Find a product-market fit before scaling business,

If a product does not meet a market need, no one will buy it. It is obvious. It must be an answer to a problem. But how to build a product-market fit? Start with this text. You’ll find some advice from Ellis, Olsen, and Hoffman. The latter founded LinkedIn.

Find a product-market fit – table of contents:

Introduction

There are at least a few definitions of a product-market fit. According to Paul Graham from the American Y Combinator, it means creating a product that customers want to buy. Sam Altman from Open AI, in turn, believes that a product-market fit is when a product is good enough that customers recommend it to others.

Both statements are clearly true. However, one more can be added. Product-market fit is about creating a situation in which a product or service meets the needs and expectations of a specific group of customers. This happens when a company’s offering actually solves the problems of its target audience.

It sounds so trivial. But only apparently. Finding a product-market fit is not easy. First of all, how do you know you have found a product-market fit? What would you consider a good metric to measure it? Start with the 40% test.

Sean Ellis test

Sean Ellis is an American entrepreneur best known for his work for Dropbox, his book Hacking Growth, and the “40%” concept. It is this concept that we will focus on.

Sean Ellis concluded that the measure of product-market fit is customer satisfaction. At the same time, he does not advocate asking customers direct questions. Probably because people might be insincere.

Therefore, he proposes a different question: “How would you feel if you could no longer use our product?”

Very disappointed
Somewhat disappointed
Not disappointed

And if customers would be very disappointed at the thought of discontinuing your offer, that means they are extremely satisfied with it. Good. Now, according to Sean Ellis, if you can get at least 40% of your customers to say they’d be “very disappointed,” then you’ve either found product-market fit or you’re very close to it.

The product-market fit pyramid

Another American entrepreneur, Dan Olsen, has developed what he calls a product-market fit pyramid – simply put, a framework for finding and creating PMFs. It is a five-layer pyramid. Let’s look at it from the bottom up.

The first, broadest layer is your target audience – the market you want to address with your solution. Just above that are underserved customer needs. Higher up, on the third layer, Dan Olsen has placed the “value proposition” – how you solve a problem.

The fourth layer is the features, characteristics, functions, and capabilities of your solution, and the fifth layer is UX design – how you have “packaged” your solution to make it easy and enjoyable to use.

The first two layers of the pyramid represent the “market” and the next three represent the “product. If there is synergy between the two, then we can talk about a “fit”.

6 steps to product-market fit

Here another question arises: how to look for and build a product-market fit?

Dan Olsen also provides us with answers. In his opinion, the entire process can be boiled down to six steps, the first three of which are the most important. If you want Dan Olsen’s “first-hand” opinion, watch this video. Below is a brief summary.

Step 1. Identify your target audience. If you take the need called “transportation,” you will find that a mother of three has a different need than a 19-year-old man. And consequently, they are both looking for a different solution. That’s why it’s so important to select a group of potential customers.

The double-narrowing method can be helpful in this regard. For example, programmers are a general market. Java script programmers are less general – the first narrowing. The second narrowing, more specifically, is junior java script programmers.

Step 2. Identify unconscious needs. What do customers need? They often don’t know themselves. Some time ago, the head of Hagen Comm, the PR agency in Poland, said that clients usually have a sense of what result they want, but often have no idea how to get there. You have to help them figure that out.

And once that problem is out there and solutions are emerging, say you find two alternatives, which one should the customer choose? Why does solution A solve the customer’s problem better than solution B? Looking at the solution in this way helps to identify the real problem.

Step 3. Define the value proposition. The value proposition can be boiled down to the benefits a customer receives by using your product or services. According to Dan Olsen, at this stage, you should answer the question, “What will you do better than your competitors, and what will differentiate you in the marketplace?” and then list these benefits.

Next, you should rank them according to three categories: performance (better, faster, stronger), must-have (quality factor, everyone has it, like seat belts in a car), and wow effect (which benefit will delight the customer). Do the same with your competitors – make a list. And then think about in which areas you are better than your competitors – that is your value proposition.

Step 4. Identify the set of features an MVP must have. An MVP is the most basic version of a product or service. It contains only the basic features that make the product work. It’s not refined, it does not look pretty, it just works. What does your MVP need to do to deliver value to the market? Again, make a list, this time of features. The fewer, the better – it will be cheaper and faster to produce an MVP.

Step 5. Create an MVP. Based on the set of features you defined in the previous step, it’s time to create an MVP. For example, this could be a simple mobile app interface created with a few no-code tools or mockups. You’ll see how simple an MVP can be later in the text – we’ll get there.

Step 6. Test an MVP. At this stage, you should show customers a prototype of your product or service. It is best to do this in a way that will allow them to buy what you have to offer.

For products, a fake door test – a landing page with the “buy” button – will be a good solution. It should look real and encourage the customer to make a purchase. However, when the customer clicks “buy”, they are informed that the product is not yet available for sale and are asked to leave their email address. In this way, you will build a mailing list that you can use for your marketing and sales campaign once you actually have the product.

In services, on the other hand, prospecting will work better. This is a cheaper form of testing because all you need to do is prepare an offer, collect customer contacts, and call or “catch” them by email. So this method is based on cold mailing and cold calling.

Through these tests, you will gather feedback and improve your solution.

Minimalism and MVP

We promised to get back to the question: “How minimal an MVP can be?”. Reid Hoffman and Buffer come to mind here. Let’s start with Reid Hoffman. This is the guy who created LinkedIn and who somewhere once said: “If you’re not embarrassed by the first version of your product, you released it too late.”

For us, the keyword is “embarrassed.” It means that the first version of the product may be slightly underdeveloped and imperfect. This is not only acceptable at this stage but also desirable. Why? It’s all about pragmatism.

If you locked yourself in a “garage” for six months and refined your product there, you might find that you wasted a good chunk of your life on something that later no one would buy anyway. It’s good to know this in advance, right at the MVP stage – an imperfect, embarrassing one.

Two slides – is it enough?

The head of Buffer took this advice to heart and brilliantly tested the MVP of the tool, which at the time was only meant for scheduling Twitter posts. Today, Buffer allows for more; it is a platform for managing social media profiles. In any case, Buffer’s creator started with two slides.

Literally. He posted two slides on Twitter showing the basic idea behind Buffer. At the same time, he asked users what they thought of it. Several people shared their opinions and left their email addresses. The entrepreneur took this as a good sign and did a second test. He published three more slides – this time with a price list.

He wanted to test the recipients’ willingness to pay. Again, several people left their email addresses. And Joel Gascoigne, Buffer’s CEO, proved not only that an MVP can be truly minimal, but also that, if done well, it can attract customers. He himself acquired his first customer within four days of posting those slides.

Summary

It’s worth remembering that working on a product-market fit is done in a loop. You release a basic, minimal version of the product, listen to customer feedback, and make changes based on that feedback. In this way, you find a relevant problem from your audience’s point of view and adopt an appropriate solution.

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Author: Adam Sawicki
Owner and Editor-in-Chief of Rebiznes.pl, a website with news, interviews, and guides for solo entrepreneurs and online creators. In media since 2014.
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