Getting a product-market fit wrong can cost a fortune, lead to burnout, and leave a startup with more problems than profits. It sounds like a nightmare, yet it is a reality for 42% of startups. One such startup was Monitor 110 — a data gathering service that aimed to give investors from Wall Street internet resources to help them monitor their investments.
One of the reasons for their failure was they developed the product in a vacuum: the team did not develop a simple beta version, nor did they do any customer research. They simply relied on their vision. Before they knew it, they had to close.
That’s one of the countless stories in which $10M-$50M (yes, this is the real funding of Monitor 110) just goes to waste.
This article will show how marketing specialists can learn from the mistakes of others and find a successful product-market fit.
Product-market fit explained
Simply put, product-market fit defines how much your product matches market needs. If the market is dead, you risk spending your money in vain. This is where product-market fit comes in: before launching an application, you should analyze your audience to determine whether it is worth spending lots of money on further development. Such analysis will help you to fit the right products into the market.
Achieving a product-market fit should be less about hypothetical numbers and more about finding out your potential customers and their needs. That’s why the team needs to find the target audience first (sometimes they fail at this stage straight away), then look for what customers are lacking, and discover which of their needs are still unmet. The team will quickly realize whether the product you are about to develop will bring profit. This article will reveal all the stages of finding the product-market fit.
How to determine product-market fit
1. Understand your customer’s real needs
Let’s dive deeper into why people buy products. Marketologists and neurologists made quite a few discoveries on how people make purchase decisions. It involves base motivations: protection, impulses, fear of missing out, aspirations, and more. Yet, none of it will work if the person does not need the product or does not feel its value. People may not know they need the product, and showing them that they do is a different marketing topic. As of right now, your product should already have a certain demand. Otherwise, you run the risk of entering a dead market.
To begin with, create a value hypothesis that defines whether the product brings real value to customers. Testing this hypothesis will help you discover if the product should be adopted into your customers’ lives. A value hypothesis goes hand in hand with a value proposition that defines the benefits and values the product promises to deliver.
Highly successful products usually solve an extremely problematic issue that no one could solve before or launch a product to a narrow group of people.
For instance, Grammarly, which was developed by Ukrainian engineers, has first-class accuracy for spelling and grammar checks. The world has not seen anything so accurate in the world of grammar and spelling platforms, and it seems like nothing has been like it ever since. The product meets customers’ needs and has practically no competitors.
Market research helps the team to find this perfect match — it matches a product that solves a particular problem with potential customers who need such a solution. One of the best practices for market research includes identifying search demand in search engines. This provides valuable insights into what people search for the most and the least. The easiest way to do this is to use solutions like the SE Ranking keyword research tool: it will show a keyword’s search volume and difficulty, organic results along with their essential statistics, ads being run for an analyzed keyword, and much more.
Let’s say your team develops a software solution for the fintech industry that facilitates payroll services. On the platform, enter a keyword related to the topic (such as “payroll software”) and click “Analyze.” You will see the data for the analyzed phrase, along with more keyword ideas and organic results. This way, you can estimate potential demand and how much traffic you are supposed to get:
2. Understand the product’s target audience
Finding the target audience is a complex task that may require a sufficient amount of time. Yet, it is the last step before building an MVP (minimum viable product), and it may define the ultimate success of the project. The information gained from this research will be handy for a long time.
Define the perfect customer and buyer persona
During this step, the terms “perfect customer” and “buyer persona” will prove helpful. In marketing, both terms are used to identify the target audience for an intended product. While a perfect customer gives insights about the audience that should be targeted, a buyer persona helps to create a detailed profile (or even profiles) of the potential customers.
A buyer persona will help with creating a personalized experience for customers in the future. The perfect customer persona is more about narrowing down the groups of people who will benefit from the product or service the most.
A live conversation with a real person may be more effective than building an endless amount of hypotheses. It is the best way to check hypotheses and remove ones that don’t work. The process of an interview requires preparation: finding potential customers to participate, picking appropriate questions, holding an interview, and analyzing the results afterward.
Competitor research can be performed with simple search engine research, yet it is crucial to finding the product-market fit. Competitors should not cause discouragement — they mean that the market is alive and brings profit. If used wisely, competitor research may give ideas about the future product and help to approve or discard previous hypotheses.
Once done, previous hypotheses may need to be corrected at this stage. The more you change and analyze, the closer you’ll finding a product-market fit.
