Product-market fit is difficult to predict: For SaaS product teams, accurately gauging what target customers want can be more of an art than a science.
Product-market fit is difficult to predict: For SaaS product teams, accurately gauging what target customers want can be more of an art than a science. However, if you gather intel on your customers and market, you’re more likely to find your fit before launching new product features. To find product-market fit, you’ll want to check your assumptions about your market throughout your product’s lifecycle. Armed with precise information, you can make a knowledgeable prediction about product-market fit and develop an actionable way to correct course when you need to.
Product-market fit means that your product suits your target customers’ needs, and the size of your market suits your business needs. It’s necessary for product success: If your product doesn’t deliver what the customer needs, they won’t buy it, and if the target market isn’t large enough, you can’t sustain or grow your business. Product-market fit is also a critical component of attracting and keeping investors after initial funding. Understanding your potential fit early on in product development will save you time and resources—and hopefully prevent product failure. One key component to product-market fit is the value hypothesis. Your value hypothesis is an educated guess about the value that potential customers will find in your product. A strong value hypothesis coupled with a good market that’s the right size for your business is the path toward finding product-market fit. Andy Rachleff, co-founder of the investment service firm Wealthfront, describes it this way:
A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. … Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis addresses both the features and business model required to entice a customer to buy your product.
Typically, you see the signals of product-market fit even if you’re not tracking them: Sales are great, your business is growing, and all signs point toward success. However, specific metrics can prove that you’ve found it.One such metric is exponential organic growth due to word of mouth (not marketing). Word of mouth is a compelling signal that your market is full of customers who value your product so much they’re willing to tell their friends, family, and coworkers about it and effectively pitch it for you. Other signs to look for are a high user retention rate and a good return on customer acquisition cost. Another signal of product-market fit is Sean Ellis’s 40% test: if, when surveyed, 40% of your customers would be disappointed if you left the market, that’s an indicator of a good fit. Signs that you haven’t found product-market fit are:
It can be common for early-stage startups to garner a lot of customer interest at first, when their product is brand new and unique in the market. That can lead to a surge of early adopters but, according to entrepreneur and software engineer Marc Andreessen, that’s not a reliable indicator of product-market fit: “If you stick to the early adopters, you’ll get 5% of the market, but you’re not going to get 95% of the market. And that means, sort of by definition, somebody else is going to go get 95%.”It’s important to note that these metrics won’t show up until after you’ve achieved product-market fit—that means, at minimum, you’ve launched an MVP or even a finished product. If you’re in that stage of your product development cycle and you’re lacking product-market fit, it’s not too late to adjust course and find it.
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