Understanding Product-Market Fit: A Product Manager’s Guide

Product companies move strategically when it comes to idea generation, i.e., they research the market aggressively, find the existing gaps, identify customer problems, and even create PoCs (validate technical feasibility) and prototypes (UI/UX validation). All these practices are run to ensure that the final product hits the bullseye and fulfills the market’s needs, i.e., it is product-market fit compliant.

If the product manifests likeability, word of mouth marketing steps in, i.e., people will tell people about the product, thus, helping increase its reach in turn.

If you do build a great experience, customers tell each other about that. Word of mouth is powerful. – Jeff Bezos

The roller-coaster journey to achieve product-market fit is illustrated below:

The startup curve that illustrates the journey to achieve product market fit

However, achieving product-market fit is not the end goal. Sometimes, good products fail despite being product-market fit compliant, i.e., the demand-and sales metrics that should have elevated takes a downturn.

What then? Here’s a complete guide that explains the relevance of product-market fit in product development and what lies beyond.

What is Product-Market Fit?

Product/market fit means being in a good market with a product that can satisfy that market. — Marc Andreesen,
Software Engineer who coined Product-Market Fit

In simple terms, product-market fit revolves around creating a product that fulfills the customers’ needs, i.e., building the exact features that solve a user’s problem.

This further implies that for a product to achieve product-market fit, it should be prioritizing the must-have feature set before the minimum viable product (MVP) goes out in the market, and these must-haves should be addressing the real problems of the potential customers.

Achieving product-market fit is a win-win as customers get what they want, which makes them pay for it, and that, in turn, drives conversions. Tweet This

Product-Market Fit Example

An ideal product-market fit example can be Netflix. People wished that they could get rid of the late fees they paid at DVD rental stores in earlier times. Netflix proved to be a product-market fit by mailing the DVDs to the users on a subscription basis and allowing them to keep the DVDs without any time constraints.

With the DVD trend fading, Netflix again rewired the business model by shifting to the subscription-based model for the streaming service, thus providing a better and cheaper way for entertainment. Netflix modified the business model several times to meet the customers’ changing demand, setting a perfect example of how a product-market fit should be like.

How to Achieve Product-Market Fit?

The Lean Product Playbook by Dan Olsen introduces a product-market fit pyramid that enlists the six underlying stages to achieve it.

The product-market fit framework is illustrated below that enlist the stages to help find product-market fit.

The Lean Product Process by Dan Olsen

Here’s a brief into each of these stages:

1. Identifying Your Target Customers

Whom are you selling to?

It is imperative to have an understanding of your target customers and their specific needs. The people who will ultimately use your product define your target audience.

To start with, build buyer personas to identify your customers and their respective needs.

2. Identify Underserved Customer Needs

What problems do your customers face?

Once you know who your target customers are, move on with identifying their problems that your product can solve. If an existing product is tending to their needs, creating a similar product would make no sense.

Similarly, if an existing product is falling short of satisfying a customer need, you have an opportunity to cover up that need to gain a competitive advantage.

3. Define the Value Proposition

How will you do things differently?

Your value proposition will define how you will fare better than your competitor, i.e., what will your product have that your competitor doesn’t.

Your value proposition should answer — what differentiates you from your competition, your Unique Selling Point (USP), what unique features you will be focusing on, and how you are planning to prove valuable to your customers.

4. Define the MVP Feature Set

What are the must-have features you can’t skip?

Your MVP, i.e., the minimum viable product, should support all the product’s must-have features. The idea is to work on user stories that set you apart from the others as a part of the MVP version.

You can also refer to the MosCow method for feature prioritization. This method works to specify requirements based on:

  • Must-have Features — essential for the MVP
  • Should-have Features — essential for the MVP
  • Could-have Features — can be saved for later
  • Won’t-have Features — need to be dropped off

5. Creating an MVP Prototype

How will the UI/UX of the product look?

This part focuses on validating the UI/UX design of the product, i.e., how it will look and feel once the MVP is launched. The emphasis should be on usability, findability, and discoverability — the three elements of a good UI/UX design.

