At every stage that startups go through, there is a key metric that allows us to move on to the next challenge. In the case of the earliest stages, the product market fit indicates to a startup when it makes sense to start scaling its product or service in the market.
In today's article, we'll focus on what the product market fit is and how you can tell if you've already found it. At first glance, defining what the product market fit is, without going into many details, may seem simple. It is often said that a product or service has a market fit when fits the needs of the market. But what does it really mean to fit in? The concept can be quite ambiguous, so some entrepreneurs find it difficult to know if they have succeeded or not and when they have done it. According to some experts in the field of marketing, the correct question would be not so much whether you have a market fit or not but what level of product market fit you have. Understanding then, the concept as a spectrum and not as something binary (yes or no).
How to find the product market fit?
Data analysis can be a valuable tool to help a company find the product market fit. Through market segmentation, identifying patterns in customer buying behavior or competitive analysis, among others, the company can better understand customer needs and adjust its offer to meet those needs effectively. It must be borne in mind that for a product or service to have a good market fit it is not enough to satisfy the desires of the market. Giving away free samples for an unlimited time will probably be well received in the market, but, nevertheless, this will not generate any type of profitable business, nor will having to pay for the acquisition of each and every one of your customers. To speak, therefore, of product market fit, is also to speak of the possibility of having good margins and the ability to retain customers. On the other hand, it is important to keep in mind that the product market fit must be calculated on metrics and objective aspects. In retrospect, it is very easy to measure it using retention curves, but in the early stages it is frustrating not to be able to measure it. However, at YCombinator they propose a method that can be useful and that consists of asking customers how disappointed they would be if xx product or service disappeared from the market. If the majority percentage is that they would be slightly disappointed, the product or service is having little acceptance in the market and there is no question of having found the product market fit. At this point, the company can choose to Ssegment responses in order to identify certain customer niches or use cases in which the degree of disappointment if the product or service were to disappear is high, and therefore, In which you have the highest market fit and, once found, focus their efforts on pivoting the solution to dominate that piece of the market.
How to calculate product market fit?
Although there are founders who believe that product market fit is something subjective and that it can be found through intuition and interpretation, there are indicators that must be taken into account. In this case, quantitative metrics are more important than qualitative metrics. Some metrics may not be valid or may not be the best for calculating the product market fit. For example, although a large number of users on a wait list validates the interest in your product, it does not imply having found the right product market, since then you have to meet their purchase objectives, nor is the number of users or visits to a website, nor the fact that a company experiences a growth in its monthly revenues. So... What metrics can be used to evaluate product market fit?
- Customer Satisfaction Level: It can be measured through surveys, interviews, comments on social networks and other tools. If customers are satisfied with the product or service, the company is more likely to have found the product market fit.
- Customer Retention Rate: It's an important metric for measuring customer loyalty. If customers are buying or renewing their subscriptions to use the product or service on a regular basis, it's another sign that the company has found the product market fit.
- Customer referral rate: It can be measured by means of the NPS (Net Promoter Score) or any other satisfaction metric. The fact that it is the customers themselves who actively recommend the product or service to others, most likely implies having found the product market fit.
- Customer lifespan: CLV is a metric used to calculate the customer's long-term profitability. If customers are using the product or service for an extended period it indicates that the product or service is providing real value to customers in the long term and that, therefore, the company has found the product market fit.
These metrics are important for evaluating product market fit because they are directly related to customer satisfaction and customer loyalty. If customers are satisfied and loyal, it's a sign that the company has found the product market fit and that the product or service is providing value to customers. However, it is important to note that there is no single metric that can, on its own, determine if the product market fit has been found. Instead, a combination of metrics needs to be used to accurately and fully evaluate the company's acceptance and success in the market.
What to do once the product market fit has been found?
Once a company has found (or believes it has found) the product market fit it must Keep listening to customers (through surveys, interviews, monitoring of comments on social networks) to keep abreast of your constantly evolving needs and preferences. In this regard, the company must continue to use relevant metrics to evaluate the success of its solution in the market and ensure that it continues to meet customer needs over time, especially in those markets that are more likely to experience rapid changes in customer needs, such as, among others, the mobile technology and applications market.
It is important to note that having found the product market fit does not automatically guarantee the company's success. While product market fit is an important step towards success, there are many other factors that can influence the company's performance, such as competition, product or service quality, marketing and sales strategy, financial management, etc. At this point, the company can take advantage of the success of its product or service in a specific market to expand its reach or to enter similar markets. To do this, it should be noted that the company will need to adapt certain aspects of the product or service in order to meet the specific needs of each market. In this sense and although it depends on the economic context, it is important to understand that it doesn't make sense to scale the product or service in the market without having achieved a first product market fit, doing so could lead to rapid but unsustainable growth and to the waste of valuable resources. Scaling involves increasing production, distribution and customer acquisition on a large scale, which requires significant investments of time, money and effort, so if the product has not achieved a solid fit with the market, scalability efforts are likely to be unsuccessful. On the other hand, the moment the product market fit has been found is generally a good time for the company to invest resources in improve and differentiate. As the product or service gains popularity in the market, competitors are likely to emerge, so to maintain its position in the market, the company must continue to improve its solution and differentiate itself from the competition.
