Innovation and product-market fit
Product market fit (PMF) is a popular concept in the startup world, but it gets the attention of larger companies too. While broadly applied in conversations around new high-growth, highly innovative companies, it seems to be more and more popular among bigger companies that struggle in launching new products and commercializing innovation.
So what is the product-market fit definition? Well, I need to admit it's not easy to thoroughly understand what product-market fit is. But to make this easier to grasp, let me draw you a picture.
John is an entrepreneur. He loves innovation. He wants his big idea to change the world like Uber, and Apple changed our life. He raises money from FFF (Family, Friends, and Fools). He works on this exciting idea, and he had pulled many all-nighters, consumed a lot of yerba mate with his peers, spent hundreds of hours in the meetings, talked to his boss (yes he also worked for a corporation) or cofounder, wrote thousands of lines of code and BOOM! He released the thing, the app which shines like a diamond in the app store. His innovation is out there. He finally has something working.
Once the product is live, he approaches his co-workers, friends, and start telling everyone how fabulous his product is.
It's a fantastic feeling when you are a father of the innovation which people claim to love.
Now John hears lovely feedback from people. Stuff like:
"I like your app, buddy!"
"I will check it out."
"You are awesome."
John's ego loves it. It's like eating ice cream with caramel on it.
John, of course, shared the app with everybody. It's still a prototype, but it's working, and it's a fruit of blood and sweat.
Unfortunately, after a few weeks, he sees that these guys are not that enthusiastic about his product.
When launching a new product, managers, founders believe that they are solving a problem that the market wants to be addressed. The truth is, in most cases, innovators didn't even check how big is the problem, and if the problem exists. Often the problem is not that large, and the innovation doesn't matter. People download the app, never open it, or if they fire it up, they don't spend so much time with the software. It is clear evidence that John doesn't have a product-market fit.
This is why launching products is hard. You work so hard, and then it turns out nobody wants your innovation.
When a product is being ripped out of your hands by excited customers and business can't keep up with their demand for more, it's what you want! You have achieved the stage known as "product-market fit." Accomplishing product-market fit is one of the most important goals for any company, manager, or founder who wants to launch a new product and get the ROI eventually. It's evidence that the market expected specific innovation. You squeezed the missing puzzle, and it fits the market.
What is the product-market fit in the innovation world? Definition.
The most obvious way to understand the concept of product-market fit is to learn that if a product satisfies strong market demand, then it has achieved a product-market fit spot. It's a match between the demand and value proposition which a product offers. Product-market fit explains to you the scope of the problem you are trying to solve and how well your value proposition is solving that problem. Also, it shows the power of the product
There's a great Winston Churchill quote. He said, "I don't listen to people's opinions anymore. I observe their behavior. It tells everything," The same any product manager should say about Product-Market Fit. It's not what people tell you; it's what they do with your new product, MVP, or prototype. You know it when you play with it.
One that started selling a product always has a vision of our products instantly flying off the shelf. Things don't usually work out that way. Revenue is generally lower, traction is slower, and churn is deeper.
You feel you had achieved some sort of product-market fit when you got ten customers buying a first product, or 300 pageviews of your landing page, which turn to 20 downloads. The reality is that new product managers are full of concern and fear for most of the time. They constantly ask themselves
"Would the ten customers turn into fifty customers?" and…
"Would the 100 customers turn into ten thousand customers?
The first best sign of product-market fit: Traffic.
All new products need to get the word out to many prospects. Getting the word out usually means spending money on ads, launching landing pages, building MVP, or simply running a Facebook campaign. Web traffic needs to grow at a significant level and be +-10% stable.
The second sign of product-market fit: Activation.
Getting traffic is a step one. It's a foot in the door step. Then product needs to attract customers to order free samples, subscribe to freemium, or to leave an email to get the product later. Customers come. They started to accept invitations, download the freemium app, ask for the PDF. More good news! They leave feedback. Awesome. They care. Now product managers started talking with our potential customers.
Second step: checked! This lead to:
The third sign of product-market fit is: Retention.
The big challenge is to get customers to use the samples, app, freemium regularly. Actually, nobody can force them to do it. It's a matter of compelling value proposition. Product managers, founders, need feedback like human beings need air. It's the only meaningful evidence that a product is on the right track. At this stage, the company still doesn't offer a finished product. It's usually a prototype, so it's a great sign when customers are happy to use a product despite its flaws. It's excellent - the company released a defective product, and people can't live without it, can you imagine what will happen when the product is perfect? I am trying to say that when you are solving a vast customer pain, your market will find you and will many times bother you to check if your product is ready or not.
This lead to the next stage: Money. Ten customers quickly attracted another 50 customers, and 50 customers led to 250 customers. Monthly recurring revenue started to take off, and managers can see a pattern. HOORAY, a business can now work with data.
