What is Product-Market Fit? Why is it important? Do you need it or this is just another dead end in your way to a sustainable business?
When you start your business based on this single wonderful idea, you know your potential clients, the problem, the solution, hell, maybe even the price point they are going to pay you.
As the months pass by you are still spinning your wheels, but the company is not moving forward at the speed you expected it would. The clients didn’t turn out to be the clients you thought of, the price point and the value prop are in constant flux. Nothing is for sure, and everything is changing.
Still, you convinced investors and raised sufficient funds. However, revenue is coming in at a rate way lower than necessary to sustain your business. You are in the Valley of Death (Thiel) or above the Chasm (Geoffrey A Moore). Welcome to the desert before Product-Market Fit.
Product Market Fit is an imaginary state when you have found your niche, and everything is in the right place. Pricing, value prop, product, sales, and marketing. Customers are happy and satisfied.
Not only is this an imaginary place, but it is also temporary. Typically, you only have a limited window of opportunity – the only question is how fast you need to grow. On the one hand, if you have found one market, you’ll be looking for new markets to expand. On the other hand, markets change. The decision-making process, the problems clients face, the social environment, or the technological capabilities. Not to mention the competition. Whenever they launch a new, revised product, the market perception of all solutions also shifts — a never-ending game.
You know when you have reached it, but you will never reach 100% perfect product-market fit. Just when you can move closer to the wall by only half of the distance between you and the wall. You will get very close but never reach it. Eventually optimizing the funnel to higher perfection will cost more than the benefits you can reap.
Theory always sounds good but let’s get practical. How do you identify if your product is already in the PMF status? What are the signs you should look for?
Let’s start with…
How do you know you haven’t found PMFit?
Churn and/or inactivity is high whereas conversion or acquisition costs are ok. Quite frequently a good marketing or sales team can figure out ways to lure clients in. They craft the perfect message and reach prospects through marketing channels with high efficiency. However, the users acquired jump ship as soon as they can. If you are on a yearly plan, in a year, if you are on a different schedule, earlier. We call this the discrepancy between the marketing message and the actual experience or delivered value: The Moment of Truth.
The acquisition costs are not getting lower and the time for the prospect to go through the funnel isn’t getting shorter.
If you can’t make your funnel and funnel management better, you have no funnel at all. Technically, you might have built an outstanding automation or a manual process, but a good process can be tuned to be faster and cheaper. Optimized to the limit. No process is tuned to the limit at the start. When you reach product-market fit, you can start optimizing your funnel and do experiments to trim the fat from the process.
Constantly changing value proposition message.
If you need to change the message and it feels random, you don’t know your niche. If you don’t know your niche, you don’t know your clients and not knowing your clients is the perfect description of no product-market fit.
Feature creep. Founders often resort to adding more features (or more value as they think of it) to provide better value for prospective clients. When asked why these features, you only get some vague answers rather than a clear connection between customers’ driving perception and the actual functionality.
Customers can’t indicate the value you bring to the table, OR you cannot tell precisely what your customers are talking about. Customers come up with some vague, mystical benefits. “We are more efficient.” “It opened up new horizons for us.” “Now everybody is on board with our new way of approaching challenges.”
+1: Venture Capitals ask for more traction. Even when you have traction or some good metric, you believe in. They have seen it all. The wrong metrics, vanity metrics. They ask you about paid clients, the traction that directly correlates with revenue. Moreover, you don’t have any.
In contrast, let’s take a look at some sure-tell signs that you are there, even if doesn’t feel like it.
How do you know you have reached the PMFit (for the time being)?
The recommendations you receive are in line with what you perceive as delivered value. Customer stories can one in one replace current marketing communications.
You can sell with fewer contact points.
Your funnel is more of a T shape than a V. You intentionally disqualify many your leads at the top of your funnel. You know who will benefit from your product and you know so much about your customers that it is easy to identify those who don’t belong here. You even tell them about your competition. Customers go away and come back in a year or two.
Your acquisition costs are sinking. All of the above will result in higher conversion, lower cost, less churn.
Your development costs are manageable. New feature development is based on user feedback, and sales & marketing can forecast the most wanted features without sending out surveys.
So now you know how to assess if your product is already in the PMF status and therefore reasonably scale. For further convenience, we have collected a couple of interviews from startups focusing on their experiences about the desert times. The typical time-to-PMF is 6-24 months – sometimes more. Too much guessing and flying blind. Our consultancy is focusing on this phase to be faster, most of the time gaining results in 6-12 WEEKS.
Drop us a call if interested! 🙂