Product/Market Fit is a term that was coined to define the process of creating a product that resonates
with a specific target market(s).
Taking this definition a step further, Product/Market Fit is proving sufficient demand within a target market segment to justify the spending of capital (human and financial) in order to begin scaling the company.
The definition of Product/Market Fit is fairly straight forward, achieving it is far more abstract.
How do you know when you’ve achieved Product/Market Fit?
When do you transition from a bootstrapped startup focusing all your resources on product development to an accelerated startup that is ready to begin scaling?
Answering these questions correctly can be the make or break for any young company.
Most startups don’t get second chances to scale the business, so timing is everything.
As a result, it is crucial to start measuring Product/Market Fit as early as possibly, to measure it often, and to continually fine-tune your product until you’ve gotten it right before you consider scaling.
Measuring Product/Market Fit is a bit of an art and a science. On the one hand, you can feel when Product/Market Fit is or isn’t happening.
Answering some of the following questions can help you assess the Product/Market Fit Feeling
– Are you getting new customers with little to no marketing strictly through word of mouth?
– Does your sales cycle take too long?
– Are your conversion rates above/below industry standard?
– Are you getting exciting press reviews and interviews?
– Are you struggling with holding sufficient inventory?
– Do you need additional sales and customer support staff to satisfy new customers?
On the other hand, you can use data from customer surveys as a way to measure Product/Market Fit.
Essentially, you are gathering information that will allow you to gauge how much value your customers are getting from the product and how disappointed they would be without having access to your product.
If half of your customers or more could live without your product then it is a safe bet that you haven’t achieved Product/Market Fit (disclaimer: this benchmark will vary from industry to industry based on average churn rates, customer lifetime, customer lifetime value, cost to acquire new customers, etc).
Achieving Product/Market Fit
Once you’ve achieved Product/Market Fit, you are ready to begin scaling the business. In order to scale,
you need to implement a business model that allows you to acquire customers at a profit while still
delivering on the customer benefits and value that got you here in the first place. Continue to test and
tweak your business model until you’ve developed a well-optimized and scalable customer acquisition
Then, you are ready to pour gasoline (sales and marketing dollars) on the fire (a startup with
proven Product/Market Fit and business model).
Taking the time to fine-tune your product until you’ve achieved Product/Market Fit will greatly improve
your likelihood of strong conversion rates and successfully scaling the business. It will also allow you to
reach scale with less capital (giving up far less equity in the meantime).