Since venture capitalist Marc Andreessen introduced the concept of “product – market fit” back in 2007 there have been many different interpretations of what this concept actually means. From people using sales projections to companies applying customer satisfaction to determine product / market fit, I’ve seen companies utilising different yardsticks. I therefore thought it would be good to go back to Marc Andreessen’s original definition and look at a great approach by Sean Ellis – who specialises in growth strategies – to identify product market fit.
First, let’s look at Marc Andreessen’s original definition of product-market fit:
“Product/market fit means being in a good market with a product that can satisfy that market.”
Andreessen has taken this definition from Andy Rachleff – another successful startup founder and venture capitalist – who describes getting to product – market fit as “the only thing that matters” when you’re a startup. Product – market fit thus means being in a good market with a product that can satisfy that market.
The million dollar question then becomes how one knows that product-market fit has been achieved. Andreessen explains how you can feel when product – market for a product 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.”
Andreessen argues that you can feel when product-market fit is happening if:
“The customers are buying the product just as fast as you can make it – or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.”
Another way of establish whether you’ve achieved product / market fit comes from Sean Ellis and his product / market fit survey. Ellis’ survey consists of one simple question:
“How would you feel if you could no longer use this product?”
People can respond to this survey in one of the following ways:
- Very disappointed
- Somewhat disappointed
- Not disappointed (it really isn’t that useful)
- N/A – I no longer use this product
Ellis’ rule of thumb is that if you’re above 40% of the people saying they’d be very disappointed, you’ve found product – market fit, and if you’re at less than that, you haven’t.
Through the survey, you can learn about a person’s underlying reasoning behind their response by including a free text field which says something like “Please help us understand why you’ve selected this answer.”
In addition, you could conduct user interviews to learn more about the products which people consider as an alternative to your product or to understand the perceived benefits of your product. For example, those survey respondents who responded that they’d be “somewhat disappointed” it might be that you haven’t delivered on the product’s intended value proposition. Similarly, it would be good to find out from those people who indicated “not disappointed” why they wouldn’t care if your product ceases to exist.
Main learning point: Understanding whether (and why) your product has achieved product – market fit is critical for any startup. Learning why a product has or hasn’t achieved product – market fit through a survey or an interview will fuel further product development and decision making.
Related links for further learning: