What Is Product‑Market Fit?

How do you know if there’s market demand for your idea? There are multiple signs to help you stay on track.

Achieving product-market fit is key to a successful business. It means that there’s market demand for what you’re selling, and people are willing to pay for it because it’s better than the alternatives.

But how do you figure out if your product or idea has achieved product-market fit?

Defining product-market fit

"Product-market fit," writes startup coach and investor Marc Andreessen, "means being in a good market with a product that can satisfy that market." When an entrepreneur identifies a need in the market and builds a solution that customers want to buy, that's product-market fit.

This concept might seem obvious, but it’s important to make sure there are enough people who want what your business offers. Product-market fit can matter more to the future of your business than creative ideas, masterful teams, or any other factor. For any business to survive, there must be people who will buy what it sells.

Product-market fit can matter more to the future of your business than creative ideas, masterful teams, or any other factor.

Examples of product-market fit

Some companies have done such an exemplary job creating a product to fit the market that their successes can serve as models for other businesses.

Netflix

The entertainment media company first gained traction in the early 2000s. Movie watchers were starting to get tired of paying late fees from brick-and-mortar DVD rental stores. So Netflix sent them DVDs by mail as part of a subscription service, letting people keep a disc as long as they wanted.

But if Netflix had remained a DVD-by-mail operation, it would have faded out when DVD players did. Instead, Netflix positioned itself as the easier, cheaper alternative to whatever currently dominates the entertainment market: brick-and-mortar rentals, DVDs, or traditional television. Netflix alters its product every time the market need changes, maintaining its fit.

Netflix’s success is a great reminder to stay flexible in changing markets and keep an eye on the future.

Google

In the early days, Google competed with lots of other search engines for market share. Like the other players in its market, they made money by offering ad spots next to search results. But in 2003, they jumped ahead of the competition when they introduced a new concept, AdSense.

Google’s leaders realized that businesses would pay to display their ads beyond the search page, and they developed AdSense to meet that demand. AdSense used new technology to scan webpages and automatically display relevant ads. For example, if you had a business that sold suitcases, you could pay for AdSense to automatically display your ads on travel websites.

By 2017, AdSense's 11 million users were paying Google $95 billion a year. Google identified a need no other search engine was meeting, and then met it.

You can apply Google’s AdSense approach to your business, too. To set yourself apart from competitors, take the time to find things that your competitors aren’t doing and adapt to fill unmet needs.

Slack

Slack, an instant messaging platform often used for workplace communication, started out as a completely different business idea. The founders were in the process of developing a role-playing video game, and Slack was something they had quickly hacked together as an internal communication tool for the team.

The team soon realized that the market had plenty of role-playing games, but there was nothing out there quite like Slack. So, they pivoted away from game creation. Today, 10 million people use the product.

Slack’s quick turnaround proves that changing your focus towards a better product-market fit can be worth your time. Don’t be afraid to move away from your original idea when you see a better opportunity.

Don’t be afraid to move away from your original idea when you see a better opportunity.

How to achieve product-market fit

You can create product-market fit in lots of different ways. You can adapt your product to new markets, repurpose or reorganize old ideas, go to where the market is, or even create an entirely new service.

Product-market fit doesn't look the same from business to business. However, there are some established processes you can follow to help you achieve it.

Dan Olsen, Lean Startup consultant and author of The Lean Product Playbook, offers six steps:

1. Identify your target customer. Who do you think will buy your offering? How will it meet their needs? You might not know exactly who your target customer is at first, but you can find out through market research. And by using that research to create customer personas, which are fictional versions of those real people, you can envision your target customer and create stuff for them.

2. Identify underserved customer needs. It's hard to sell a product or service in a market full of existing solutions that people are already happy with. A better option is to find what they’re unhappy with. What pain does your target customer have? How can you help them solve it?

3. Define your value proposition. How will your product meet your customer's needs better than any of the alternatives currently available? Will it offer better quality? A more affordable price? More exciting packaging? New services?

4. Specify your Minimum Viable Product (MVP) feature set. Identify the minimum features you want to include on your first product rollout. Keep it simple and doable.

5. Create your MVP prototype. Don’t worry about actually creating your full concept—instead, just create a bare-bones product. You can iterate on that after you get customer feedback.

6. Test your MVP with customers. Show your product to a select group of your potential customers. Let them learn about it and try it out for themselves. Ask them what they like about it and what they don't. What would they prefer to see instead? Stay open and flexible to feedback so you can revise your idea to accurately fit your customers’ wants and needs.

After following these steps, you should have a pretty good idea of how the market will react to your product. Before launching, make sure to implement any important customer feedback. You may want to change certain features of your MVP, consider a new target market, or even redefine your value proposition.

How to measure product-market fit

Measuring product-market fit isn’t an exact science, but there are ways to assess whether or not you’re on track:

  • How quickly do customers make up their minds about a purchase?
  • Are reviewers mentioning your product to family, friends, or social media connections?
  • What is your customer retention rate?
  • Are customers interacting with your marketing efforts?
  • How many customers have unsubscribed or stopped using your product?

All of these are useful, data-based indicators of how well your product is finding its way into the marketplace. You can use this information to improve, adapt, and market your products.

Whether you achieve product-market fit or find that you need to rethink your current offerings, ongoing research is essential. As your business grows and shifts, be sure to continually take a look at what the market demands so you can create the right fit.