3. Start developing a minimum viable product (MVP)
A minimum viable product (MVP) is a version of the product with basic features. The ultimate goal of the MVP is to test hypotheses before moving on to full-cycle development and launching a simple, perfectly functioning product to market. It lets the startup learn about customer behavior, identify customer needs, and get valuable feedback — all of this with the least amount of effort.
Here are the main goals of a minimum viable product:
- Attract users to the product and get your very-first customer base
- Get feedback from real customers who will be using the product you’re developing
- Solve customer problems
- Enhance the system, find out what needed features are missing
- Save time, money, and effort
What your MVP will look like depends on the goals of the team. It could be a simple landing with a Google form or a product with a limited number of features.
At the same time, it is essential for the MVP to have a set of features that are good enough for the first customers to use. Not all companies require an MVP — it depends on the product, target audience, and resources. If the startup does not have a complex product in mind or does not target a niche market yet has limited resources, an MVP will likely not be needed.
4. Test your minimal viable product (MVP)
Testing an MVP is an essential part of finalizing and finding the actual value of a product. Collecting user feedback has proven to be effective in the following ways:
Through performing customer interviews
This can include open-ended questions that will help to reveal whether the product solves the problems it intends to solve.
Using usability testing
Even though you only have an MVP at this point, you should do usability testing to find out if your potential users can use your MVP. Usability will be crucial in later stages, but the insight you gather now will ensure you won’t end up with a great market fit but an unusable product. You can easily recruit real users and conduct the tests using online usability testing tools, which will allow you to test anything from a simple prototype to a fully functioning web/mobile application.
This way is convenient for businesses that want to validate the idea of the product. It reveals whether the product interests your target audience and what kind of customers need it.
Ads can bring satisfactory results when used correctly. You can reach your direct target audience if you’ve worked on the buyer persona well.
It is also important to mention that there is no guarantee you will be able to use the customer feedback immediately. The feedback you process will depend on your current goals. Moreover, not all feedback has the same value, so you must prioritize it based on its significance for the business. For instance, users who plan on using the platform frequently are more significant than ones who may rarely use it. Your job is to get as much value as possible from the information you get.
5. Launch your product
Once the product is finally launched, your goal for the near future is to define the key channels and keep them in focus. The way you launch the product depends on its market. For instance, if you build SaaS products in an extremely niche market, it may be better to contact potential customers directly instead of spending money on pre-roll Youtube commercials.
Another way to help the success of your product launch is a sales funnel. Simply put, it is how the customer makes a purchase. When the purchasing journey is clear, you know what you have to do market- and saleswise to attract the customer’s attention and simplify their lives every step of the way. Most businesses follow a three-stage sales funnel that includes marketing processes at the top, sales processes in the middle, and customers at the bottom.
How to measure product-market fit
Try implementing a few of the following measurement scores to see how well your product is developing:
- Traffic gives you insights about the visitors to the website or app. You can calculate total visits to see how effective the marketing campaign is and bounce rate to find out how many visitors leave the website without exploring it further.
- The conversion rate shows how many visitors turn into customers and purchase a product or service.
- Customer acquisition cost (CAC) — total cost of effort that defines how much money the company needs to attract each new customer.
- The customer satisfaction score speaks for itself: it rates how much the product meets customer expectations.
- Net promoter score (NPS) is a customer’s research based on a survey that defines the overall satisfaction level of the product or service.
- The retention rate shows what percentage of customers stay with you and keep using your services/product.
- The total addressable market (TAM) identifies the revenue opportunities for the business. The calculation is simple: multiply the average yearly revenue by the total number of potential clients.
To wrap up
A product-market fit is an effective tool that should be considered at the beginning of the development process. It sets the strategy off to a good start and helps entrepreneurs save funds, effort, and lots of time that can be used to make a difference. To sum up, let’s remember that it is only worth launching the full-cycle development process of a new product after finding the right audience and meeting market demand. Building and testing an MVP can be the next step if it meets your development goals.
If customers are not finding the product’s value, the market is too narrow, or the feedback consists of heart-breaking reviews, it will cause problems. In such cases, it may be worth reconsidering the product itself or certain features that may become ultimate game changers.
Developing a successful product also involves the measurement of the product-market fit. You can choose convenient measurement tools, set off approximate scores you want to reach in advance, and then adapt your vision to the market. The product is an ever-changing mechanism that requires adaptation and thoughtful decisions.
Make better product decisions
Try our user feedback tool for 30-days!