  • Usability: The product should be easy to use and navigate through
  • Findability: It should be easy to locate and use the product features that the customers know about
  • Discoverability: It should be easy to identify and use new product features that the customers have no knowledge about initially

6. Test MVP

Gather initial feedback from customers

Present your MVP version to your target customers. Conduct surveys, post your product features on Public Trello Boards, tweet about it, send emails, post it across other social media handles — to see how your audience reacts to the product.

The initial reaction and the feedback from customers should be leveraged for planning further iterations. Response to the MVPs is the answer to whether you have achieved the product-market fit or not.

How Long does it Take to Achieve Product-Market Fit?

Time taken for achieving product-market is correlated to lead time, i.e., a time between the requirement specification and its delivery.

Try to shorten the lead time to ensure product-market success because as the timeline to launch the product exceeds, the user needs are likely to change.

Metric for calculating the time to achieve product-market fit: TTPMF (Time it takes to reach product-market fit)

The ideal TTPMF should be anywhere below two years. If it exceeds the said time — requirements might change, the development team burnouts can intensify, new technology might leave your innovation obsolete, and even stakeholders might lose track and interest.

Here’s a product-market fit checklist to shorten TTPMF:

  • Quantify the cost of delay to understand the loss of capital when you delay the feature releases
  • Involve end-users from early on so that there is a minimal gap between what you build and their expectations
  • Launch MVP and maintain the shipping cadence for consecutive launches
  • Consider pair programming and pair testing to speed up development and testing
  • Give precedence to smaller releases over long-term releases

How do you Determine Product-Market Fit?

Once you have launched your MVP, you can measure product-market fit. You’ll always know if you are making the right impact or not.

According to Marc Andreessen,

You can always feel when the product-market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

For a better clue, here are some product-market fit metrics that you should be aware of.

1. One-to-One Customer Interviews

Communicating directly with the product users should be given precedence when measuring product-market fit. Ask them their feedback and whether they like the product or not. Some of the platforms where you can gather feedback include:

  • Social media channels such as LinkedIn, Facebook, Instagram, or Twitter
  • Public Trello Boards where you can share your product and your features and allow users to comment so that you can see how they receive your product

2. Reach out to your Customer Support Team

Seek a report from your customer support team to get a glimpse of the complaints and queries you have got so far. This will help you understand and improvise to ensure you achieve a product-market fit.

3. AARRR Framework — Pirates Metrics

AARRR or pirates metrics framework is one of the best ways to measure product-market fit. AARRR means — Acquisition, Activation, Retention, Referral, and Revenue. Here’s what each of them implies in regard to your product:

Overview of AARRR Framework for measuring product-market fit success

  • Acquisition: How is the traffic on your website or app?
  • Activation: How is the first-time experience of your visitors? Are they able to get from point A to point B without any roadblocks on the way? You can accomplish this task by drawing customer journey maps to know how their interaction is going with the user interface.
  • Retention: Are the users coming back to your website and app?
  • Referrals: Is there an increased traffic after you receive a bunch of users? This will help you understand whether the word-of-mouth is working or not. You can do this by introducing referral programs from early-on and using Net Promoter Score (NPS) that can range from 0 to 10. The better the inclination towards 10, the better the promotion.
  • Revenue: Are the users converting into customers, i.e., are they paying for your product?

4. The SaaS Rule of 40

The SaaS rule of 40 says that your growth rate and profit margin should add up equal to or greater than 40%. This rule practically applies to later stages since your launch. Measuring the percentage in the early stages can lead to false assumptions as achieving growth and profitability both take time.

SaaS rule of 40 for measuring product-market fit

Myths Around Product-Market Fit

There are many myths around product-market fit that keep doing rounds in the product development domain. Here are some of them:

Myth 1: Product-market Fit is a One-Time Event

Fact: Product-market fit is an ongoing activity. User needs are likely to change with time, and if you do not improvise with time, you are likely to lose the product-market fit to a competitor.

