Marc Andreessen laid out the original framework for the notion of product/market fit.
In his original blog post, Andreessen stated:
Product/market fit means being in a good market with a product that can satisfy that market.
You can always feel when product/market fit isn’t happening.The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.
And you can always feel product/market fit when it’s happening.The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.
Andreessen’s business partner, Ben Horowitz, added to the definition. He added that product/market fit isn’t a “big bang” moment, but rather a long period of time of searching for what makes your product work for your target market. (Horowitz’s follow up post is great, and can be read here.)
There is no easy way to test product/market fit.
To begin to understand how to figure out if your startup has achieved product/market fit, let’s start out by defining what the term “market” means. A market “consists of all the consumers who can search for and compare products for a use case they already have in mind.”
This definition is almost entirely consumer-focused, and also shares the idea that there is a pre-existing demand for your products in the market.
With this in mind, before even testing for product/market fit, it’s a smart idea to validate that there is actually a pre-existing market for your product. (Figure out if the number of potential customers for your product is large!)
Besides having a large number of potential customers, there are some other ways to figure out if there’s a great market for your product.
According to Andrew Chen of the Uber growth team, the ways to decide if there’s a great market are:
- A large number of potential users.
- A high rate of growth in the number of potential users.
- The ease of user acquisition.
Startups often focus heavily on competition when looking at their market, but that’s something that can be (somewhat) ignored. It doesn’t matter if there is a lot of competition in your space if it’s going to be easy for you to acquire customers in your space.
It’s also OK to not focus too heavily on monetization when figuring out how your product will fit in the market. The risk of obsessing with monetization early on is somewhat large, because you fail to acquire as many users as possible when you only want to try to make as much money as possible quickly. In my opinion, it’s smartest to get a large amount of people to love your product and then switch gears to better monetize the users after your initial active user base.
You make better products with a good market.
When you’ve discovered a good market, you create better products. This is because a big market allows you to take your time figuring out what product attributes will drive your growth. You’ll have more time to create a great user experience and be able to test out your product features and growth ideas more frequently (and more rapidly).
Once you’ve created a product and you think you’ve found your defining features, there are a handful of ways that you can test out if your product actually fits the market:
- Do people mention the right competitors of yours when comparing your product with others?
- Do people understand what makes your product different than competitors?
- Are there some users of the overall market that are willing to switch to your product from a competitors?
- Are there some users of who have rejected every other product in the market will to try your product?
- How do your metrics, such as daily or monthly active users, compare to your competitors?
The above five questions are all questions that can help you determine if you’re heading towards product/market fit.
Finding product/market fit is not an easy task. However, it becomes a much easier thing to accomplish when you focus on the market that you’re in. When you focus on the market that you’re in and understand pre-existing demand, you can develop a smart product and growth strategy that allows you to differentiate yourself from competitors.