Marc Andreessen, the founder of Andreessen Horowitz, notably stated that a business went through two stages: before product-market fit and after. This is very true, and getting to product-market fit as a business is critical to the long-term growth potential of that business. Without reaching this milestone, a company has no chance of any long-term success.
But what is product-market fit?
Marc Andreessen defined product-market fit as “being in a good market with a product that can satisfy that market.” The key to successful product-market fit is adding value for your customer so they become a long-term customer of the business, as retention is a primary driver of your business growth potential.
For example, say you develop and launch an app. In month one, you bring in 100 customers, you retain 50, and in the next month, you bring in another 100, leading to your customer base growing to 250 customers. This forms a stable base of customers, which allows the foundations of the business to be developed, and the acquisition of new customers can be built on top of this.
How can you test if you have reached product-market fit?
Sean Ellis, the author of the bestselling book Hacking Growth: How Today’s Fastest-Growing Companies Drive Breakout Success, developed the product-market fit survey which allows you to test with customers to understand if you have achieved product-market fit. This is a straightforward test, which contains one single question.
How would you feel if you could no longer use [product]?
• Very disappointed
• Somewhat disappointed
• Not disappointed
• I no longer use this product
This test should be sent out to as many customers as possible, and you should be looking for at least 40% of the respondents to state “Very disappointed.” This is important because if you fail to find these users, there is a good chance that you will need to drill down into your product to understand what value this brings to customers. Following this type of analysis, you can then follow up with a qualitative means of understanding “why” customers use your product, hopefully allowing your business to improve and further retain customers.
How do you reach the ‘before’ product-market fit?
But Marc Andreessen mentioned two parts to his theory. We have briefly discussed product-market fit, but what comes before this? The “before” aspect of product-market fit is an area vital for any startup to ensure that they are starting their discovery on the right foot.
The first stage of the startup process is getting to a problem/solution fit. The central premise of this is matching a valid customer problem to a business idea. Although this is a vital stage, it never fails to amaze me the number of entrepreneurs who fail to follow this crucial first step and instead jump straight into building a product. We hear comments like, “Start with an MVP (Minimum viable product),” which assumes that you understand the problem and customer space well enough to develop your first idea — even in a prototype form.
Starting with the MVP is a flawed approach, and I always ensure that entrepreneurs follow the customer discovery phase of building a business.
How should you develop your business idea in the customer discovery stage?
Although this is an in-depth subject, there are fundamentally three critical elements to this process. As entrepreneurs, we need to move our idea from an intangible to a tangible form. Therefore, we need to move this idea to a tool that allows us to communicate our concept straightforwardly. The Lean Canvas, which was developed by Ash Maurya, is one perfect tool for this, but many others exist.
This particular canvas contains nine boxes that allow the entrepreneur to outline aspects of their potential opportunity, such as the customer segments, problems to be solved and the solution in a straightforward manner. This is important as we take these assumptions from the canvas and then focus on the elements we need to validate.
Validation of our assumptions is essential — we need to ensure that the assumptions we have outlined are validated in a manner that allows us to refine our model and build our first version of our idea. To validate, we need to identify and interview customers using a criterion of questions that allow aspects of the opportunity, such as customer problems, frictions and habits, to be identified and the assumptions we outlined to be confirmed.
Once we have validated our assumptions and refined our business model, we can then build the first version of the product in an offer form. An offer is not a final product, but it contains the core elements of our idea and can be a presentation that we will give to potential customers to gain our first orders. Once we are successful at this, we will have achieved a problem-solution fit, and we can then start the journey to product-market fit.
Achieving the right product-market fit is vital for the business’s long-term future as, without this, the company’s growth potential will be minimal. The start of the journey and the process to validate whether or not you are addressing a valid problem and achieving a problem-solution fit are essential and often forgotten aspects of the wider startup process.
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