Myth 2: Relying on Cost Per Acquisition Metric is All you Need to Drive Growth

Fact: Cost per acquisition (CPA) is the ratio of how much you spend on sales and marketing in a certain time span and the number of customers that sign-up for the product in the same time bracket. The lower the ratio, the better.

But, with time, you’ll realize that you need to upscale your investments on different marketing and sales channels to beat the competition. Moreover, besides the early adopters, convincing the real buyers can get tricky, which, in turn, can lead to increased churn rates. So, do not rely on CPA alone when concerned about your product’s success.

Myth 3: Achieving Product-Market Fit Ensures Product Success

Fact: Achieving product-market fit is not everything as many products fail even when they have achieved the PMF. There are other factors too that need to fall in place, when concerned about a product’s success, which is discussed in detail in the section that follows.

If Product-Market Fit Prevails, Why Do Products Fail?

Your product is like a baby you give birth to. You create it, nurture it, make it product-market fit compliant, and expect it to do good when it steps outside the doorsteps of the organization. But, what if it still misses the mark?

Why do good product fail when product-market fit is in place

So, why do good products fail? The thing is that product companies sometimes ten to overlook other elements that contribute towards ensuring a product’s success.

For instance, Agile Development methodology is a predefined process that follows a set approach — requirements gathering, design, development, Agile testing, deployment, and maintenance.

In case the Agile Development team leaves any of the processes behind, the product will not meet its vision, which would further lead to its failure.

Similarly, achieving product-market fit is not everything; other elements such as — the balance between function and feeling, mastering unit economics, and marketing should hold precedence too.

Let’s discuss each of these elements in detail.

What Lies Beyond Product-Market Fit?

Here are the elements that need to be taken care of to ensure a product’s success:

ingredients to ensure a product's success

1. Balance Between Function and Feeling

Two essential elements that ensure a product’s success are — function & feeling.

function and feeling matrix for ensuring that your product evokes positive emotions and is easy to use

a) Function

Defines the user experience of the product – is it easy to navigate through the product’s interface and access the features that the user is there for?

Offering a solution is one thing and offering easy access to the solution is another. Your product should master the UI/UX to ensure that its functionality falls right into place.

Focus on the following parameters to master functionality:

  • Findability: Customers should be able to locate features they know already exist quickly.
  • Discoverability: Customers should be able to locate and access new or not-yet-known features.
  • Intuitiveness: To understand how to use the product without much reasoning or brainstorming.
  • Responsiveness: Deliver what the customer needs or what they request without any delay.

b) Feeling

Feelings are associated with human emotions related to the product, i.e., what does your product make a customer feel? This is a part of emotional marketing, where emotions are used to target the customers so that they notice you and eventually buy from you.

The end goal is to evoke positive emotions to drive conversions. The right way to do it starts with understanding the effect of different emotions on humans.

Here is how to ensure that your product evokes the right and positive emotions:

  • Focus on making the problems (that your product solves) relatable by leveraging storytelling
  • Create advertising campaigns and inspiring communities that target the right emotions. According to Neuroscience Marketing, out of 1,400 successful advertising campaigns, those with purely emotional content performed about twice as well (31% vs. 16%) as those with only rational content
  • Use the right color combinations as a part of the UI. Here are some emotions associated with different colors

Understanding the psychology behind colors to target emotional marketing

In all, we can say:

Positive Feeling + Seamless Functioning = Product-Market Love

2. Unit Economics

Unit-economics manages the lifetime value that your business will extract from a customer over what you spend on acquiring them.

It is wrong to think that if you master product-market fit, the unit-economics fit will automatically fall in place. This is not the route that you take towards attracting economies at scale.

Balancing unit-economics to mange the competitors

For a business to be profitable, Customer Lifetime Value (LTV) should always be greater than Customer Acquisition Cost (CAC), i.e., LTV > CAC. It might not look very clear at first. So, let’s understand this with an example.

A brand spends a little money on every customer, and they think that it will be recovered in the long run as you work on ensuring loyalty.

