Product/Market Fit is being in the right market with a product that can satisfy that market. Finding Product/Market Fit can be a gradual process, especially if there’s no obvious business opportunity yet. Scaling too soon or missing an optimal time to grow can spell death for your startup. Reaching Product/Market Fit can seem back-breaking, but measuring it doesn’t have to be.
The term was coined initially by Marc Andreessen, according to Eric Ries, Author of The Lean Startup.
“If you have to ask whether you have Product/Market Fit, the answer is simple: you don’t,” says Ries.
To know Product/Market Fit, you must first understand lean startup principles:
- Most startups fail by wasting money on a product no one wants
- Instead, launch early and test business model hypotheses with a minimum viable product
- Pivot when a hypothesis is wrong
- Repeat until you have Product/Market Fit
- Don’t scale until you have Product/Market Fit.
You can’t be all things to all people and sometimes, even having the most reputable investors can’t save a startup from mismanagement.
Drone operating system startup, Airware, is a cautionary tale of startup overspending in hopes of finding Product/Market Fit. Airware, Founded in 2011 by Jonathan Downey, the son of two pilots, shut down after burning $118M. Airware might still be alive today by being more frugal and extending its runway to give corporate clients more time to figure out how to use drones. It’s not just that they should have been more economical; they should have been actively running more experiments to find Product/Market Fit. Additionally, more runway doesn’t necessarily lead to customers finding viable use cases — it’s how you use that time that’s important. Airware had all the indicators of weak Product/Market Fit: slow usage, long sales cycles, and customers weren’t getting value.
Indicators of strong Product/Market Fit include customers buying your product faster than you can make it, you’re on a hiring spree, and you’re getting a lot of press. Product/Market Fit is essential for anyone trying to solve a problem — whether you have no resources (startup) or you have many resources (enterprise). Perhaps the strongest sign that you’ve found a fit is when your customers are as excited about your product as you are and become evangelists for your company. Rocket Insights’ Josh Porter sums it up beautifully:
“Product/Market Fit is a funny term, but here’s a concrete way to think about it. When people understand and use your product enough to recognize its value, that’s a huge win. But when they begin to share their positive experience with others, when you can replicate the experience with every new user who your existing users tell, then you have Product/Market Fit on your hands. And when this occurs, something magical happens. All of a sudden, your customers become your salespeople.” — Josh Porter
Product/Market Fit is when your customers become so loyal that they sell your product for you. A simple way to measure it is through a Net Promoter Score (NPS). NPS is a management tool that can gauge the loyalty of a startup’s customer relationships. It serves as an alternative to traditional customer satisfaction research and claims to be correlated with revenue growth. The NPS is calculated based on responses to a single question, “How likely is it that you would recommend our company/product/service to a friend or colleague?”
NPS scoring is often on a 0–10 scale. Respondents are grouped as follows:
- Promoters (score 9–10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives (score 7–8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0–6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
An NPS can be as low as −100 (every respondent is a “detractor”) or as high as +100 (every respondent is a “promoter”). A positive NPS is generally deemed good, and an NPS of +50 is usually considered excellent. Research other NPSs to gain a greater sense of how strong your Product/Market Fit is compared to other competitors in your space.
Finding Product/Market Fit is proof that you’ve found a customer problem and that your customers will pay you and advocate on behalf of your startup. Achieving it doesn’t mean the end of your worries as you’ll have to solve for distribution, capital needs, and even more competition. The journey can be arduous, but with the right tools, you can measure success without high levels of difficulty.