What is product-market fit?


Compiled by Preya Pandya


According to entrepreneur and investor Marc Andreesen, who is often credited with developing the concept, product-market fit means finding a good market with a product capable of satisfying that market. The finding of the product-market fit is very important for any startup. Product-market fit is a term used by startup founders to describe the strong alignment between their product’s value proposition and the underserved needs of target customers. This image best describes it: 

    Finding product market fit = focusing on the market first 

Why is Product-Market fit (PMF) important?: 

Why is gaining product-market fit important? Venture capitalists often require evidence of product-market fit before they’re willing to invest. 

It’s really quite simple. Unless you have a product that enough customers will buy for a sustainable profit, your company can’t grow. You need to be sure that you have a product-market fit before you move on to strategic plans to grow your business and scale up the production of your product. Benefits of achieving product-market fit include: 

  • Growing your company at a fast rate 
  • Acquiring consumers at a low cost: Companies with product-market fit receive organic and non-paid growth. 
  • Keeping consumers loyal and happy: Retain consumers by knowing who is happy with your product and why. Satisfy your consumers and entice them to buy by determining what product features are most valued. 
  • Ability to scale easily when needed: By clearly understanding what you provide to consumers, your company will experience less growing pains and be able to build upon its already well-oiled system.  

How To Achieve Product-Market Fit: 

One should always start working on achieving PMF before you even begin building a product or service. 

Here are three steps towards achieving product-market fit, from the idea phase through to the minimum viable product (MVP) phase: 

 1. Validate The Problem’s Existence 

Before you start working on your startup idea, you should ensure that the problem your idea will solve exists. This is an important part of evaluating a startup idea and working towards achieving PMF. 

There are two main approaches you can take to validate the existence of a problem: 

  • Post questions or polls to social media, Reddit, blogs, and other online communities to start conversations about the problem you want to solve. This can give you an idea of how people are currently solving the problem and let you decide if it is a big enough problem that would be worth creating a startup around. 
  • Interview potential customers. You can identify these people on social networks or communities, then reach out to them personally, ideally via a call, with questions regarding the problem. 

2. Validate Your Solution 

After you’ve validated the existence of the problem you want to solve with your product or service, the next step is to validate your solution.  

Validating your solution without building it can be done similarly to proving the existence of a problem. For instance, you can use the same types of online communities that we mentioned above to receive feedback on your idea.  

  • It’s a good idea to build a landing page and mockups of your product idea that explain and show how it will work. You can then share these with your audience to see how they react to the idea and gauge how valid it is. 
  • A great way to validate your solution is to run a presale to see how many people are willing to pay for it.  
  • If a presale doesn’t work for your type of business, a good alternative is to ask people to sign up for a mailing list. If people are giving you their email addresses, they’re interested in what you’re building. You can then also leverage this newsletter to gather feedback on your solution through surveys. 

3. Test Your Standing in PMF With an MVP 

If you’re able to validate the problem and your solution to the problem successfully, you can go ahead and start building an MVP. MVP is a minimal viable product. 

After you launch an MVP, it’s important to closely monitor its performance and usage to determine whether you’re on the path to PMF. As we mentioned, you can track active users, survey customers, and monitor conversations in online communities. 

If your new product gains momentum on its own and you notice a demand for it that is growing naturally (without too heavy of an investment in marketing on your end), you likely are on track to achieve PMF. 

Here are a few good signs of PMF to watch out for when you launch the first versions of your product: 

  • Frequent demands for new features. 
  • Customers get annoyed if your product is down or has a bug. 
  • Early adopters start promoting your product on their own (word-of-mouth growth). 

Examples of product-market fit: 

  1. Spotify:  

Opportunity: Napster died due to music copyright issues, but before it did, it proved that there was an audience for this type of music streaming service. 

How they found PMF: Spotify came up with a nifty platform for music streaming, and bet that people were willing to pay a small fee to “own” the music. With time, technology evolved and Spotify grew into using refined web content crawlers and natural language processing technology, and the popularity of Spotify grew exponentially among the market of young people. And as of 2022, Spotify has amassed 182 million paid subscribers, demonstrating the success derived from recognizing a market need and product worth investing in. 

  1. Airbnb 

Opportunity: In the early days of Airbnb, creators Brian Chesky and Joe Gebbia rented out their living room as a way to make extra money. The team created a website, bought a set of air mattresses, and even offered homemade breakfast to attract guests. This was very attractive to people when hotels sold out.  

How they found PFM: Airbnb’s founders started looking for PMF by creating a landing page to determine how many people would be willing to pay to stay at a stranger’s home as an alternative to a hotel when hotels were full during events like conventions.  

They determined there was enough interest in the concept, so they went ahead and built an MVP that they tested at the 2008 Democratic Convention in Denver. This first test failed to show that the company had PMF, but this didn’t deter Airbnb’s founders. 

Airbnb’s founders continued to refine their project and shift from offering an alternative to hotels to offering something better than hotels. They were able to achieve PMF after about two years.