However, there is always a new entrant that offers the same product or a better product at a low price to position itself in the market. So once you hike up the price to recover your investments, you’ll soon find customers shifting loyalties.

Take the example of Uber. Here is the chain of events to explain how unit economics in the simplest terms.

  • The idea of ride-sharing was so unique that it gave birth to a new buzzword altogether “uberisation.” Uber had a fair monopoly and a good customer-base owing to their affordable payments and free ride offers
  • As Uber started to make it big, their prices started to surge to ensure profitability.
  • But, with the launching of Lyft, the entire game changed. People started riding with Lyft, which had comparably low pricing.
  • The ride-hailing service Uber fails to make reasonable profits as the competitive wars, and the customer to-and-fro loyalties tend to be the biggest roadblock. This is the vicious cycle that continues to exist.

Here’s how to handle unit economics that goes beyond ensuring product-market fit:

  • Maintain Customer lifetime value greater than the customer acquisition cost. Do not invest profusely — there is always a competitor to take your place
  • Ensure that your USP is irreplaceable. Even if a competitor steps in, focus on repurposing and upgrading to stay one step ahead
  • Strategize smartly around the marketing campaign while spending less

3. Marketing

Product-market fit is about your product being in demand. To create demand, you need to develop a positive brand image in the customer’s mind, i.e., brand positioning. Marketing aims to ensure leads get through the last stage of the sales funnel.

Sales and Marketing funnel

Here are the marketing strategies that can help:

a. Identifying Buyer Personas

Identifying your target market

If you have the right product that solves a problem for A, but you are pitching B, whose requirements are different — marketing failure is evident. It is similar to inviting a friend to watch rom-com when they only love thrillers. They’ll not join or will leave half-way through when they realize it’s not something that intrigues them.

Therefore, identifying the buyer personas, i.e., your target audience across digital channels, is the first step towards driving sales.

For instance, if you have a B2B product, you will have to pitch CXOs, CMOs, or CEOs. On the other hand, for a B2C product, the audience will be end-users. In both cases, tell about how your product will solve their problems in the parlance they can relate to.

b. Clearly Communicate your USP (Unique Selling Point)

Identifying unique feature/s that define your product

You already have a product that solves a problem for your customers. The key here is to identify that one feature that makes your product different from your competitors.

This one feature or user story will be your hero pain point that your marketing team needs to focus on. Every marketing campaign should define the problems and represent the solution in the form of your product.

identigying your selling feature is important to ensure product's marketing success

A rising issue with the sales pitch jumps in when businesses try to boast about what their product can do and fail at emphasizing how the product makes their lives easier.

In this case, conduct webinars, run Youtube tutorials, introduce landing page introductory videos, publish How-to blog posts, and leverage chatbots to make it easy for first-time users.

c) Write Copies that Sell

Implementing a strong content marketing strategy

When marketing your product, do not focus on writing copies that promote generalized pitching. Instead, focus on the product’s intent, i.e., who is it for, what problems does it solve, how does it solve them, and what are its upshots.

difference between generalized and targeted pitching


Product-market fit is about creating a product that solves the problems of your customers. In the words of Seth Godin, don’t find customers for your products, find products for your customers.

When you follow the stages of the product-market fit pyramid, it becomes easy to understand the strategy of achieving it.

That is not it! It would be best to manage its function, feeling, unit economics, and marketing aspects. This writeup visits all these aspects in detail to explain how your product can be the next disruptive innovation that people talk about.

In all, focus on achieving product-market fit, but do not forget to look beyond.

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Talk to our expertss for creating products that your audience will love

Amit Manchanda

About the Author

Amit Manchanda is working at Net Solutions as Project Lead and has over 15 years of experience in technologies like ASP, Adobe Flex, and Android. He has been part of SME (Subject Matter Expert) Group for RIA applications. He possesses a sound understanding of technical requirement/problem analysis and resolution for providing the best solutions to clients. He is passionate about his work and enjoys interacting with his team. In his leisure time, he loves to listen to music, watch cricket, and play with his daughter.

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