Successful products solve pain points and address clear market needs. But how do you know that you’ve achieved product-market fit before you go to market? The answer lies in understanding your audience.
What is product-market fit?
Marc Andreessen, one of the founders of the famous VC fund Andreessen Horowitz, coined the term product-market fit.
Andreessen defines product-market fit (PMF) as:
"being in a good market with a product that can satisfy that market."
The two important concepts here are:
Good market: A market that contains enough users with a clear need for your product.
A satisfying product: A product that addresses and solves your market's pain points.
While PMF is an astonishingly simple concept, research from CB Insights suggests that 42% of startups fail because the founders fail to find a good product-market fit.
So, the question for SaaS product teams is, “How can we avoid those pitfalls and survive in a competitive landscape?” The answer begins with understanding the market you want to serve.
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Why is product-market fit important?
Before sharing the steps to achieving product-market fit, let’s explore why this concept is crucial for success in SaaS.
Product-market fit is important for the following reasons:
PMF demonstrates a demand for your product or service, therefore validating your business model.
If you achieve PMF, users will buy, use, and advocate for your product, driving sustainable growth.
Solid PMF reduces customer acquisition costs (CAC) and user churn, allowing you to drive revenues.
PMF makes your business attractive to investors.
When you have PMF, you can allocate resources without spending cash on a product that is not ready for the market.
Steps to achieve product-market fit
OK, now that you know why you need a good PMF, it’s time to look at how to get there with these simple steps.
#1. Be more than just a product
Too many founders come up with an idea without ever considering whether anyone needs what they’re selling.
Don’t be a solution in search of a problem. Instead, think about a target audience and what pain points they have. Build a product that directly addresses those pain points, whether it’s saving time, money, or helping your users achieve something they thought was impossible.
#2. Know your user
You can’t help someone unless you really understand:
What they want to achieve?
How badly do they need to achieve it?
What’s stopping them from getting there?
Possibly, how are they solving it today and what are the issues with it?
Take time to understand your potential users. Keep your ears open and really know how they think and talk about their problems. Some tips here include:
Spend time in the places your users congregate, like social media, forums, and other online communities.
Conduct interviews, and surveys, and get feedback on product prototypes.
Build detailed and information-rich profiles of your ideal customer.
#3. Build an MVP
Building a Minimum Viable Product (MVP) brings your product into the real world. It’s when theory meets practice, and you get to test whether your target audience really needs what you're offering.
The goal is to build the simplest, most stripped-back version of your product that users will support. Focus on the core value that helps your product stand out from the crowd.
Get as objective as possible by using data as your guide. Track things like user behavior, engagement, and churn so you can see what you’re doing right and where you could do better.
Finally, really listen to feedback and be prepared to change course if it means making your users happy. Be brave!
#4. Drive product adoption through excellent onboarding
Once you’ve got the basics ironed out, it’s time to let your product grow. Solutions with a great PMF grow organically. However, you need to create the right conditions that will help your product on its way. One of the most important things you can do is invest in great user onboarding.
No matter how viral and intuitive your product is, if you want users to understand exactly how your solution can rock their world, you need onboarding content. Whether you keep things minimal and use unobtrusive tooltips and hot spot beacons, or you go all out with an interactive product tour, ensure your users know exactly how they can get value from your solution.
#5. You’ve made it!
If you get all the steps in place, it won’t be long before you unlock the juicy benefits of strong PMF. Soon, your users will celebrate your product and spread the word. User churn will drop, and revenues will rise.
From there, in the words of Marc Andreessen:
“Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can."
Signs of a strong and weak product-market fit
In Andreessen's seminal Guide to Startups, he suggests that the real PMF happens when “Customers are buying the product just as fast as you can make it.” This sentiment is expanded in this brilliant podcast by YCombinator’s Michael Seibel, highlighting how many founders think they’ve found a great PMF when they haven’t.
Mistakenly believing you’ve achieved PMF leads to wasted time and money. Here’s how you can tell the difference between a strong and weak PMF.
Strong PMF
Strong customer retention.
High-value perception - check the 40% rule on how to measure it.
Rapid organic growth and positive word-of-mouth.
Revenues and users grow quickly.
High Net Promoter Score (NPS).
Clearly defined product benefits that stand out against competitors.
Weak PMF
High customer churn.
Low adoption or intensity of use
Outsized customer acquisition costs (CAC).
Slow or stagnant growth.
Unclear value proposition with too much similarity to rival products.
Low revenues and monetization difficulties.
Tips for maintaining a strong product-market fit
Finding a strong PMF is the Holy Grail for tech companies. However, if you’re not careful, you can let the advantage slip from your hands.
Here are five tips on how to maintain a strong PMF.
#1. Keep your users close
A strong PMF is the result of understanding your users. But remember, users evolve and grow. Here is how you can stay with them:
Conduct surveys and interviews to gather feedback.
Analyze usage data and metrics to stay on top of trends
Establish a robust feedback loop with your customer support team
#2. Iterate and improve
As the market changes, you need to refine your product-market fit to stay relevant. Here’s how:
A/B test new features.
Let user feedback and market trends define your product roadmap.
Don’t be afraid of bold changes that have the potential to delight your customers.
#3. Be aware of the competition
New and old competitors will emerge, eating up your advantage. It’s essential to stay vigilant and aware.
Track competitor launches and analyze how they position themselves in the market.
Identify any gaps in the market that your product can fill.
Differentiate your offering so you can keep a unique value proposition.
Understand not only your direct competitors but also your indirect substitutes
#4. Grow smart
Be deliberate and efficient in growing your product. Here’s how you can strategically grow.
Avoid feature bloat that takes away from your core offering.
Validate product-market fit in new segments you plan to expand into.
Be prepared to adapt your product to serve new segments.
#5. Measure your PMF regularly
Use a mix of metrics and surveys to check the health of your PMF.
Perform regular CSAT and NPS surveys.
Track metrics like CAC, customer churn, customer lifetime value (CLTV), and time to value (TTV).
Stay on top of the reasons for customer churn through user exit interviews.
How Usetiful can support your product-market fit journey?
Achieving and maintaining a strong PMF across the customer journey takes a lot of work. Usetiful is here to help, thanks to its diverse range of user-focused tools.
User segmentation: Understanding user segments is vital to achieving a strong PMF. Once you know how to segment your user base, you can unlock the benefits, such as reduced CAC and user churn and more personalized onboarding.
Usetiful clients can segment their user base with tags for demographics, behaviors, or goals. This process allows for more targeted onboarding and contextual guidance via tooltips or in-app messages.
Great onboarding: Interactive product tours and walkthroughs help your users connect with your product and features. Usetiful lets you build no-code user onboarding content that teaches your users how to get the most from your product and start producing value from day one.
In-app surveys: Finally, Usetiful allows you to create in-app surveys so you can get real-time insights into how your users feel about your product. As highlighted above, user feedback is essential to maintaining a solid PMF because it helps you measure satisfaction, understand your users' evolving needs, and identify opportunities and areas of improvement.
If you’re serious about achieving and maintaining PMF, you need the support of the right tools. Usetiful provides a suite of interactive tools and features that help you gather crucial insights, boost positive user experience, and iterate your product so you can achieve and sustain a winning PMF. Start for free today.