Product-Market Fit (2022): What, Why and How [+ Pyramid]

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Product Market Fit 1

Do you already have a Product-Market Fit (PMF)?

I’ve been hearing it more and more lately, the question whether someone has a PMF yet.

Maybe you’re already familiar with the term, you already have it or you just want to know how to get it…

I’m going to explain to you:

  • What a Product-Market Fit (PMF) is
  • How to determine if you have a PMF
  • And how to get a PMF

Let’s start with the basics…

What is a Product-Market Fit?

The literal meaning:

“Product-Market Fit means putting yourself in the right market with a product or service that the market is satisfied with.”

Product-Market Fit originally came from Steve Blank‘s Customer Development Model.

In the startup world, it is a well-known term because it indicates whether a company has got a successful product that they can start to scale.

Product Market Fit Pyramid
Product Market Fit Pyramid

Marc Andreessen says that you can always sense whene there is a Product-Market Fit, because customers are buying your product just as fast as you can make it, usage is increasing faster than you can scale servers, or you are selling your service faster than you can hire people.

In addition, he also says that you can feel it when you don’t have a Product-Market Fit, it shows:

  • Customers not fully understanding what value your product or service actually provides
  • Customers aren’t talking about your product or service to others
  • Few repeat purchases, no contract renewal or few returning users
  • No reviews or reviews that are not very enthusiastic

Difference with Problem-Solution Fit

The Problem-Solution Fit is part of the Customer Discovery Process. You are looking more at who your customer is, what problem they have and what kind of solution you are going to create for that problem.

The result of the Problem-Solution Fit is a solution that actually solves your customer’s problem.

Different stages of startups
Different stages of startups

The Product-Market Fit is part of the Customer Validation Process. You’re going to transform your solution into an optimized product or service, and you’re going to make sure it’s a seamless fit with the market rather than a few potential customers.

The result of the Product-Market Fit is a product that customers are excited about and where you have a number of paying customers.

Why is a Product-Market Fit important?

The famous book, The Lean Startup, states that the number one reason start-ups fail is because they bring a product to the market that no one actually wants:

In that case, there is no Problem-Solution or Product-Market Fit (PMF). Founders often fall in love with their product or service pretty quickly, they want to sell it to as many people as possible as soon as possible.

The problem is, if the market doesn’t want your product or service then all the money you put into marketing and sales is basically wasted money:

“Great marketing only makes a bad product fail faster” – David Ogilvy

So always strive for a PMF first before scaling up your business, otherwise your just throwing money away.

How do you determine if you have a Product-Market Fit?

To determine if you have a Product-Market Fit, it is first important to know that there are two types of data…

  1. Quantitative:
    • NPS rcore
    • Churn rate
    • Growth rate
    • Market share
  2. Qualitative:
    • Word of mouth, your existing customers act as sales personnel.
    • Publications by media or industry analysts about your products.

In general there are two methods to determine whether you have a Product-Market Fit:

1. Sean Ellis method

Sean Ellis has come up with a method to determine if your company has got a Product-Market Fit:

  • You send a questionnaire to your customers
  • You ask how your customers would feel if they could no longer use your product or service tomorrow with the following answers:
    • Very disappointed
    • A little disappointed
    • Not disappointed
  • If more than 40% answers that they would be very disappointed then you may have a Product-Market Fit

SurveyMonkey and Hotjar has created a good questionnaire on this.

2. Enthusiastic paying customers with above average retention

You have:

  • Customers who pay for your product
  • Enthusiastic customers who talk about your product or service
  • Repeat purchases, contract renewals or returning users

You can gain insight on this aspect using the Pirate Funnel Canvas.

Product Death Cycle

According to Brian Balfour, it is not necessary to have a good product because you could end up in the Product Death Cycle pretty quickly:

Product Death Cycle 2
Product Death Cycle 2
  • You add features
  • (Re-)launch your product
  • Get a short spike in growth
  • Your growth stagnates again
  • Repeat

Brian Balfour says that the key thing is to have a product, channel, market and model that fit together seamlessly, and that you shouldn’t put all your focus solely on the product and market, but should therefore also think about your sales channels and profitability.

