Why is getting to Product/Market fit so damn hard? If you’re like me and have at some point in your life spent an obscene amount of time working on a product that went nowhere and wondered why, or if you’re someone who’s facing that challenge right now, this article’s for you. I’m going to go over why getting to Product/Market fit is hard, the common pitfalls to avoid and some action points to help you get there faster.
What is PMF and why is it so hard?
So first things first, what is Product/Market Fit (PMF)? The term and concept was introduced by famed Valley investor Marc Andreessen in a classic post titled ‘The only thing that matters’. The short summary of it is this: Product/Market fit is defined as "being in a good market with a product that satisfies the market" and this milestone is the only thing that really matters in an early stage startup. Achieve this fit and everything becomes a bit easier. If you don’t, everything is harder, until you one day run out of money.
As an action-oriented entrepreneur, you’re probably thinking that sounds like a lot of fluff. What does a ‘good market’ mean? Or what does it mean to ‘satisfy’ a market? While there’s no universally agreed upon way to vet if a business has hit PMF, there are a few proxies out there that are meant to be good signals: For example, if you’re building a SAAS company, seeing < 2% monthly churn is a good sign you’ve hit PMF. If you’re building a consumer product, you can try Sean Ellis’ method of surveying your customers to see if 40% would be very unhappy if the product went away — if so, that’s also meant to be a good sign you’ve hit PMF.
So why is it really hard to get to PMF? In most cases the reason teams get stuck in endless iterations (i.e. product spin) is because they’ve lost focus of what really matters when you’re a Pre-PMF business. Your only goal, as a Pre-PMF business, should be to discover and validate a healthy market that loves your product. And you should be ready to pivot on your product idea, market or both until you achieve this fit. Post-PMF companies get to focus on all the other fun stuff that’s required to scale and grow the business. Here’s a great diagram from Steve Blank that captures the essence of what Pre & Post PMF companies should focus on.
The missing piece of the puzzle
So you’ve launched a product and find that you’re not getting the traction you’d hoped for. What do you do now? To answer this question, we need to revisit the two variables in this equation, the product and the market. What I’ve observed is that many entrepreneurs don’t give enough consideration to the market side of the equation. I.e. they’ve made one of the following mistakes:
In all three cases, you will find that there is a lack of understanding of the market that the product is serving.
Here is a methodology that I use to discover the right market for your product. This is a pretty broad topic and there’s already a ton of great content on the web that touches on various elements of this journey, so instead of repeating what’s out there, I have condensed my list to highlight the top resources I’ve found for each topic. I recommend that you read the list first and then dive into each section for further guidance & help.
If you have NOT done this yet, even if you are already well into your product development, stop doing everything and refocus on finding your market.
Don't forget to spend time validating your market
So you have a good hypothesis on a problem worth solving in your market. It's time to validate this hypothesis - I recommend the following steps:
If your value proposition hypothesis has passed the above tests, then you have the signals necessary to proceed with updating your product! This methodology also works in evaluating any idea to see if it makes sense and is worth pursuing. It’s a fair bit of work at the beginning, but ends up saving you time over the long run and gives you the deep understanding of your market that’s needed to succeed.
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I'm a big fan of Alexander Osterwalder's Business Model Canvas. It's a great tool to help you think broadly about a new venture or business idea. I also find it very helpful as a tool to understand a company's existing business, value proposition and how all the pieces fit together.
Over the years, I've made many mistakes in designing these canvases. Here are the top 5 mistakes I've made and frequently see during design sessions:
1. A broad definition of your customer segment
If you catch yourself defining your customer segment as 'Millennials' or some other broad group, it should be an automatic red flag that your target audience is too big. Narrow it down until you can describe a day-in-the-life of this target customer. Narrow focusing at this stage forces you to pick a strategic beachhead, where you can deploy your minimal resources and win. You can always expand afterwards.
2. A value proposition that's focused on being the best at something
If your value proposition states you're going to be the 'best at something', it's a good sign that you're on a collision course with other competitors in your industry. Unfortunately, avoiding this is non-intuitive as the mindset to be-the-best in the industry permeates through lots of management literature. Either you win or I do is the wrong mindset at this stage. Instead of focusing on being-the-best, focus on being unique. The goal here is to create unique value and deliver it to your end customer in a unique way.
3. Key activities that are similar to other rivals in your industry
Michael Porter addressed this issue specifically in his book on Competitive Strategy: "The essence of strategy and competitive advantage lies in activities, in choosing to perform activities differently or to perform different activities from those of rivals". The common mistake I see here, comes from the mindset that competitive differentiation starts and stops in the 'Unique Value Proposition' section. To design a better model, each section within the canvas should showcase your differentiation and more importantly when chained together should amplify your unique proposition to the market. If your key activities look like the key activities of your rivals, you have no sustainable competitive advantage against them and they will eventually copy, reproduce what you're doing. If your value proposition is truly unique, it will need a unique set/chain of activities.
4. Cost structure not aligned with unique activities & resources
In the ideal world, one should be able to look at a Business Model Canvas' cost structure to quickly identify how they are truly different from their competitors. I.e. if you spend money on something, it must be important to your value proposition. If you've skilfully avoided mistake #3, you should now have a tailored set of activities & resources that offer unique value in a differentiated way to your end customer. The key point at this stage is to check that you are capturing your total costs in delivering this differentiated value and ensure that it is not greater than the predicted revenue stream. This is where the rubber meets the road and should bring up questions like am I targeting the right customer? Have I over committed in my value proposition? If you can't attain profitability in your model, you're going to have a tough time building the real thing.
5. Not clear about what you won't do. Or trying to be everything to everyone.
This is an overarching problem not specific to one particular section. It can also be the hardest thing to correct as people generally tend to think more is better. The quick test for this is if your Business Model Canvas looks really crowded. I tend to stick to the most important points that show your unique value in each section. Also, I've found it useful to bullet things that I will not do with an 'x'. E.g. If I was Ikea, I would never get into building expensive furniture as the rest of their business model canvas (activities, resources, channels, etc) are not optimized to achieve this value proposition. Defining what you will not do, is a key checkpoint to ensure you are delivering your core value in the most efficient and effective manner possible. It's also a great way to prevent copycats who will have to change their existing business (usually really hard to do) to deliver similar value within the same cost structure.
I'm sure there are many more mistakes that I haven't covered in the list above. If you've seen something repeatedly in your experience then please share in the comments!
And lastly, if you like what you've just read, please like/share & follow to get more updates on business strategy, product management and startup life in general. Happy designing!