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For entrepreneurs and startups, coming up with an idea for a new product or service can be exciting. It may be tempting to charge into the marketplace with an unreasonable sense of optimism that everyone will be begging to buy your product. Unfortunately, this isn’t a reality for most companies. In fact, according to Harvard Business School Professor Clayton Christensen, about 95% of the 30,000 products introduced each year will fail. Why?
Successful companies understand that having a great idea isn’t enough to convince consumers to give them money for their product. While the initial feedback you get from friends, family and colleagues may be positive, you could get an entirely different reaction from your target customer. It’s critical to carefully develop your product to ensure you have a good product-market fit.
Product-market fit is a concept where a product naturally generates strong market demand. In most cases, this demand is a result of a pain point that consumers have that the product can help solve immediately. While this may seem like common sense, it can be difficult to achieve without the proper process in place to evaluate and refine your product or service.
Most companies start small and test their products before expanding. Understanding the product-market fit framework can help you determine if your business or startup is ready to be scaled up. There are many key indicators that can signal that your product has achieved a strong product-market fit.
While there are many methods to measure product-market fit, the most popular is known as the Sean Ellis test. This method relies on asking one simple question: “How would you feel if you could no longer use (insert product)?” The goal is to achieve 40% or more responses of “very disappointed.” If your product reaches this benchmark, it’s highly likely that you have achieved product-market fit.
A word of caution: Be sure that this question is only directed at customers who have a good amount of experience with your product. For best results, focus on customers who have used your product multiple times and have done so recently (within the last few weeks).
The Sean Ellis test is considered the gold standard for product-market fit testing. However, other factors could signal positive market reception. Examining these additional elements can also provide the insight you need to decide whether to go to market or continue refining your product:
The product-market fit framework was originally developed by Don Valentine of Sequoia Capital. However, its popularity grew in the mid-2000s when venture capitalist Marc Andreessen began promoting the concept. With more than 20 years of mainstream use, the product-market fit framework has proven to be an effective methodology used by companies across the globe. The framework offers several advantages:
While there are many positive aspects of product-market fit, it’s important to understand how to overcome some potential disadvantages or challenges if not implemented properly:
To be successful, your product must align with your target customer’s needs. This is where many companies go wrong. They start with an idea for a product first and try to force it to fit a certain demographic. This is ineffective and the reason why so many products fail. Instead, you should put an early focus on customer discovery.
Customer discovery is the process of testing your product and getting real feedback from customers before you spend a lot of money on building and marketing your product. This is especially important if you are running a lean startup with limited resources. There are several key elements to ensure a successful customer-discovery process:
Developing a robust customer-discovery strategy can greatly enhance the effectiveness of the product-market fit methodology and help your product stand out in a competitive market. This may be overwhelming at first. Fortunately, there are lots of resources and services available to help you. Bringing in a customer-discovery expert can provide an outside perspective and support your team through the process.