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It wasn't a lack of capital or poor marketing strategies that send a budding startup to the abyss of failure. According to CBInsights, the top reason for startups' failure is the absence of a market need. If you're not placing product/market fit a priority, you're likely to end up with the same result.
What is product/market fit?
Product/market fit is a scenario when the product offered by a company satisfies the needs of the targeted users. It results from meticulous research, planning, and execution, which are based on data-driven results.
To achieve product/market fit, you'll need to step into the user's shoes and communicate with them to understand their needs. It is the opposite of developing products based on ideas derived from assumptions.
As creative as the ideas are, they are of little value if it offers no value to the end-users. Slack has proven to be a text-book example of product/market fit. It's the ability to meet team communications need has since its users increase by 4 million in a span of 2 years.
Why product/market fit matters?
Startup owners often dream of successful product launches where sales skyrocketed without an excessive marketing campaign. When you've ensured that the product fits the market, you'll have created the winning factor for it.
Customers will happily recommend products to the public without any incentive from companies. Rave reviews are pouring in on how a brilliant product has hit the market. Your only problem? Keeping up with the ever-growing sales.
On the contrary, you'll have a sense of impending failure when there isn't a product/market fit. Sales failed to take off, disgruntled customers are requesting more features without committing to paying you , and before you know it, you're planning on cutting your loss.
How to find product/market fit?
Finding the right product/market fit is crucial, and it's not an impossible task. First of all, you'll want to stop perceiving the product in your own ideals. Instead, you'll want to seek validation for the users who will be using the product and paying good money for it.
Start by creating the proto-persona and customer journey map to understand the needs of the users. Then, determine the unique value proposition (USP) and building an MVP to test the market. Fine-tune the product based on the feedback and repeat if necessary.
Narrow down the focus on a target group and only scale when you've found success in getting the right product/market fit for the initial target. It may require a few iterations before finding the matching elements.
Here's a breakdown of the process involved.
Defining target audience
You need to know the group of consumers who will happily pay for your products. To do that, you'll need to start asking questions like:
- Does this product solve their problems?
- What are the pain points faced by the users?
- Will the product appeals to their values?
A targeted approach allows you to identify the problems that your product needs to solve. You'll also have a better idea of the customers' lifestyles, cultures, economic constraints, and challenges.
Combine these data with your experience to create the ideal user persona for the product.
Defining the market
Chances are, other competing products are serving the target demographic. You'll want to differentiate your product from others, which means building a strong USP.
You don't want to be just 'another' product in the market. Instead, you'll want to research each of the competing products for their strengths and weaknesses. Pinpoint the opportunities that you could capitalize on and work towards that as the USP.
It may take a few attempts before finding the USP for the target audience.
Building the MVP
Speed is pivotal at this stage, and this means building an MVP. You'll want to include only basic functionalities and keep the 'nice-to-have' features out. The MVP intends to validate the assumptions against the target audience quickly.
Therefore, ensure that you're gathering the feedbacks as users are trying out the MVP. Then, evaluate the feedback to determine areas of improvement and what doesn't add value to the product.
Developing the final product
From what you've learned during MVP testing, use the data to fuel the development of the final product. Keep features that receive positive feedback from users and include additional features that will make it a winner amongst competitors.
The work isn't done after launching the product. You'll still need to gauge the response from the users rigorously. Therefore, it's essential to implement a feedback mechanism to collect comments and suggestions from users.
It is not unusual that some teething issues may be discovered after launch. However, a market-fit product does a great job of keeping the users happy, and you'll have a window for making improvements for the next version.
How to measure product/market fit
Measuring product/market fit throughout the development cycle, and post-launch is key to ensuring product success. The goals you've set during the early stage are used to track the product's engagement metrics.
Here are what you should be looking for as signs of user acceptance of the product.
- Activation - Merely downloading the app isn't a sign of success. You'll want to measure the activation rate, where users have successfully gone through the onboarding process and actively using the app.
- Engagement - Track if users are finding the app helpful in solving their problems. Look into the customer journey and interaction through the analytics. There should be several anticipated activities that show the users are finding value in the product.
- Retention - You should have a high retention rate if what you've achieved the right product/market fit. If you're finding that users are canceling their accounts at an alarming rate, you should conduct a detailed investigation.
- Loyalty - A market-fitting product automatically instills loyalty. Check for social mentions of your product, reviews, and conversations on forums. They can indicate if you're heading in the right direction.
Using product/market fit surveys
Product market surveys use a set of questions to gather user feedback. With just a few questions, you'll gain insight into:
- The user persona that benefits from the product.
- Primary benefits for the users.
- If the user feels emotionally-attached/disappointed when access to the product is denied.
The survey is handy during the early stage of the development and also after launching. It helps to validate assumptions that were made during brainstorming. After the product is launched, conducting surveys is the easiest way to get honest responses on whether the final product matches the user's expectations.
Measure Life Time Value
Ultimately, a product that meets the market need is likely to be profitable. You can measure the product/market fit by measuring the lifetime value (LTV) of the users. Consider how much and how often the users are spending for as long as they're using the app.
By getting the average user LTV, you can compare it against the cost of acquisition per customer. If the cost is higher than the LTV, there are still works needed to align the product with the target market.
History has shown that getting the right product/market fit is paramount to startup success. It has to be an important part of your strategy when developing an app. By surveying the users and getting measurable data, you take the guesswork out of the equation and improve the chance of creating winning products.
If you're still doubtful of how to find product/market fit, our team is ready to help.