The Road to Product-Market Fit

Written by Calin Drimbau, Co-founder and CEO of broadn, 2022-09-03

This post is part of our 'Entrepreneurial toolkit' series. In this series, we put together a curated list of resources on a topic that is top of mind for entrepreneurs. We'll share some key insights from the selected clips, but we highly encourage you to listen to the clips on broadn so that you can hear the experts themselves sharing ideas, opinions, and advice.

Introduction: Product-Market Fit

When being interviewed about what makes a successful startup, many accomplished entrepreneurs mention product-market fit as one of the most vital signs of startup success. The concept measures the fit between the product a founder is building and their target market. Your business will grow if you are a founder with a well-designed product for your target market. 

Undoubtedly, every aspiring entrepreneur wants to own a product plan with a decent product-market fit. However, the concept can be vague and difficult to test for many founders. So today, this blog is here to ensure that you'll understand the term well and be ready to practice it in real-world applications.

Product-Market Fit Is Manifested In Retention

Brian Hale, VP of Doordash, says on The Twenty Minute VC podcast that he likes to measure product-market fit through retention. It's a significant statistic not only showcasing your product's attractiveness to the target audience but also demonstrating where there is a sustained demand for your product. Brian says on the podcast that these two facets of a product are crucial to obtaining product-market fit, so by looking at the retention rate of a product, founders can almost always tell whether they have product-market fit or not. 

So, what is a reasonable retention rate? Brian says there is no definitive answer. In general, 10% retention over a one-month timeframe is considered a decent figure for consumer products. Some more expensive or niche products can survive and even grow with a significantly lower retention rate. When looking at your retention over time, a J-curve is ideal:

  • People come to use your product for the first time.
  • They leave after a while.
  • Interest steadily picks up again over time.

If your product has a healthy retention rate framed by Brian, then congratulations you are building something with genuinely great potential.

Why Product-Market Fit is a Must-have

The fundamental reason is that startups are feeble when placed into a large market at their earliest stage. Any changes in a given market can easily wipe out a bunch of startups with hopeful plans for future growth. Per co-founder of Andreessen Horowitz Marc Andreessen, markets that don't exist doesn't care how smart you are. Being in a great market with a product that satisfies that market is probably the only thing the Silicon Valley venture capital giant cares about. 

What happens when a founder stubbornly persists with an unfit product? Customers feel they don't get value out of the product, words are not spreading, usage is not pumping up, and sales cycles take too long. On the other hand, when a startup has product-market fit, you can always sense it: customers buying as fast as you can make it, and money piling up on the company checking account.

It’s Not Just About Building the Right Product

A common misconception about product-market fit is that reaching the concept is just about making the right product. Micheal Seibel, managing director of Y Combinator, commented on Y Combinator's podcast, "product-market fit is what happens after you get the right product'. In order to take your startup fully onto the track of a post-product-market fit business, you need to pave the way for the product:

  • Building the corresponding distribution channels
  • Forming a competent sales team and growth team
  • Engaging actively with customer feedback

When the right product is paired with these other elements, growth will automatically come to your startup.

Don’t Abuse the Concept 

You are right to chase a product that unlocks growth potential. Unfortunately, sometimes the notion of product-market fit can be overused. Rand Fiskin, a multi-time successful founder, thinks the concept of product-market fit calls for criticism when speaking on the FINITE: Marketing in B2B Technology Podcast. The now abundant guides can constrain founders on what a founder should do before and after product-market fit and be hesitant about committing 100% to scale the product because they fear it doesn't have the fit. 

Rand warns founders that they should not be intimidated by the idea that there is a certain level they have to reach before they get on with scaling. Instead, tweak the product plans as you get customer feedback, be flexible, and aim to have product-market fit in the future but don't let it limit your moves.

Lack of Product-Market Fit Can Cause Confusion

When reflecting on her difficult path to building the now billion-dollar business Classpass, Payal Kadakia mentioned that she struggled a lot even after successfully going through the highly selective accelerator Techstars and raising early rounds. She and her colleagues felt there wasn't enough product love and growth potential, and they found themselves deviating from the initial problems the business was trying to solve. Payal commented that she became a real entrepreneur when she decided to sit down and talk to customers all day, listen to their most requested services, and dedicate herself to finding product-market fit.

Finding Product-Market Fit Is a Constant Exploring Success

Probably you have built a nicely-designed product and started to see some growth. How do you confirm this is product-market fit and likely even improve it? Rahul Vohra, the founder of Superhuman, the world's fastest email service, says it should be a constant exploring process. When Rahul saw the initial signs of product-market fit at Superhuman, he did not stop there: he kept this spirit and dedicated himself to understanding who his users were and why they loved the product. He sent out surveys to key customers about their feelings if they could no longer use the service; he also focused on "high expectation customers" who were the most discerning and would likely spread the word about the product's benefits. This is why Superhuman has attracted more than $100 million in funding.

If You Don’t Have Product-Market Fit Yet, It Can be a Good Opportunity

After reading these paragraphs about product-market fit, you have concluded that you are not on the right track yet, don't be disappointed since it may represent a good opportunity for overall improvement. When speaking on 'The Diary of a CEO' podcast, Brian Armstrong, the co-founder of Coinbase, talked about how people didn't want to use Coinbase in the first place. After the initial product launch, Coinbase lost many users, and Brian spent a fair share of time phoning users about why they left. It turned out that Coinbase was only a bitcoin wallet at the time, but back in the day, it wasn't easy to purchase bitcoin anywhere, so people didn't have too much need to store it. 

Having learned about this, Coinbase became one of the first crypto platforms to enable easy bitcoin purchasing, leading to their booming growth. 

Conclusion

The road to product-market fit is a long and winding one. First, entrepreneurs must take time and practice to fully understand the concept and apply it to their own ventures.

We hope the resources compiled above are helpful to get you started on getting your startup on track for product-market fit.

Try it out now


See More Posts

broadn

Copyright © 2022 broadn. All rights reserved.