6 Steps to Establish Product-Market Fit

By David Kullman
August 15, 2016

The CEO of Quirky—a platform that allows users to vote on inventions to…

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The CEO of Quirky—a platform that allows users to vote
on inventions to crowdsource—stepped down last year because his company burned through its venture capital and couldn’t persuade investors to re-up. While the idea of a crowdsourced inventors’ marketplace sounded great, and initial returns were promising, after the smoke cleared, the company couldn’t maintain its momentum.
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While any company can convince a few people to buy something, to achieve sustainable success you need a larger portion of the market to get excited about what you offer. If your product is truly a market fit, you’ll be pulling all-nighters to keep up with manic consumer demand.

Most companies spend the majority of their time prioritizing features, developing build schedules and visualizing big-picture ideas. But coming up with ideas is often easier than executing them. And, many people get caught up in ideation and are unprepared when it’s time to go to market.

Other companies get so excited about their ideas that they hit the height of their social interest too early and are forgotten when launch time arrives. Remember Clinkle, a mobile payments startup offering user rewards? The initial idea got potential users excited; the startup even managed to raise $20 million during development. However, the hype died down as people realized that an actual product was a long way off. The eventual product launch more closely resembled a single lit sparkler, not a full fireworks display. Employees left in droves.

Of course, the other direction is just as dangerous. Calxeda, a company that built ARM-based servers, tried to market tomorrow’s solution to today’s consumers. It fell flat because people weren’t yet ready to go in that direction. Both Clinkle and Calxeda were unable to achieve a product-market fit because they failed to time their product to consumer readiness.

Then there are businesses like OnLive, a streaming game service purchased last year by Sony and shut down a month later. OnLive failed previously in 2012 before retooling its subscription gaming approach. It attempted a comeback in 2014 on the popular Steam platform and as an enterprise workflow software. But that ultimately failed too. Even with Sony’s more aggressive pricing model, the market simply didn’t demand what the product offered at a price required to remain viable.

Creating a product is just the first step in a long, complex equation. The world must be ready for your product, and people must understand how your product solves their problem. These businesses failed because they couldn’t create the proper product-market fit. To avoid their fate, test the value of an idea before fully developing it, and only decide how to proceed based on those results. Fleshing out an idea just to see whether it will work results in sunk costs, wasted time and lost business intelligence opportunities.

Luckily, it doesn’t have to be particularly difficult to identify the market fit and execute a product strategy to match; you just have to follow the proper procedure. An important tactic here is to set the bar high and hold your organization accountable. A small trickle of customers at a low conversion
rate doesn’t indicate product-market fit. Instead, look to achieve product-market fit by reaching or surpassing the conversion rates of competing products. The following steps will help you find the best fit for
your product.

1. Document your plan. First, take a step back and reevaluate your original plan. Create a simple one-page documented plan. This won’t be a business plan for your investors where you make optimistic guesses about your financial success. Rather, it will show a simple business model that outlines your solution, how it solves customers’ problems and the associated risks. Lean Canvas offers a free version online.

2. Tackle the riskiest part first. Start with the most uncertain part of your plan and tackle that. The risk might be in marketing, sales or development. Wherever it is, focus your attention there before moving on. It may seem obvious in hindsight, but the easiest way to lower your uncertainty is to eliminate the biggest risks first.

3. Put function above operationalization. Identify your business model and product fit before you tackle how to operationalize them. Does your solution truly meet the consumer need? Have people demonstrated that they want this need fulfilled and are willing to pay for it?

Focus heavily on learning what works, then start operationalizing once you know you have product-market fit. Remember, Clinkle failed because leadership spent $20 million operationalizing the company instead of using its resources to establish product-market fit.

4. Define and measure key metrics. Company leaders must talk to everyone—from stakeholders to end users to prospects—if they want a clear understanding of what their user base expects. Use that information to create specific metrics that determine whether your business is succeeding.

Define and track your metrics around AARRR: acquisition, activation, retention, referral and revenue. These high-level metrics will help you understand the big picture of your business model and solve ground-level problems using top-level logic.

5. Make your claims testable. When you make claims about the outlook of your product and business initiatives, you need a way to test those claims. Product pros and entrepreneurs love to make vague claims that sound good but can’t be used to evaluate success.

For example, instead of saying, “We will become famous through content marketing,” say, “Writing 10 guest posts for credible publications will net 1,000 new visitors in this time frame.” Can you duplicate the results? If so, you have a repeatable testing model. Now you can home in on what makes your product the right market fit and focus on those areas.

6. Shorten the cycle time. Use manual processes first to understand the ins and outs of what you need to accomplish. Next, design your processes using that knowledge to shorten your cycle times. For example, rather than building a report-generating feature over the course of a month, create the report by hand for your first 10 customers. It will take more time in the beginning, but once you understand the value of that feature, you can decide how—or whether—to flesh it out more fully.

Before anything else, product-market fit—or its absence—is what will make or break your company. Many great ideas have died because they arrived at the wrong place, at the wrong time, in front of the wrong people. Make identifying your product-market fit as important as the development of your product, and you will dramatically increase your chances of success.

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About the Authors

  • David Kullmann is a partner at Citrusbyte which helps clients define, design and build products that delight their users and owners. Citrusbyte works with customers to build their startups, modernize and rebuild their technology and introduce new products into new markets. Citrusbyte advises its clients in all facets of the product—from engineering to marketing—to help them make better-informed decisions. Connect with David on LinkedIn at linkedin.com/in/davidkullmann.



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