Product Market Fit

Overview: –

Product Market Fit. Something which every business large or small, niche or mass market, everyone tries or rather thrives to achieve. It’s an achievement in my opinion where a business or an individual says “I have achieved a perfect Product Market Fit.” Historically if seen, companies who’ve achieved product market fit have ended becoming verbs. Get me a Xerox, Just Google it, I’ll Zomato it, Dunzo it and more. It’s not easy to achieve, and not everyone perfectly ever achieves it.

So why does an organization needs to chase it? Why do Product Managers need to build products such that they do end up achieving it eventually?

This is what we’ll study and understand today.

Assuming by now you’ve read my case study on my own product, Ironman by now, I’ll be using it as a reference benchmark to teach everything around Product Market Fit.

Here’s a link to the Case Study of Ironman incase you’ve missed it. Take your time.

Understanding Market

Before we dig deep into PMF, we need to establish our understanding on Market. What is it?

In simple words, A place where people exchange or barter goods and services with each other for their own benefit. As a customer you pay for a commodity or product to achieve something. A seller on the other hand , ‘sells’ you the product or service.

But is it that simple? Think about it. Very early in our course, we studied different business models like Business to Business (B2B) , Business to Customer (B2C), Direct to Customer (D2C) etc. In order to operate in a certain way, do businesses change their strategy or alignment when it comes to choosing market to do business in? Ofcourse they do.

Let’s take a product everyone dearly loves (sarcasm), JIRA by Atlassian.

Here’s its official pricing (as of 1st July 2024): –

Every plan is designed carefully to suit and serve different cohorts of users and businesses.

The most beautiful part about this pricing is that it caters businesses and individuals operating in every possible business model and Atlassian themselves operating in different business models seen before.

With Enterprise plan, they’re catering directly with organizations thereby operating as B2B while at the lower end, the Free plan can be used by anyone, a group of college students learning software development and in the process documenting and logging their work.

Taking software market as an example, the market will be further segmented into different market. A software product market and software service market. Under software product market you can have Financial Tech Market, Healthcare Tech Market, Education Tech Market and more. While in service based you can have Product Engineering Outsourcing Market, Business operations market, Consulting and so on.

That’s market.

What is Product Market Fit ?

If an organization or an individual has something to offer, a product or a service which has a large, recurring and a happy customer base, then it’s said that Product Market Fit is achieved.

Product Managers should take responsibility as much as in their capacity and care for Product Market Fit because it tells whether or not the product is really solving user’s needs.

Following are factors one needs to consider while dealing with Product Market Fit: –

1. Market Size: –

By definition, ‘Market Size is simply the number of potential customers that could or can buy from a business’.

To completely gauge it, one needs to look at the type and number of customers who have a NEED for the product/service and THOSE WHO CAN BUY THEM.

Here is how I created a hypothesis for market size for Ironman for the needs

It further leads to also know ‘How much money is spent in the market?’

In case of Ironman, instead of surveying a cohort which could lead to natural bias based on economic strata they came from and the area they resided in, I averaged out the rates from the Laundromats in close proximities.

In case of Ironman, to answer this question I needed to consider two important things: –

1. What are the frequently used laundry services?
2. How much do laundromats charge for them?

I ranked them using Stack Ranking and here’s what I got: –

One needs to truly understand that a market and it’s customers are only interested if there is a feasible solution to real customer problem.

How Do I (a PM) know what the users need and how do I match my product to their expectations?

Every successful business or an entrepreneur understands that “A customer today may not be a customer tomorrow while someone who may be a bad customer today may be a great customer tomorrow”.

What we can infer from this is that even if a business already has a group of users who love its product or service, the business will have to start over again to find the market fit with new set of users.

A product manager and a business should avoid feature creep which is adding new product features one at a time to achieve short term goals but losing long term vision.

Similarly, over a period of time, a product’s customer will naturally change. The early adopters are probably those who are excited about the new technology or trying new experiences. The late adopters will wait for the opinion of early adopters before deciding to try the product.

For all sets of users, getting the product adopted is one of the key goals.

Hence in conclusion, to match customer’s expectations and becoming part of their daily lives, build a product to solve a generic problem affecting a decent volume of population and then work your way round to solve their problems.

What makes a product succeed or fail?

All successful companies find a great solution to their users’ problem in a market that is large enough to support their business. Such companies usually: –

1. Have a deep understanding of the problems of a specific audience.
2. A value proposition that sets them apart from the other products.
3. A potential market where the product can expand into
4. A Solution that matches user’s experience.

Metrics to gauge Product Market Fit

Before we discuss these metrics, I need you all to understand that none of these give a perfect answer on whether or not PMF is achieved. It’s more of guide, an approximation.

1. Recurring Use: –

Products who have recurring use end up becoming verbs, is what I mentioned in the overview of this chapter. This gives a sense of having perfect product market fit. It takes years of persistence and understanding of user’s need and further translating them in a product perfectly that leads to achieving it.

Products having recurring use, end up having a very low customer churn rate, meaning that once a customer starts using a product, very few stop using it.

2. Net Promoter Score (NPS): –

The NPS reflects the happiness quotient of the product. It is calculated as follows: –

Step 1: –

Send a feedback request to your customers while asking a very specific question, “How happy are you with the product? ” OR “How likely are you to recommend this product to a friend?”

… on a scale of 0 to 10.

Step 2: –

Once you’ve got the results, calculate NPS using the formula: –

[Percent of people who answered 9 or 10] – [Percent of people who answered 6 or less]

The larger the NPS, the more likely the brand has a positive perception in the market.

Conclusion: –

Product Market Fit is a goldilocks spot to be in, in any business. But to achieve it, it takes greater sense of the market, the people in it and the problems the face before building a solution. In this chapter, we looked at brief about the Market and how Product Market Fit can possibly be achieved.