Finding Product-Market Fit

What is product market fit?

There’s no understating it: Product-market fit is a critical catalyst for growth for a startup, and ultimately the key component for success.

It’s more than people wanting what you’re selling. It means you’ve created a product or service that resonates, that people enjoy using, and that they’re likely to come back to time after time, day after day.

For startups, product-market fit isn’t a nice-to-have. It’s what turns a great idea or an innovative use of tech into a viable business model with large-scale growth potential.

Understanding your customer

Product-market fit requires a deep understanding of the needs of your customer. For many startups, that comes from having been in their shoes.

Victorian legaltech startup Deeligence, for example, was founded by Elena Tsalanidis and Justin Hansky, lawyers with deep experience in mergers and acquisitions, who were frustrated by outdated, manual due diligence processes.

Through an intimate understanding of the challenges in this space, they were able to create something they knew would meet a need for their target customers — an AI product to do the ‘first cut’ of the legal work around due diligence. And it resonated.

The founders established product-market fit in Melbourne, working closely with law firms and the community. Now, Tsalanidis says the platform is used by “most of the major law firms in Australia and New Zealand”, and the founders are getting ready to go global.

Indicators of product-market fit

Product-market fit will look a little different for every startup, and you’ll likely know it when you see it. Indicators might include:

• Growth and market interest: If potential partners and customers are showing interest, then you’re likely on the right track — even better if they’re reaching out to you.
• Retention: If most of those customers are sticking around and continuing to use your product after the initial signup or onboarding, that suggests you’re providing them with something genuinely valuable.
• Organic growth: Interest through referrals and word-of-mouth, for example, suggests customers will advocate for your business. If you’re not investing a lot in marketing, and customers are finding you anyway, you likely have a solution they’re explicitly looking for.

How to test for product market fit

Again, there is not one-size-fits-all test here. However, there are both qualitative and quantitative ways to determine whether your product meets the mark.

Quantitative research

• The Sean Ellis Test: This refers to a survey question asking users how they would feel if they could no longer use your product. If 40% or more say they would be ‘very disappointed’, that’s considered to be an indicator of strong product-market fit.
• Net Promotor Score: A Net Promoter Score (NPS) measures how likely users are to recommend your product to others, on a scale of one to ten. The higher the score, the more enthusiastic your customers feel about your product.
• Conversion metrics: This might relate to user growth or revenue growth, but keeping track of the numbers — how many leads convert into customers — can give you a good indication of product-market fit.

 Qualitative research

• Customer surveys: While a quantitative data survey is incredibly valuable, you can also learn a lot from open survey questions; asking current and potential customers about their needs of the frustrations they’re feeling.
• Feedback loops and continuous improvement: Communication with customers should be ongoing. Asking for feedback and acting on it is critical in establishing product-market fit. And if early users are suggesting improvements (however painful it may be), that’s a good indicator that they’re planning on sticking around for the long term.

Support to achieve product-market fit

Finding product-market fit can feel daunting, and it can take time. But there is support available.

Lean into your networks in industry, as well as fellow founders and leaders who have done this before you. For some startups, working directly with potential clients can give additional insights, while offering a route to product testing.

Accelerators

Elsewhere, accelerator programs such as LaunchVic’s CivVic Labs program, the Melbourne Accelerator Program or the MedTech Actuator, aimed at medtech startups, are designed to support startups through their early growth phase, helping them understand their audience, decode what product-market fit means for them, and work towards achieving it.

LaunchVic offers a range of programs and support initiatives that can help startups understand and achieve product-market fit and further growth. Find out more here.