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Product-market fit, also known as product/market fit, is the degree to which a product satisfies a strong market demand.
Product-market fit has been defined by its inventor as "a unique product offering that people desperately want."[1] It is a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).
According to Benchmark Capital co-founder Andy Rachleff, Sequoia Capital founder Don Valentine developed the thinking behind product-market fit,[2] but it was Andy who first put a name to it.[3] Venture capitalist Marc Andreessen of Andreessen Horowitz later popularized the term in the mid-2000s. Andreesen credits Rachleff for the concept, referring to the idea as Rachleff's Corollary of Startup Success: "The only thing that matters is getting to product/market fit."[4][5]
Marc Andreessen defined the term as follows: "Product/market fit means being in a good market with a product that can satisfy that market."[6][7][8] Many people interpret product-market fit as creating a so called minimum viable product that addresses and solves a problem or need that exists.
Steve Blank referred to the concept of product-market fit as a step in between customer validation (step #2 in his book The Four Steps to the Epiphany) and customer creation (step #3).[9][10][11]
Product-market fit might be interpreted in terms of Alexander Osterwalder's Business Model Canvas paradigm as comprising value proposition, customer segment, relationship, and channel. Achieving product-market fit implies these are set without requiring additional changes or pivots.
The 40% rule
One metric for product-market fit is if at least 40% percent of surveyed customers indicate that they would be "very disappointed" if they no longer have access to a particular product or service. Alternatively, it could be measured by having at least 40% of surveyed customers considering the product or service as "must have". Sean Ellis is noted for popularizing this heuristic after examining many startups.[12][according to whom?]
Analytics metrics
There are five metrics any online business can measure to empirically verify if they achieved product-market fit. They are[citation needed]:
- Bounce Rate;
- Time on Site;
- Pages per Visit;
- Returning Visitors;
- Customer Lifetime Value.
Low bounce rates means a visitor's expectation is being met. High Time on Site and Pages per Visit indicate that the experience of the user is satisfactory. High Returning Visitor reflects the lasting impact a product has on their customers, causing them to come back, and Customer Lifetime Value measures the profitability each customer brings to the company. If these 5 metrics are above average and your 40% rule is met, you'll know you have a product-market fit company.[according to whom?]
Common mistakes
Andy Rachleff says there are four common product-market fit mistakes:[1][13]
- Prioritizing well-known customers over desperate ones: "The counterintuitive thing is that you should not go after the big market first. It's the exact opposite of what everyone tells you."
- Iterating on the what instead of the who: If a product doesn't resonate with an audience, founders often want to change the product. But Andy says founders should instead focus on shifting the customer they’re creating the product for.
- Pursuing growth before value: Many founders are tempted to engineer growth with ads and other scale tactics too early, but that artificial growth can cause them to wrongly assume they've truly found product-market fit.[14]
- Slowing down on innovation: Product-market fit is a process, not a one-time achievement. As markets, customers, and competitors shift, product-market fit must be continually reassessed and pursued.
It is important to differentiate between product-market fit and problem/solution fit when measuring a company's customer base. More specifically, when gauging a customer's desire, companies need to be sure they are measuring desire for the product or service—not just for a solution. Misinterpreting customers' desire for a solution as desire for a company's product or service will end up being a false positive for product-market fit.
Product-market fit is not binary. For a fledgling startup, a minimum degree of product-market fit will not be adequate in order to achieve market traction and success. Rather, what is actually required is a high degree of product-market fit, or extreme product-market fit.[citation needed]
- Cohort analysis
- Customer churn
- Founder-market fit
- Lean startup
- Revenue stream
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