How to measure if your business meets a need

Product-market fit – when your product truly fills an underserved need that’s present in a good market – is arguably the single most important factor that contributes to a company’s success. However, it is not always clear when you have achieved product-market fit. In fact, research from CB Insights reveals that a lack of market need (35%) ranks only behind an inability to raise new capital (38%) as a reason for startup failures. 2022 can be your year to get out of these statistics.

Related: How to Find the Holy Grail of Product-Market Fit

Why is product fit so important?

In Product Design PrinciplesJosh Porter says good product-market fit involves three things:

• Existing users recognize the value of your product.

• They tell others about their great experience with the product.

• Your business replicates the great experience for new users.

In other words, a good product-market fit means not only that you are producing or doing something that meets a need, but also that customers are aware of and respect your ability to fill that gap. They don’t just buy either. They help you with word of mouth marketing so that Following people buy. And when those new customers come to you, you don’t drop the ball. Instead, you maintain quality, consistency, and value so new customers love what you do, too. All of this creates a continuous circle of growth.

Related: 7 Tips for Entering a New Market and Growing Fast

3 steps for a good product-market fit

Finding the product-market fit is usually a three-step process:

Research your target audience.

Dan Olsen created a pyramid which shows the importance of different elements – UX, feature set, value proposition, etc. – in product-market fit. The target customer is the base and serves as the base on which you develop all your ideas.

Identifying your target audience requires obtaining data through targeted panel studies. The more targeted your panel, the more likely you are to get an accurate and clear picture of who is likely to buy. Ideally, use online research panels that have 90+ data filters (eg zip code, education, age, household income, product interaction, etc.).

Once your panel is ready, ask questions such as:

• What is the biggest benefit the product offers you?

• Why did you try the product?

• What improvements could we make to the product?

• What makes the product essential or “must-have” for you?

Find the value proposition.

This is where you zoom out and take a look at the state of the market. Is the market new? Monopoly? How does the competition work and what does their current catalog look like? Compare what is available to what you learned in your research. How does your offering fill the gaps people have helped you identify, or what could you change to drive customer engagement and get them to buy from you? Your value proposition is a differentiator. It’s something customers love and need, but can’t get anywhere else.

Keep iterating to improve your product-market fit.

It is highly unlikely that you will find the perfect product-market fit on the first try. Instead, you’ll need to keep getting feedback through surveys to see how customer perceptions are changing. The rate of change can vary greatly depending on the industry you are in. Technology, for example, is known for its rapid iterations, while the pace of change in manufacturing is slower. Things happening in the world also influence what people think, as we can see with the growing calls for sustainability in the face of climate change. But the key to getting it right is that you should never think you’re “done”. Markets are malleable, which means to stay relevant you need to keep updating your product and value proposition over time.

Find out if you’ve hit the jackpot

You still have work to do if your customer journey remains confusing, if there’s no clear buyer identity, if sales cycles are slow, if free users aren’t using what you have or if customers abandon you after their trial ends. But if you carefully follow the steps above, product growth and development should happen exponentially, driven by your customers. They will spread the word and communicate when it’s time to pivot. Other signs of a good product-market fit include high user retention (over 40%), a 3-to-1 return on customer acquisition cost, and the fact that at least 40% of your customers say they will be “very disappointed” if your product is discontinued. be available.

Related: 6 Key Things to Consider When Bringing Your Product to Market

For legacy success, focus on market fit over time

Product-market fit can be a tricky animal. You may need both your intuition and measurements to tell you where you are. Finding it is your ticket to stabilizing and growing your startup into a legacy business, however, because as Andy Rachleff argues, it’s hard for other companies to stand out on your product-market fit once you have it. Once you’ve achieved product-market fit, repeat the process outlined above to ensure you stay relevant. The more attentive and responsive you are, the stronger your position in the market will be.