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If you are in the startup world, you know that a great idea is important. But it is not enough. The product has to "click" with the market for things to really take off. What does the Lean Startup Methodology suggest in this case?
This is where Product-Market Fit comes into the picture!
There are a number of interpretations as to what exactly this term means. The term was coined by Marc Andreesen, who says that it is the ability to stay and be seen in a good market and develop a product that has the ability to satisfy consumers in the market. This generally works out when the customer sells the product for you by word of mouth or recommendation.
You need a good reason as to why a customer would opt for your product if you are to provide a hypothesis for a successful Product-Market Fit. A value hypothesis would underline why they would use it, while a growth hypothesis points out the ideas to scale up, going forward.
Building good connections in the right market could also help your Product-Market Fit, as they could give you a push in the right direction. Many venture capitalists are all about finding budding ventures in a great market and investing in them.
Things that can reveal you don't have Product-Market Fit
Indicators that you are closer to Product-Market Fit
Let's assume you have your Minimum Viable Product (MVP) feature set all decided. This will give you just enough to get a valuable product to the end-user, allowing you to set foot into the market. But how do you go from that to a great Product-Market Fit? With the Lean Startup Methodology the answer is testing and iteration.
Start testing
The first phase involves testing out your MVP prototype. Identify a group of people who are a part of your target market, and test the MVP with them, in groups of five to eight. Then ask them to give you feedback. This feedback is what you will have to pay attention to. Ask them open-ended questions that prompt unbiased opinions and encourage them to give suggestions.
It is important to implement these testing sessions in waves. This allows you to collect positive & negative feedback and identify key issues at the end of each iteration. A sufficient amount of feedback can give you a clear idea as to what you have to fix, change, or tweak to address customer concerns.
Iteration is key
Revise your value hypothesis based on what you have learned and update your MVP. Now conduct the next wave of testing and continue the process until you reach a phase where there is minimal negative feedback. This will give you a perfect value hypothesis and enough features to attract investors and customers alike.
Continuously talk to your customers and take suggestions. Product-Market fit will have to be constantly analyzed and monitored and will require everyone to work towards it. It might involve changing your team, market, product, or even vision.
Product-Market fit is easy to recognize when you have it, but what happens if you are not there yet? Is there a way to measure how close you are to product-market fit? These are some useful metrics:
1. Do customers recommend your product?
2. Do customers care about the company?
A great way to analyze this metric is the 40% rule. The growth rate plus profit for your product should be at least 40% to ensure a good Product-Market fit. This simply means that at least 40% of your customers must be severely disappointed if your product is not available. This equates to a happy, booming business with scope for future profits.
3. What is your user retention?
The process of getting to Product-Market Fit is one of discovery and experimentation.
If you are just starting out, don't focus on creating a perfect product. There is no point in making a great product that no one wants to use! Instead start with the market and improve the product as part of the process to getting to market fit. Product-Market Fit is almost impossible if you are trying to create the demand for an already-existing product.
Once you have identified the right market, then zero in on the product and focus on fulfilling the existing market demand. Develop something that people want and provides value to them.
Until you reach Product-Market Fit, revenue is sparse and inconsistent. Stay lean and limit spending.
Once you have Product-Market Fit you can identify and implement a sustainable growth model for your product. You can also hire additional people and expand your team and operations. This way you will have a plan and resources to scale!
At Emerging Humanity we believe that a good methodology is useful in general and invaluable when problems arise. To get out of trouble, it helps to know how you got there in the first place. Following a process allows you to learn from other people's mistakes; to trace your steps, backtrack, and try something different. You are still fumbling around to some extent (it IS a startup after all), but in a systematic and intentional way that guarantees you take your best shot possible!
Emerging Humanity's approach follows a step-by-step process that aligns Lean Startup Methodology and industry standard tools with your startup's needs. It creates a clear execution path. All you have to do is to walk it!
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