Not long ago, we all have heard about companies that can’t keep up with the demand for face masks. Not to mention those who produce hand sanitizers.
Nowadays, you can find them practically in every store. Actually, I wouldn’t be surprised if I run into them in a bakery. I think of it as a shift in a product-market fit strategy. It’s one of simplest and obvious examples but it demonstrates that the key to market fit lies in a deep understanding of the needs of your potential customers and acknowledging the fact that they may change.
But what is the product-market fit when it comes to apps and startups? How to find the product-market fit that thrives even in the times of a crisis?
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What product-market fit really is
The expression itself was probably first used by Andy Rachleff, founder of Betterment, but made famous by Marc Andreessen, founder of Netscape, Opsware, and Andreessen Horowitz. Whether he was an author of the concept or not, he has managed to catch the essence of product-market fit in just a few sentences:
You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.
And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.
Imagine that your app or any other solution you develop was as desired as sanitizers mentioned in the introduction. That’s what it’s all about. Product-market fit happens when the market needs exactly match the capabilities your product delivers.
You have an app, which has been a success for a couple of years or months. Now, due to the coronavirus crisis, you have to completely rethink its product-market fit. Or you’ve just started developing an app and boom, the COVID-19 pandemic has outbroken, forcing you to completely change your product strategy. Well, you are not alone.
What you need to do now is come back to the basics and rethink your initial assumptions. Imagine you are starting your business once again. What impact the coronavirus pandemic has had on your product users? How it’s going to influence their behavior and needs is the long-term perspective?
Have you ever heard of Airbnb? Of course, you have. You probably even used it. The company is often listed among these who suffered the most due to the pandemic. Although they were forced to make some difficult decisions, they didn’t give up. Instead, Airbnb has been changing its product-market fit.
How? Firstly, they have offered places to stay for medical staff. But they haven’t stopped at its traditional ground. Now, Airbnb gives you also the possibility to host not only your home but also an online experience. You can host (or participate in) wine testing, interior design workshop, cooking class or concert. Well, when the world went online, even tourism went with it.
Adaptation to the new reality is as challenging as it is to build a product from scratch. I believe the following 5 steps can help you find the product-market fit for your solution.
5 steps to determine product-market fit
Determine your target customer and his needs
People don’t know what they want until you show it to them.
That is a very insightful quote by Steve Jobs, one of the most brilliant technology innovators in history. He knew what the market wanted before customers could articulate it, which is a very rare gift. But he wasn’t always right. The Lisa, NeXT, and Apple TV were failures.
Why I am mentioning this? Because I want you to remember to find your product-market fit exactly the opposite way. Steve Jobs was probably one in a million and has undertaken a major risk.
In unstable times there is no place for it. To create a successful product, you need to determine if there is a market for it. And if it is - find out what it really needs.
In fact, you don’t have to guess it or figure it out, just ask. Today’s customers are willing to share their thoughts and you have a variety of tools to ask for their opinions and needs.
Jill Angelo from Gennev in our "The State of FemTech" ebook said: “Don’t make assumptions, but really understand your user. I see a lot of ‘nice to haves’ out there. Since starting Gennev, I’ve learned that the most important time spent is talking to women and spending time in our online community. I write a weekly newsletter to our audience of 70,000 women, and I hear from them… and that keeps me innovating in ways that are meaningful to them”.
Questions to answer:
Who is your customer and what is he or she trying to do?
What does he/she need?
How can you help them?
What problem are you solving?
How exactly does your product solve this problem?
Specify the value proposition
If you came to this point, I assume you have found a market for your product. It means that there are also competitors.
That’s why you need to establish a proposition of value - the thing that makes your solution unique. It’s the only effective way to outrun your competitors. The value proposition is the promise you communicate to your customers, therefore it should solve real-life problems.
It can be a challenge when you are planning to approach a couple of different target groups. In such a case it cannot be ruled out that you will have to develop a few value propositions - one for each audience.
Whatever you do, don’t make this common mistake and assume your idea is worthless if somebody already created something similar. In fact, Facebook was not the first social platform, Slack was not the first chat solution, and Tinder was not the first dating app. They all simply solved things better than their competitors. And if they could, so can you.
Questions to answer:
Who is your competitor?
What are the key features of the product?
What distinguishes you from your competitors?
What is that you offer that no one else does?
Specify a minimum viable product (MVP) feature set
For those who are not familiar with this term, I will explain that an MVP is a minimal form of your product that is to be tested on the market. It will allow you to quickly build an app that provides value, while minimizing costs.
Start with choosing features your product should necessarily have. No extra functions and peculiarities. Later, based on the features you’ve defined, create a prototype of the product - a demonstration of how it will look like and operate.
Don’t try to make your product perfect and polish it just yet. Time for that will come after the tests, don’t worry.
Questions to answer:
Which features are the most essential for the existence of your product?
Are these functions directly related to solving the original goal?
Does the implementation of these features require a lot of effort?
If you have established MVP and created a prototype, it’s time to eliminate all the inconveniences. Testing is the key to success, as it allows you to perfectly adjust the product to your customers’ needs.
Conduct A/B tests, constantly improve your solution, and do your best to always be ahead of your competitors.
Do you know what is the best testing tool? Feedback. But don’t ask your family and friends for opinions. Get insights from your customers and people who understand and know the business.
If users love the product, it’s ready to enter the market. But if they report some deficiencies, it’s up to your team to get back to the previous points and adjust features for your customers’ satisfaction.
Questions to ask:
What is your main goal for using this product?
How was your first experience with the product?
Were your expectations met, unmet, or exceeded?
What, if any services, or features are we missing?
Why did you choose to use our product over other options?
You already know that the best testing tool is feedback. When it comes to analytics and measurement it’s the same.
Let me tell you about the 40% rule, which is one of the strongest indicators of product/market fit. The idea is very simple. All you need to do is to ask your existing customers how they would feel if a product they use suddenly disappeared.
It was coined by Sean Ellis, who worked on the growth of Dropbox, LogMeIn, and Eventbrite. He has noticed that if 40% or more of a product’s users would be very disappointed if the product disappeared, the company would grow faster compared to others that struggled to succeed with a “disappointment rate” of less than 40%.
How to conduct such a survey? In the easiest possible way - use Google Forms, Survey Monkey, or any other simple app.
You can also identify your total addressable market (TAM), which is the total number of people who can benefit from your product. TAM is calculated by multiplying your average revenue per user (ARPU) by the total potential customers in the market. What percent of your TAM are your current customers?
Of course, it is one of many methods to verify if your product-market strategy is accurate. You can choose any other you find reliable - eg. NPS or LTV.
The question to answer:What is the one metric that matters most?
Product-market fit is not constant. If you ever have doubt it’s an ongoing process, rather than a stable status, just remember the year 2020. Keep in mind that the product, market, and, most importantly, the target audience keeps changing over time.
Unpredictable times are an opportunity for those who know how to analyze and fit market needs. At Untitled Kingdom we conduct Discovery Workshops during which we determine whether a product has the potential to thrive in a given market. We:
validate the idea,
define a business model,
design user experience,
form ideas for gathering users’ feedback,
set up technological assets,
plan a marketing strategy
(re)define MVP if needed.
It’s a highly effective way to verify your assumptions. You can benefit from them when you’ve just come up with an idea for an app or you are in the advanced stage of its creation and suddenly have to change your strategy.
After them, you can decide to continue your journey with our team with product & software development. Check out our case studies and see how successful product strategy combined with effective development and excellent user experience make that thrive even in the times of crisis.
Learn more about our approach to product-market fit.