you clarify anything that needs clarification because this is the point where a lot of startups and investors end up filing for divorce.
 
You need to make sure that you’re both on the same page before you take the next step.
 
If you’re not working with investors and you’re just using your own capital then I strongly suggest you revisit your budget and your time frames and make sure that you have allocated enough money and time to create three versions of your MVP.
 
Those of you that know me well, know that one thing I always say is: “The first version of everything sucks”.
 
Regardless of whether you’re writing a book or creating a product the first version always sucks.
 
“But the road to the versions that work is paved with the versions that suck – but were improved based on customer feedback”.
 
If you’re new to entrepreneurship, the best advice I can give you is to think of your new product or business as a highly regarded article.
 
Imagine that you had to write an article about how to do something in your industry that is so good that everyone in the industry refers to it as the definitive article about this topic.
 
You know with 100% certainty that the first version of your article will not be good enough.
 
You’ll set a deadline to finish the first version then you’ll get feedback from the most highly regarded people in your industry that you can get access to.
 
Then you will finish multiple versions of your article before releasing a version that will stand up to scrutiny from the industry.
 
Your product development process will travel down the same road.

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Create version 1 of your MVP (prototype)
 
In some cases, you have to create a live working version in order to get meaningful feedback from customers.
 
But, don’t assume, that you have to do this. Spend some time figuring out if you can create a prototype.
 
For example, if you’re creating a web or mobile app of some kind, maybe you can get away with just creating a wireframe.
 
If you’re creating a physical product, maybe you can import some ready-made parts from Chinese manufacturers and assemble them into something that demonstrates the key features that you defined in your UVP.
 
Remember that it just needs to be good enough to get feedback.
 
I made a separate video that goes into more detail about how to create a Minimum Viable Product.
 
Test your MVP with customers
 
You can test your product and get feedback by:
  • Surveying customers
  • Monitor customer behavior
  • Have a conversation with customers
 
Surveying customers
 
The reason you should survey customers is that it allows you to ask multiple customers the exact same question and look for trends in the answers.
 
If your product is a web app or mobile app then you might be able to get a statistically significant number of people to test it.
 
Of course, if you have created one unit of a physical product then this might not be possible, so just get as much data as you can from the customers you can access.
 
In the meantime, you should definitely survey your customers but you should not ONLY survey your customers.
 
Monitor customer behavior
 
The first reason you should not only rely on surveys is that people often say one thing and do another.
 
The best way to address this in your testing is to observe how customers use and interact with your product.
 
If your product is software, make sure you have set up some analytics in the software that will track over behavior.
 
If your MVP is a physical product, try making a video recording of what happened when customers tried to use your product.
 
Have a conversation with customers
 
The second reason you should not only rely on surveys is that the answers in your survey are only as good as the questions.
 
Always remember that you don’t know what you don’t know. In simple terms, you might not know the right questions to ask.
 
If you don’t know the right questions to ask then it’s physically impossible for your survey to provide all of the critical information that you’re looking need.
 
This is why you need to have an unstructured conversation.
 
The survey is very structured. You want it to be structured so that you can get all of your customers to answer the same questions so that you can compare answers and look for trends.
 
The objective of a conversation is for it to be unstructured so that you can give the customer the space to talk about whatever they think is important when it comes to how your product solves their problem.
 
Create a new version of your MVP based on feedback from the test
 
This is where you need to make more judgment calls. You have time and financial constraints.
 
You have more improvements and feature requests than you can fit into the next version.
 
The biggest challenge I see here is startups trying to apply theory and getting confused.
 
This is what I think you need to do to this critical step right.
 
Create a matrix of the improvements and feature requests.
 
Rate them on a scale of 1- 10 based on how important they are to your customer and rate them again based on how commercially valuable they are to you.
 
Then review your time and capital constraints and select the highest-rated improvements and features that fit into your time and capital constraints.
 
Iterate until you achieve product-market fit
 
This is self-explanatory but when does it end?
 
When do you stop iterating? The answer is that you never stop iterating. That’s what you signed up for as an entrepreneur.
 
The more practical short-term question is, when do you release a version of your MVP commercially?
 
The answer to this question is to offer it for sale to the people that have been testing it.
 
If they’re prepared to buy it and pay a price that makes it commercially viably then you’re good to go.
 
If you have created multiple iterations and customers are still not ready to buy it, try to get sales from different customers.
 
If that doesn’t work then you need to consider a pivot before you run out of capital.
 
Keep in mind that sometimes you think you have product market fit when you don’t. Check out this article from Venture capital firm Y Combinator about what do in that scenario.

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Use our “Impact Entrepreneurship” checklist to start your business and make the world better.

  • Adam Radly

    Founder
    Founder of IIMAGINE. More than $100M raised. TEDx Talk about passion > 1 Million views. Founder of World Reconciliation Day with Nelson Mandela. Founder of One Direct Democracy.