In that case, the only difference that a Product-Market Fit (PMF) brings compared to not having a PMF is a faster form of growth stagnation:

How do you get a Product-Market Fit?

  1. Understand who your customer is

    First, it is important to know who your customer is. The Decision-Making Unit and the TAM SAM SOM Model can help you do this.

  2. Have a deep understanding of your customer’s problem

    If you know who your customer is you can start to investigate what the problem is, how big the problem is and what kind of solution the customer is using right now. You can start doing this using customer interviews and “Get Out of The Building.

  3. Realize a Minimum Viable Product (MVP) of your solution

    Provide an MVP and start testing whether your solution actually solves the customer’s problem, if not follow the Build-Measure-Learn process.

  4. Validate that you have a Problem-Solution Fit

    Check that you have the following:
    1. A clear understanding of who your customer is
    2. Know what your customer’s problem is, how painful that problem is, and what the customer is using now to solve the problem
    3. A product that actually solves the problem, with hard evidence

  5. Evolve your MVP into a Minimum Marketable Product (MMP)

    In the Problem-Solution Fit, you’ve made sure your product is tailored to a few launching customers, now you’re going to make sure your product or service can be used by a larger segment.

  6. Make sure you have a scalable sales process

    As the Customer Validation process prescribes, it is important to have a validated and scalable sales process.

  7. Use the Sean Ellis method to check whether or not you have a Product-Market Fit

    Go to the previous chapter and check with the Sean Ellis method if you have managed to get a Product-Market Fit, if not start again.

Who is responsible for the Product-Market Fit?

It’s not one persons responsibility to have a Product-Market Fit (PMF), it’s everyones responsiblity to ensure that there is a PMF.

Everyone should be aware of what a PMF is and how they individually contribute to getting the PMF.

Product-Market Fit Examples

There are of course countless examples of Product-Market Fits, here are some well-known ones:

Netflix

The problem Netflix had found was that people were tired of paying fines for DVDs they rented from local stores or carts. As a solution, Netflix offered a subscription that allowed people to start receiving DVDs through the mail and keep them as long as they wanted.

Fortunately, Netflix has not stuck with this model, because these days no one watches DVDs. Netflix adapts to what dominates the entertainment industry, so they are constantly chasing the Product-Market Fit.

Google

In the early days of search engines, Google had a lot of competition in the advertising market, but in 2003 that changed. Google became dominant with a new concept.

Namely, Google realized that companies wanted to pay for display ads outside of search pages as well. Google AdSense automatically showed ads on relevant web pages.

What can you learn from this?

Take the time to research what your competition is already doing and where there is still a gap in the market.

Common mistakes

There are a number of mistakes that often come up:

  • The Problem-Solution Fit (PSF) is already wrong when you are trying to solve a problem that no one actually encounters.
  • Having the wrong team, but that’s a tough one. You could write several blogs about this problem itself.
  • Thinking that once you achieve Product-Market Fit (PMF) that it won’t go away, you have to keep checking to make sure you still have PMF.
  • Mixing up PSF and PMF.
  • Thinking you have a PMF because you have customers.
  • Starting to market and grow your business without a PMF.

Conclusion

Are you convinced that a Product-Market Fit is essential to start scaling your business? As with anything, there are exceptions to consider, but overall, I believe it’s good to strive for the Product-Market Fit.

Let me know in a comment what you think!

P.S. Would you like some help or a little more explanation? Send an email to [email protected] or leave a comment below this article.

Frequently asked questions

Product-Market Fit Definition

The literal meaning of Product-Market Fit is: “Product-Market Fit means you are in the right market with a product or service that the market is happy with.”

What are the Product-Market Fit criteria?

1. Knowing who your customer is
2. Deep understanding of your client’s problem, how painful is the problem and what is the client currently using as a solution
3. A solution that actually solves the client’s problem
4. Scalable sales process
5. Paying customers with above average retention
6. > 40% of customers indicating they would be disappointed if your company did not exist tomorrow (Sean Ellis method)

What is the Product-Market Fit canvas?

The Product-Market Fit canvas allows you to understand how your market, product, channels and business model fit together seamlessly.

Gust de Backer
Gust de Backer

I try to help business surpass their growth ceiling with my content.

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