Product - Market Fit

Steve Jobs once said, 

"The people who are crazy enough to think they can change the world, are the ones who do." 

And that's exactly what he did.

When Jobs returned to Apple in 1997, the company was in dire straits. Despite being one of the most recognizable brands in the world, Apple was in dire straits, actually on the brink of bankruptcy despite its brand recognition. So, how did Jobs turn things around? 

The answer is ‘he achieved product/market fit’.

If you're a product manager, startup founder, or veteran CEO, then whether you realize it or not - you're always thinking about ‘product-market fit’. 

“The holy grail” for any business.

Product Market Fit (PMF) is the holy grail for startups. It's the answer to the ‘mother of all questions’:
"Are we building something people want?"

Simply put, PMF occurs when your product resonates with a specific market. It's that "a-ha!" moment when customers start using your product, and they can't imagine going back to the old way of doing things. 

Once you've found that sweet spot between your product and a particular market, you can begin to scale your business quickly and efficiently. 

However, figuring out how to get there is notoriously difficult.

So how do you actually find product-market fit? 
And what does it look like? 

Let's take a closer look. 

There are three main indicators that you've found product-market fit: 

1. Your target market is willing to pay for your product 

2. There is consistent demand for your product 

3. Your churn rate is low 

Let's unpack each of these indicators in turn. 

1. Your target market is willing to pay for your product

One of the clearest signs that you've found product-market fit is when people are actually willing to pay for your product. If you're getting lots of free signups but no one is converting to paid users, then you might want to reevaluate your pricing strategy or the value proposition of your product. On the other hand, if people are eagerly handing over their hard-earned cash for your product, then you know you're onto something good. 

2. There is consistent demand for your product 

Another indicator of product-market fit is consistent demand for your product—in other words, people keep coming back for more even after they've used up all their free trial credits or introductory offer discount coupons. This means that they're actually using and benefiting from your product on a regular basis, which is a strong indication that they're happy with what they're getting. 

3. Your churn rate is low 

Finally, another way to tell if you've found product-market fit is by looking at your churn rate—that is, the percentage of customers who cancel their subscription or stop using your service within a given time period. If your churn rate is low, it means that people are sticking around because they're finding value in what you're offering them—which bodes well for sustainable growth in the long run. 

Some examples to help you compare it to your own product - of course, these benchmarks are rough ones, and may vary per market or even segment, but it should be enough to compare yourself to:

Consumer products

• Usage = 3 out of every 7 days
• Organic growth = ~100s new users/day
• Retention = 30% users active after day 1*
• Clear Path to 100K users

SaaS  products

• 5% conversion rate (for trial\free & paid)
• 3X ( CPA : LTV ) ratio
• <2% monthly churn rate
• Clear Path to 100K$ MRR

Ref: https://andrewchen.com/zero-to-productmarket-fit-presentation/

Before launch

First, don’t expect some simple, one-off formula for it - else everyone would’ve achieved product-market fit quite easily.

Nonetheless, there are indeed some 3 clear common denominators for all those who succeeded.

• They could all answer a specific list of questions about their business and product, in a way that helped them 

• Reach their optimal penetration market faster
• Raise money from investors more easily
• Acquire new clients at a lower cost
• Make fewer mistakes overall along the way

• They could all successfully analyze their market and environment in a way that allowed them to identify the best opportunities for their business.

• And they all had a plan for following up their initial success, in a way that helped them make decisions strategically and proactively, instead of just responding to events as they came along.

So, where do you start?

Start by answering the right questions.

The “right questions” are the ones that answering them properly increases your chances for developing the right product, approaching the right clients’ segments, penetrating the correct market successfully, and so on.

<<Image: Einstein quote about first defining the problem in order to save the world>>

There are many approaches to finding and answering all the right questions.

My preferred approach is an enhanced, customized version of the “Business model canvas” created and used regularly by us at Pandush.

Those questions are:

1. What Problem(s) are you solving?
2. How are these problems solved today?
3. What is your (alternative?) solution to each problem?
4. What are the key metrics to measure your success (a. Product, b. Business)
5. What is your USP?
6. What is your high-level concept for your business+product?
7. What is your “unfair advantage”?
8. Who are your clients?
9. How do you plan on reaching these clients?
10.  Who are your “early adopters”

Here is an example to help you understand it better:

Question #1 - What Problem(s) are you solving?

Answer guidelines:

A well-defined problem saves you time, effort, and money - and most importantly, increases your chances to succeed.

1- Specific user experience: “Construction work checkups” 

2- Measurable obstacle: “takes a lot of time” -------------- 

3- NO Solution! : (e.g... because there is no automated tool to compare current VS desired state… // … because there are not enough workers to do it quicker… these are all solutions. Avoid using them when defining the problem )

→  The more Generic the problem definition, the easier it would be to find a solution

Each of these questions has an optimal, ‘correct’ way to answer them.
At Pandush we run a specific workshop to make sure you get it right. Contact us for more details.