Moreover, website visitors started to ask for access; they want to try the product, which leads to Z number of customers. It's a market fit.
Market always wins!
What are other characteristics that make a particular market attractive? For the digital consumer market, a great market is generally a sum of four elements:
- a significant number of potential customers
- the known cost of user acquisition
- dynamic and growth, nobody wants to attack the stabilized market
- not defined customers problems (if they are apparent, strong competitors show up quickly)
The great thing — it doesn't take too much time to learn that the product doesn't have a product-market fit. No users. No feedback. No retention. A manager needs to decide: kill it or pivot.
Most startups fail because they burn cash without getting out of the building, talking to customers, and hunting for evidence whether customers want what they are building. However, it's not that easy to discover a significant, game-changing customer pain. It takes hard work, a process, experimental approach, dedication, the right strategy, different people, flexibility, and of course, force must be with you! If you have all of this in your hand, then you have chances to win.
How to drive product growth with business model innovation. Check my post here.
Achieving a product-market fit
There is no one-fit-all solution for this, but there is a framework. It always comes from the customer's problem (pains they face), which product removes by delivering a compelling value proposition. Managers can't discover the value proposition if they are stuck in the office and don't go to customers. Even inviting customers to the office is not a solution. Founders, managers who work on innovation, should go to customers and spend time with them doing things (make pizza in the kitchen, drive with truck drivers in the cockpit or take a dog for a walk to learn what it means to pick up poop). It's the best way to understand if people care about the specific problem.
1. An innovation that works automates or removes jobs that customers need to do and eliminate the pains they face.
The target customers are people who decide whether to use the product or switch to competitors. Please go to them, talk to them, read data they share with you, and make sure they care. The easiest way to do it is to observe customers and see what they need to do, which makes them feel tired, sad, or demotivated. Then remove it. For instance, mom loves her kid, but nobody likes to get up at 1 am and boil water, then cool it and make the formula. This is the reason we love formula warmers and other kitchen appliances. Why do you like uber? It's not the cheapest option, but it solves the problem of carrying a credit card and getting a nice and clean cab. The algorithm removes the pain. Uber's recommendation engine (algorithm) removed my problem of getting into a stinky cab. At this stage, founders and managers task is to learn and understand the most severe pains of the target market.
2. Define Value Proposition of your innovation and bring a product, which is hard to abandon.
The value proposition is about how you are going to convince your customers that they should choose your product, not the one-click far away competitor. The market, in most cases, is full of similar products, and this shouldn't be a problem as long as you bring something entirely innovative and ground-breaking. You can achieve it only when your value proposition is strong and compelling. The critical thing about the value proposition is, you can't discover it in the darkroom by yourself. You need customers. They are the true North.
3. Define your Minimum Viable Product features pool
Eric Ries, who proposed the concept of the minimum viable product as part of Lean Startup methodology, describes the purpose of the MVP this way:
It's the version of a new product that enables a product team to collect the maximum amount of learning about the market with the least amount of effort. A business might decide to develop and launch a minimum viable product because the team wants to:
- Dry run a concept with end-users before investing a large budget to the product's full development and launch
- Release a final product to the market as soon as possible
- Discover what resonates with the company's target segments and what doesn't bring traction
In addition to allowing the company to confirm an idea for a product without having to build the final product, an MVP can also help reduce the time and resources a business might otherwise prepare to design, building, and launching a product that won't succeed.
4. Create a Minimum Viable Product using pre-made blocks
This one is simple: business shouldn't build, code, manufacture, construct until teams have the prototype at hand and an evidence that customers care. Prototype! Get 3D printer, wireframe software, nails, and a hammer. Build a prototype and get out of the building to learn if people want the final product. Getting feedback is a blood stream of any succesful innovation. Customers' opinions matter a lot. Many companies don't do it, and when they launch, they push. They invested so much money, and other resources that are now pushing it to the customer's hands is the only option. By pushing, I mean buying ads, having billboards, running price promotions, and getting out a lot of FB campaigns.
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6. Test the MVP Prototype with Potential Customers
Once you got the prototype, it's time to get feedback coming from the target audience. Don't ask your mom, dad, or siblings unless they are in your target segment.
Instead, give access to your prototype to anyone who fits into the customer segment and might end up purchasing the product later on when it's 100% ready. During any kind of communication with the potential user, get data in place, catalog it, and analyze.
As I hope it is evident by now, conducting a product-market fit analysis is not easy. It can be easier though if you are following a specific process. The process I shared with you today. Regardless if you are in a good market or not, this is something you need to do. Because finding a product-market fit means that you can start growing. So, take the next step and use everything you learned to conduct your product-market fit analysis.