What is Product-Market Fit (PMF) and Why is it Critical for Startup Success?

 

 

 

 

What is product market fit (PMF)?

 

Product-market fit (abbreviated as PMF) refers to the state in which there is enough market demand for a product to sustain that product's growth and profitability.  

 

Even if you create an excellent product, if you cannot provide it to the right market, it will not reach the customers who need it.

 

Product-market fit is based on the idea that two things are necessary for success in business: products that satisfy customers’ needs and offering them to the optimal market. The term “product-market fit” is known throughout the startup world as a critical factor in whether a new venture does well or flops.

 

 

What is problem-solution fit (PSF)?

 

The concept of problem-solution fit (PSF) is often used alongside product-market fit. Problem-solution fit refers to when you’re solving a customer’s problem in the best possible way.

 

To achieve problem-solution fit, you have to fully understand your customer segment’s needs and then devise a solution that solves their challenges while costing the least amount of resources on your end.

 

 

The relationship between PMF and PSF

 

To start a new business, you need to conduct market research and analyze the real issues of your potential customers to then design a solution for them. After doing so, you will need to narrow down your target segment and pinpoint the best market that has the greatest demand for your new solution. In other words, problem-solution fit is the step that comes before product-market fit.

 

Without product-solution fit, you don’t have a product that’s aligned with real people’s problems, and thus there is little need for it. Without that demand, there won’t be a perfect market to sell to, and thus you won’t be able to achieve product-market fit either.

 

 

Why is product-market fit important?

 

You need to make sure there is a market full of people who are actually willing to buy your main product before you can move onto developing your business strategy, by increasing your users or upselling to other products. Moreover, to convince capital investors to place their bets on your startup, you need to prove that there is a viable market that you can tap into, that is large enough to sustain your business’s growth long-term.

 

This is why you have to conduct in-depth market research and identify the market with a demand for your solution. If you don’t find a suitable market, no matter how great your product is, it won’t reach the people who need it and it won’t sell in the end.

 

To add on, when you offer a product that satisfies public demand, your product will naturally be promoted via word-of-mouth and your users will gradually increase. This means you have to devote less resources to marketing/sales and can gain leads organically. You have to develop positive relationships with your clients and turn them into loyal fans in order to have this effect, however.

 

 

How to measure product-market fit

 

User surveys

If a customer is asked the question, "How would you feel if this product were no longer available?" and more than 40% respond "Very disappointed," then you have a strong product-market fit.

 

However, this survey relies on user subjectivity and may be subject to bias. Although informative, these results alone cannot be used to make a judgment. For more accurate data, we recommend combining it with other methods. 

 

Net promoter score (NPS)

Net promoter score (NPS) is a metric that indicates customer loyalty. NPS is measured via a single question in the survey format: “Would you recommend this product to a friend or colleague?" The surveyees answer with a number from 0 to 10 for how likely they are to recommend it.

 

Scores of 9 to 10 are classified as Promoters, scores of 7 to 8 as Passive, and scores of 0 to 6 as Detractors. You can determine your product-market fit from the NPS score, which is calculated by subtracting the ratio of Detractors from the ratio of Promoters.

 

Online reviews

The number of online reviews and mentions is also used to measure product-market fit. You can find this out simply by searching for your brand name and services on Google and social media.

It is also a good idea to implement an invite-a-friend feature to measure whether friends have recommended your service.

 

Engagement

Engagement, or how many users actually use the system, is also a useful metric. Since different products are used in different ways (daily, several times a month, etc.), it is important to measure the engagement of users according to your own products. Note that engagement should be judged against competitors' products and industry averages.

 

Retention

If you determine that you have product-market fit, you must also have good customer retention. Compare this also to other companies' products and industry averages.

 

 

Conclusion

 

Product-market fit is an essential component for startups, and it is said that new businesses can’t succeed without it. We encourage you to measure the product-market fit through the methods we’ve introduced today when embarking on a new venture.

 

Even if you’re not about to start a new business, since the market is always evolving, you have to continue to check your product market fit to confirm that there is still considerable demand for your product. Always keep an eye on market trends and create a system to measure your PMF.