The other common denominators mentioned - Knowing the market & environment, and planning for the “day after”, can be both addressed by taking advantage of two highly reputable frameworks:

Analyzing the Market & Environment (SWOT Analysis)

Everyone knows this one so I’ll just throw a brief reminder here:

• Strengths: Identify your team’s competencies, connections, patents, and cost advantages.
• Weaknesses: Recognize areas needing improvement, such as reputation or distribution channels.
• Opportunities: Look for market gaps that align with your strengths.
• Threats: Be aware of potential competitors and both environmental & market changes.

Nonetheless, there is one part of the process most people using this model tend to forget - Actually turning your conclusions into actionable items, like product features or marketing decisions.

At Pandush we have great experience following up on SWOT analysis to making the difference for your product. Contact us for more details.

Planning the Next Steps (Value-Chain Analysis)

• Primary Activities: Focus on the core activities directly involved in delivering your product.
• Support Activities: Identify the indirect activities that support your primary operations.
• Advantage Points: Pinpoint areas where you can gain a competitive advantage, such as innovation, cost reduction, or customer service improvements.

While being one of the classic framework, I don’t feel like it is being used enough - especially compared to the value it can bring.

Just to name a few examples of companies who utilized Value-Chain opportunities to perhaps encourage you to look into it better:

 

• Amazon - Started from used books and evolved to the world's largest online retailer - and expanded to OTTtv, Cloud storage services, Voice assistant and much more
• AirBnB - Started as Home rental, evolved to experience rental
• Uber - Started  from private rides, evolved to delivering food, Shipping merchandise, Health-Care (docs and patients), renting electric bike and more.

We were lucky enough at Pandush  to help many early-stage startups as well as other stage organizations, to use the ‘value chain analysis’ framework to help create a sustainable product roadmap.  Contact us for more details.

After the launch

Once you've launched your product, the journey to product-market fit doesn't end. It's crucial to continuously iterate and improve based on real user feedback. 

This lesson was learned the hard way by many - formerly - successful organizations: Kodak, Blockbuster, MySpace, Nokia to just name a few….

Basically what you will want to do is constantly monitor your product and business, and compare it to your answers (The Business model canvas) to make sure they are still relevant. 
If not - update it.

Here are some steps to follow after the launch, to help you monitor your product & business:

1. Engage with Early Users
   Your early adopters are invaluable. Engage with them regularly to understand their experiences, gather feedback, and identify pain points. This can be done through surveys, interviews, and user feedback forms. Early users provide insights that are critical for refining your product.
2. Analyze Usage Data
   Track and analyze user behavior data to understand how your product is being used. Look for patterns and identify areas where users might be facing difficulties. Metrics such as user retention, frequency of use, and feature engagement can provide valuable insights.
3. Iterate Rapidly
   Based on the feedback and data analysis, iterate rapidly on your product. Implement changes that address the issues and enhance the user experience. This iterative process is crucial for refining your product and achieving a better fit with the market.
4. Optimize Onboarding
   A seamless onboarding process is essential for retaining new users. Ensure that your onboarding process is intuitive and helps users quickly understand the value of your product. Simplify steps and provide guidance to enhance the user experience from the start.
5. Monitor Key Metrics
   Continuously monitor key metrics such as retention rate, conversion rate, Net Promoter Score (NPS), and churn rate. These metrics help you gauge how well your product is performing and whether it is meeting the needs of the market. Low churn rates and high NPS scores are indicators of strong product-market fit.
6. Scale Customer Support
   As your user base grows, ensure that your customer support scales accordingly. Provide timely assistance and address user issues promptly. High-quality customer support can significantly impact user satisfaction and retention.
7. Leverage Word-of-Mouth
   Encourage satisfied users to spread the word about your product. Positive word-of-mouth can drive organic growth and help you acquire new users. Consider implementing referral programs to incentivize users to recommend your product to others.

Achieving product-market fit is a dynamic and ongoing process.
Initially it’s about asking the right questions, and acting upon your answers. 
However, it doesn’t end there of course - Once you’ve launched your product, It's about continuously refining your product based on user feedback, data analysis, and evolving market trends. 

Remember, product-market fit isn't a one-time achievement but a continuous effort to align your product with the evolving needs of the market.

By following the steps outlined above, you can increase your chances of finding and maintaining product-market fit. Stay engaged with your users, iterate based on feedback, and keep a close eye on key metrics. This relentless focus on improvement will help you build a product that truly resonates with your market.

In the words of Steve Jobs, "The people who are crazy enough to think they can change the world are the ones who do." Embrace this mindset, and let it guide you on your journey to achieving product-market fit.