The Race to Product-Market Fit & The Role of Marketing
By Tom Frankham. Tom is a Senior Consultant at Zeren, and is based in London working within our Marketing division.
What is product-market fit?
Product-market fit is the combination of the demand for your product and how effectively your product satisfies the appetite and plugs the gap.
Understanding whether your product is something people need and want is vital to your success, start-ups who achieve PMF have dramatically increased chances of success.
American entrepreneur and investor Marc Andreessen, who coined the term ‘product-market fit’ in 2007, defines it as “finding a good market with a product capable of satisfying that market.”
According to this CB Insights Study of 311 start-ups in 2019, 35% failed because they launched products with no market need. Going to market before knowing your ideal customer profile will mean you risk wasting advertising budgets by targeting the wrong personas and if you’re continuing to push a product without putting on the groundwork, you’ll have a high rate of customer churn and slow growth rates.
Nailing product-market fit means more sales, customer churn is controlled and you’re receiving positive customer feedback – this leads to customers sharing their positive experiences, and acting as your external sales teams.
In an early-stage startup, Marketing plays a key role in conducting market research and helping to validate product market fit. Marketing teams understand the audience and how to communicate with them.
How can you achieve product-market fit?
- Fine-tune your value proposition
- Revisit your personas – who are your audience? What do they want?
- Aligning your teams
- Conduct customer feedback and research to evaluate and respond
- Measure the strength of your PMF and reach accordingly, pivot or plough on
There are several ways Marketing can help determine product-market fit:
- Focus and User Groups
- Customer surveys
- Customer Experience Centres
From your experience, which steps should businesses take to go about achieving product-market fit?
To find PMF, businesses must start with the market. Find an underserved market. This is easier said than done and is mostly achieved via hard graft. We spoke to ~a dozen markets before committing to tech GCs. In our discovery, we listened to the experiences of these markets and let them talk rather freely. We were listening for evidence of frustration and overwhelm. The most compelling markets were already throwing money at solving their challenges but remained frustrated. A risk at this point is to commit to too large, too diverse a group of people. This isn’t a market. This is multiple markets. In a market, everyone walks, talks, & looks the same, and expresses the same challenges in similar terms. When a market felt too diverse, we niched down.
Next, you have to test the viability of this market. Do they have money to spend & do you have access to the decision-makers. When we test new markets, we always look for an upfront commercial commitment from a prospect. There is no clearer signal. All of this comes before there is any kind of product. We simply ask, would you spend [insert amount] to fix this problem of yours? Then we draft up a contract and take it from there.
Finally, deliver a thin, vertical slice of value. Do this very closely with your market. We ran a series of design sprints with customers. These design sprints are a deep commitment from the market, a further positive signal. The goal of these design sprints was to identify an initial product to release into the market in order to test the value proposition & to begin iterating upon the product offering. Finding product—market fit often takes a lot longer than you expect, so getting an initial thin-slice offering out very quickly is imperative before you run out of rope. By releasing a thin, vertical slice, we ensure the value isn’t hidden beneath poor usability or bugs, and we decrease the lead time to release.
How do you measure and track the success of achieving PMF?
We measure progress towards product-market fit by watching two metrics: retention & acquisition.
1. Our retention curve has to be strong otherwise we have a leaky bucket (we’re pouring customers in the top & their spilling out the bottom). Typically, retention of usage leads to retention of revenue, so this is what we pay most attention to: Are our customers actually using the product? Are they using it as much as we expect them to? Is usage rising or falling? Over time we can build a pretty robust engine to product revenue churn based on usage patterns. The strongest evidence of product-market fit isn’t just a strong retention curve, it’s upselling & referrals.
2. We have to be able to acquire customers. If the value proposition isn’t resonating, we don’t have product-market fit. You cannot build it & expect the market to hear about it. Acquisition has to be nailed just the same as the product. We look at the conversion rates from our founder-led sales calls. If conversion is low & remains low even while we tweak the pitch & clearly target our ICP (ideal customer persona) then we have a major problem. Conversely, if prospects are biting our hands off when we demo the product & we have more interest than we can handle, we probably have a product-market fit.
What role does see marketing play in achieving PMF?
Is Nike selling trainers? Is Apple selling phones? It feels a bit of a tired cliché now but it’s very true: the best companies are marketing companies.
Marketing is essential for product-market fit. The perspective of marketing leads with the market, with the people you’re building a product for. This can be forgotten at times, even by product people. You can get lost building solutions to problems when what tech companies are really doing is selling emotions to people.
Just look at product marketing as a function. The bread & butter of product marketing is defining the ICP, defining the messaging that resonates with this ICP. They’re the voice of the market. This product marketing perspective is exactly the perspective early-stage founders need to hold when they’re establishing themselves in a new market.
When building out your Marketing function in your early-stage startup, Product Marketing should be your first hire. Product Marketing sits at the intersection between product, sales, and customer success. It’s critical you define who your ideal customer profile is, what your strategic messaging looks like and how you will mobilise this message through sales and marketing channels. An experienced product marketer with works cross-functionally, acting as the glue between your core functions and representing the voice of the customer internally, feeding back customer insights to continuously shape and improve the product ensuring you achieve and maintain PMF.
If you would like to discuss any of the themes raised in this article or build out your marketing function to help on your journey to product market fit, please get in touch firstname.lastname@example.org
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