Did you know that a substantial number of startups fail due to a lack of market need? Other research shows that almost 80% of new products fail for the same reason. These statistics reveal a pressing issue in the business world – developing products no one wants. Much of this stems from failing to understand product-market fit.
Your business may have the best product or service in your industry, developed using the latest technologies, and allocated a significant budget for marketing. However, if the product has no market need, no one will buy it, and it will ultimately fail. As such, enterprises must ensure that their offerings have a product-market fit before launch.
What is Product-Market Fit? And Why is it Important?
Product-market fit is achieved when your products meet customer needs better than other alternatives in the market. The indicators of a good product-market fit include:
- Customers buy your products faster than you can produce them
- Considerable press coverage
- Lots of repeated sales
- The need to hire more people to meet demand
- 40% of your customers will be disappointed if your product vanishes from the market.
- A big community of brand ambassadors
Product-market fit is vital because it lets you know whether a product is commercially viable. You determine if the product you are building addresses a real problem for a large enough market. This way, you avoid scaling prematurely or investing vast amounts of money in production and marketing, yet you won’t get any returns.
For startups, product-market fit validates your business while laying the groundwork for it. A good market fit increases your likelihood of building a loyal customer base, increasing brand visibility, securing recommendations, and generating conversions.
How to Determine Product-market Fit
Getting your product to the right market is among the most crucial goals for startups and established businesses. It is also often misunderstood and overlooked.
Determining the product-market fit for your products increases your odds of success. But, how do you do it? Continue reading to learn how to achieve product-market fit.
1. Identify Your Target Customer
Your target customers are the users who will benefit from your product. They determine how well a product satisfies their needs. It is best practice to create ‘archetypes’ for those users to understand who you are creating a product for. Market segmentation can help you define your target customer.
You can identify your target customer by answering the questions below.
- Who will benefit from this product? It can be consumers or companies.
- What are the attributes of these people?
- What challenges do the target customers face?
2. Data Collection
In this phase, you conduct extensive research. Start by talking to your customers to identify their pain points and under-served needs. You can also consult your sales and marketing departments to determine recurring customer complaints.
You can use methods such as surveys, interviews, questionnaires, and face-to-face conversations to gather feedback. Obtain as large a data sample as you can work with in order to gain meaningful insights.
3. Focus on a Single Domain
Avoid the mistake of trying to sell your products to everyone. It is best practice to start with a narrow focus and broaden with time. Start by establishing yourself as an expert in a single domain and then dive deep in the industry.
Spotify, a music streaming service provider, is a prime example of a company that excelled in focusing on a single domain. It established that consumers were willing to pay a small fee to access music legally and without advertising. Spotify saw a gap in the market and built a platform to fill it. The platform allows people to listen to music and podcasts anytime for a small fee.
4. Value Proposition
Demand comes with competition. Therefore, you must identify your value proposition to beat your competitors. Your value proposition is a combination of the factors and features that make your product different and better than others. Ensure you address under-served customer needs to create value.
Value proposition allows you to outperform competitors while surprising customers. Your products or startup will only succeed if you have a strong value proposition.
5. End Product Development
It is now time to develop your product and launch it. In the development process, ensure that the end product meets basic consumer needs and offers essential features.
After the launch, it is time to solicit feedback and comments from users to improve the product.
6. Measure Product-Market Fit
You must track the performance of your product to determine if you have reached your desired results. Here are a few metrics you can measure.
- 40% Rule: it is a reliable indicator of product/market fit. Ask your existing customers how they would feel if the product disappeared in the market. If more than 40% would be disappointed, then you have attained product-market fit.
- Total Addressable Market (Tam): It refers to the number of people who can gain from your products and are current customers.
- Net Promoter Score (NPS): with this score, you can determine how much your audience likes your products. Enquire from your customers if they would recommend your product to others. A high NPS means that your product appeals to customers and hence would recommend it to others.
7. Avoid Complacency
When you attain a product-market fit, do not get comfortable and assume you will always have it. Consumer needs are ever-changing, and your products must reflect that. Also, your competitors will always strive to outshine you and create products with better features. Keep an eye on them and initiate the required measures to position your product as the best option.
When launching a startup, many founders believe that they have the best business model and excellent products to appeal to consumers and generate sales. Unfortunately, this does not always happen and startups encounter unpleasant odds.
Many startups do not consider the market need and waste huge amounts of money manufacturing products nobody wants. As such, startups should determine the product-market fit for their offerings to ensure their business is commercially viable.
Product-market fit can be the difference between a successful startup with huge returns and a failed one with complete loss of invested capital. Use the steps outlined above to achieve product-market fit and scale your business to the next level! Also, feel free to contact us to learn more about product-market fit.