Product-market fit (PMF) is arguably the most significant indicator of startup success.
But it’s not the only thing that matters. Despite what some entrepreneurs might think, having PMF isn’t enough to guarantee success.
What having PMF does do is prevent startups from throwing money at a problem than can’t be solved. It proves you’re on the right track and that your startup stands a chance.
Before we look at the steps startups can take to find product-market fit, let’s get two things straight.
1. Product market fit isn’t always obvious
You won’t necessarily experience that big “aha!” moment where everything clicks. Oftentimes, achieving PMF is a much subtler shift.
2. Getting product-market fit is not a one-and-done accomplishment
Businesses must work to maintain PMF as changes affect the market, their team, their competitors, and their customers.
Even after you achieve PMF, you need to develop a growth model to keep your business thriving and fortify your product and brand against competitors.
What is Product-Market Fit?
For product-market fit to exist, two crucial things are required: a robust, sizable market and the right product for that market.
PMF occurs when you create a product that can satisfy a significant portion of the market. It doesn’t need to be decked out with all the bells and whistles, but it does need to be a minimal-viable product that solves a real problem or fills a need.
Put simply, a startup has PMF when it’s in a good market with a good product that can reliably offer something the market wants.
How Can Your Startup Achieve Product-Market Fit?
Unfortunately, there’s no magic formula for finding product-market fit. There are, however, steps you can take to increase your odds of success. Here are a few things we recommend you try.
1. Target the right market
How can you tell if you’re targeting the right market? Or, if you’ve found the right market, how do you know it’s ready for your product?
One of the first steps in achieving PMF is having a large number of potential customers or users. Your pool of potential customers should be growing, not drying up, as you begin to sell.
Your market must big enough to sustain your business until can you have the resources to either expand your product line or pivot into a more lucrative space.
2. Be willing to adapt and pivot as necessary
Until you have it, you need to do whatever it takes to achieve product-market fit.
That includes being willing to replace team members, shift direction, add features your customers want, remove features that no one uses, redefine your brand, and even change markets.
The more time you dedicate to developing your brand or product, the harder it gets to remain objective about the changes you need to make. However, try not to marry yourself to any particular aspect of the product until after you’ve obtained product-market fit.
3. Involve the entire team
When you work for a startup, finding product-market fit is part of everyone’s job description. Your entire team should contribute to the process of finding PMF, otherwise you’ll struggle to sell or market it.
Sure, PMF starts with those who design, code, and build the product – but it extends to anyone on the team who is marketing, selling, or supporting the product.
For example, marketers can use their knowledge about customer desires to inform product designers of high-value features that need to be built out and ensure the product is being tailored to meet consumer needs.
4. Reach Out to Your Targets
There is value in establishing relationships with potential customers before you try to sell to them. Pre-launch or during product beta, cold email your targets to ask for candid feedback. Those who respond will provide insight about your product direction before you even hit the market.
Post launch or once you have a number of paying customers, talk to your ideal customers about what they love (and don’t love) about the product. Ask what else they’d like to see from the product, what their favorite feature is, and whether they would recommend it to a friend or colleague.
Signs Your Startup Has Found Product-Market Fit
Having a large audience is a great start, but it can also make your early sales numbers seem better than they actually are. If the current product doesn’t create repeat customers or generate referrals, or if it has a short customer lifetime and high drop-off rate, you do not have product-market fit – regardless of how much you’ve sold.
So, how can you tell once you truly have PMF? Here are some telltale signs you’ve found the secret sauce:
Sustainable Growth
If you sell a physical product, customers are buying at the same rate you’re producing. If you sell software, usage is increasing at the same rate you’re able to scale your servers.
Remember, product-market fit is not creating an awesome product with a super niche, shrinking market – it needs to at least be sustainable for the foreseeable future.
Increasing Revenue
Not only do you have consistent sales numbers, your revenue and customer lifetime value are both increasing. You’re earning more than you’re spending, so your sales and marketing budgets are justifiable.
However, you likely don’t have product-market fit if your user-base only grows during marketing sprints or media coverage. You need organic growth fueled by sustainable marketing efforts – not spurred by one-off events.
Emerging Brand Advocates
Your customers are selling for you by spreading the word about your product or service. When your customers become advocates for your brand, it means they recognize that you provide value worth sharing.
If your product offers a consistently great experience to each new customer you onboard, those customers are also more likely to send referrals your way. As more customers share with their networks, your reach will expand and your success will snowball.
How to Measure Product-Market Fit
Now that you’ve achieved product-market fit, it’s important to measure your success so you don’t lose it. Start by tracking these metrics and watching how they change over time.
Conversion Rate
Whatever activity you’re tracking, your conversion rate should be stable or improving if you have product-market fit. Whether you’re comparing sales calls set to closed-won deals or looking at the ratio of trial users that turn into paying customers, a decreasing ratio could spell trouble.
Customer Acquisition Cost (CAC)
How much money do you spend to acquire a single new customer? If you have product-market fit, this amount should be stable or decreasing over time. CAC often improves when customer lifetime increases, your sales cycle shortens, or when customer referrals bring in business, thereby cutting down the cost of sales and marketing.
Churn Rate
Do your customers stick around? If you’re a SaaS startup, do you have consistent user retention? It doesn’t matter how many new customers or users you have if they don’t derive enough value from your offering to come back after one purchase or trial.
Net Promoter Score (NPS)
NPS is a survey that asks customers how likely they are the recommend your product on a scale of 1-10. This is an easy way to measure how many customers love your product and are willing to advocate for it (which is a strong indicator of product-market fit). Positive responses should increase as you fine-tune marketing, zero in on targeting your ideal customers, improve the product, and build successful long-term customer relationships.
