What is product-market fit (PMF)? Here’s what you should know

Entrepreneurs and their early teams face many challenges while starting and growing their businesses. One of the most significant challenges is testing your initial hypothesis, shipping an early version of your product, and measuring customer feedback.

Before scaling, you need to understand if there is demand for your product. Do people want what you’re building at the price you’re selling it at? 

Startups refer to this as “product-market fit.” And today, we’ll break down what you need to know about finding and measuring product-market fit, and what achieving product-market fit could mean for your business. 

What is product-market fit (PMF)?

There is no single definition of product-market fit. Marc Andreessen, the co-founder of Andreessen Horowitz who is credited for initially drawing attention to this matter, said in his 2007 piece, “Product-market fit means being in a good market with a product that can satisfy that market.”

In practice, product-market fit means there is a real market demand for your product and people are willing to purchase your product at the price it is offered. This is a sign that customers derive greater value from using it than the price of it, or that it’s a better solution than alternatives on the market. 

Product-market fit makes customer acquisition easier because existing customers tell their friends about your company, and new customers sign up. This is fundamentally the most crucial aspect of building a company. 

Why is product-market fit (PMF) important for your business?

Finding product-market fit is critical for your business before you decide to invest more resources into building products that people may not want.

Once you understand that there is a market demand for your product, your teams across sales, marketing, product, and customer support can all move in the same direction, supporting customers and building experiences that people want. 

On the contrary, failure to find product-market fit can lead to your company running out of money and shutting down. CB Insights found that this was the reason approximately 35% of startups fail in their 2021 study. 

How do you find and measure product-market fit (PMF)?

Finding product-market fit can be a journey through many rounds of customer feedback and product testing.

The main goal is to collect the information necessary to deeply understand your target customer’s pain points and how to solve those pain points at the right price. 

When you’re first starting, it’s common to test your initial hypothesis with customer research, surveys, and feedback from stakeholders in the industry. This data gathering can allow you to begin building an MVP based on the feedback you’ve received. Once you have an MVP built, you can track how your customers respond to your product to understand what users actually do when given the choice to interact with your product. 

Sean Ellis, entrepreneur and startup advisor, says that a strong indicator of product-market fit is asking your customers “How would you feel if you could no longer use the product?” If the percentage of respondents who answer “very disappointed” is over 40%, that is a strong indicator of achieving product-market fit.

Qualitatively, your customers should be obsessively using your product. A strong sign of product-market fit is having customers who praise your new product and refer their friends to sign up. If your customers eagerly utilize your product because they understand exactly the problem that it’s solving, you know there is a real market demand that’s present.

Other ways to measure product-market fit include tracking usage metrics from your customers, including retention, engagement, and conversion rates for upsell opportunities. 

What can product-market fit (PMF) mean for a scaling business?

When customers need your product and are willing to pay a price for it, businesses tend to have a good problem. 

Although strong customer demand is necessary for a successful, growing company, it can also introduce scaling challenges due to creating resource constraints. 

When companies find product-market fit, they can experience hyper-growth, misalignment in key objectives, and a lack of organizational structure.

Entrepreneurs should embrace the opportunity to find product-market fit but be prepared for the growth challenges that can ensue.

Why mature companies seek product-market fit (PMF)

Although product-market fit is a core consideration for young businesses, mature companies also seek this. 

Over time, your customers’ preferences will change as new technologies arise and new competitors enter the market. 

It may be that customers no longer receive the same value out of your product as they once did. Or, you may be planning to introduce a new product to your existing offerings. Ensuring you consistently deliver value to your customers is necessary to remain a healthy and growing business. 

How Zest can help

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