Mere mention of Product Market Fit can be enough to send shivers down the spines of even the most seasoned entrepreneur. Achieving Product Market Fit (PMF) can act as a growth catalyser for startups, while struggling with it can leave companies in limbo, and may even lead to a company’s irreversible slowdown.
So what exactly is PMF and how is it achieved? We will answer these questions thanks to Nicolas Maquaire’s expert advice. As the co-founder of EntropySoft (acquired by Salesforce) and now of Kloop Inc, Nicolas has a wealth of knowledge on the subject and was generous enough to share his insights with our entrepreneurs during Impact USA.
Defining product market fit
Marc Andreessen, who is often credited with popularizing the concept of product market fit, defined it as “being in a good market with a product than can satisfy that market”. In practice, achieving PMF translates to an explosion of growth, an acceleration of sales and a flood of applications to join your ranks. Customers metamorphosize into your greatest advocates, your turnover is steadily increasing month over month and contracts are easily negotiated.
Another way of thinking about PMF is by asking your customers how they would feel if they could no longer use your product. If 40% of them indicate that they would be “very disappointed”, this is a good indication that your product is sticky enough to be satisfying a good market.
How do you achieve PMF?
Finding PMF means trying new things, venturing into new markets, being receptive to feedback and willing to iterate and adapt.
First step: Create a market hypothesis:
Before all else, it is important to establish a market hypothesis, i.e. a precise idea of who you are targeting. Furthermore, it is important to have a good understanding of who is buying your product and how to subdivide them into different segments. Without this understanding, you cannot accurately target them, advertise to them or address their needs.
Second step: Adapt your product hypothesis
Once you have defined your market and clearly segmented your customers, you should carefully consider your product hypothesis. Product market fit isn’t necessarily transposable from one geography to another and isn’t acquired once and for all. New technologies or trends could disrupt your business and could therefore alter your product market fit. It is critical to always be on the lookout for these changes, and be willing and able to adjust your product to the changing needs of the market.
American clients are different from European ones. You shouldn’t hesitate to ask them what their pain points are with regards to your solution and always keep the conversation open to adjust your product hypothesis. With a large enough sample size (15 to 20 feedback interviews) you should have a good understanding of product adjustments that would benefit your users. Some examples of questions you can ask: “what is the most painful thing for you?” & “if there is one thing you could change about solution X, what would it be?”
Third step: Measuring product market fit
Because PMF has an impact on every facet of your business (sales cycles, hiring process…), it is important to continually track and measure it. Some good metrics or tactics to consider when thinking about PMF include:
- Net Promoter Score (NPS): an index that measures the willingness of customers to recommend a company’s product to others. A higher NPS is correlated with a strong product market fit. The following tools can be helpful : Wootric, Delighted, Trustfuel, Promoter.io.
- Churn rate: A higher churn rate suggests customer dissatisfaction and therefore that the product still needs to be altered in order to improve the PMF.
- Real-time feedback collection: Asking your clients why they bought from you and how the solution fits into their workflow.
Bringing it all together
Achieving product market fit represents a form of nirvana for fledgling startups. It is a moment in time where it feels as if the stars have aligned and everything is running smoothly.
To use EntropySoft’s example, after years of iterations and incorporating feedback, Nicolas could trace the moment they achieved PMF to an exact month, where he witnessed his sales cycle dramatically shorten, from 200 to 65 days. If your startup witnesses such a dynamic change, you can safely assume that you have achieved a semblance of product market fit!