Advice from a young entrepreneur: How to achieve product-market fit

Heard of the concept but not sure what it means or how it could benefit your start-up business? Our columnist James Gupta offers an overview...

While Marc Andreessen of Andreessen Horowitz is widely credited for coining the term ‘product-market fit’, in the business community there’s still some confusion over what this term means, how to measure it and how businesses can truly benefit. Our monthly entrepreneur columnist James Gupta, founder of revision tool Synap, is here to offer a beginner’s guide to help you achieve product-market fit… 

If you’ve spent more than five minutes in the start-up world, you’ll probably have heard of ‘product-market fit’. It’s one of those concepts that is thrown around quite a lot, and I thought it would be worth diving into this month.

This article will explore the rationale behind product-market fit, the different definitions and methods for measuring it, and perhaps most importantly, how you can achieve it.

What is product-market fit?

Broadly speaking, product-market fit describes the point in your business where your product has been developed and refined to a point where it meets the demands of your target audience.

It should go without saying that, in reality, this is a continuous process rather than a single defined point in time as each successful iteration of your product should push it further along the ‘product-market fit continuum’.

That being said, it is still useful to think of product-market fit as a specific turning point in your company’s life-cycle because, whilst subjective and imprecise, it does give you an idea of what stage you’re at, and whether you’re ready to start scaling your business.

How you measure product-market fit is completely up to you – what you’re essentially looking for is a metric, or a handful of metrics that tell you how much people like your product. There are a couple of methods I’ve used in the past that are particularly helpful, and help you to measure in an objective, comparable way:

  • Net Promoter Score (NPS): NPS is a great metric based on asking your users one simple question: “How likely would you be to tell your friends about us?”. The final NPS score is calculated by subtracting detractors (scores of zero to six) from promoters (nine’s and 10’s). It can be a brutal metric to hold yourself to, but we’ve been measuring our NPS at Synap for over a year now and it’s really become an integral part of our ‘Build-Measure-Learn’ cycle. There are lots of great tools for measuring NPS out there but my favourite is Satismeter, who offer a great, easy-to-install widget and email surveys for your site or mobile app. For more information on the theory behind NPS, check out this Harvard Business Review article; ‘The One Number You Need to Grow’.

NPS metric

  • Sean Ellis’ Survey: Sean Ellis is co-founder of Twitter and LinkedIn and has since become a prolific start-up investor. Analysing many companies, he came up with a good ‘rule of thumb’ for identifying when a company has achieved product-market fit and should start concentrating their efforts on rapid growth. His advice? Send your active users a survey including the following question:
    How would you feel if you could no longer use [your product]? 1. Very disappointed 2. Somewhat disappointed 3. Not disappointed (It isn’t really that useful). 
    And if you have product-market fit, at least 40% should say they would be very disappointed.
  • Andrew Chen, another entrepreneur-turned-investor, suggests a handful of metrics to determine product-market fit:
    • Hundreds of organic sign-ups every day
    • People using it at least three days per week (active users)
    • 30% of people who sign up come back the next day (‘D1 retention’)

Why bother with product-market fit?

As you can probably tell by the variety of different methods out there, and the somewhat arbitrary nature of many of the cut-offs, product-market fit is far from a perfect concept. It is highly subjective and likely varies significantly from industry to industry.

However, the graph below gives a compelling argument as to why you should give it a go:
Retention curve for product market fitDespite it’s imperfections, product-market fit – however you choose to measure it – is a very good indicator of how people feel about your product. People using your product is one thing but, if they’re unlikely to tell their friends about you or wouldn’t be disappointed if it suddenly disappeared, then you probably want to spend more time researching your users’ needs or building new features before you inject money into marketing.

If you don’t have product-market fit, then your marketing efforts may well result in a spike in traffic but, ultimately, you don’t have a sustainable business. However, if you use the same marketing budget on something that does have product-market fit, you’ll not only generate a long-term user base but also experience exponential increases in growth due to referrals and viral spread.

Conclusions

We’ve been measuring product-market fit at Synap for the last 18 months and it’s become an integral part of our development cycle.

In many ways, it’s actually made our analytics simpler; rather than setting up complicated funnels on Google Analytics or trawling through gigabytes of data, we can simply ask our customers what they think about our product, and get responses back in a quantitative way. We can measure the impact of new features or user interface changes within a couple of days, and compare our performance to other companies.

Time for your business to start measuring product-market fit?

Twitter: @gupta_james Web: synap.ac

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