Shockingly few startups make sure they have market fit before shipping their product.
Precise numbers may not be reliable, but the 2019 Global Startup Ecosystem report estimated that only 1 in 12 entrepreneurs builds a successful business.
Successful versus unsuccessful startups by number
One of the biggest differences between successful startups and those that fail is how soon they begin confirming that real demand exists for what they’re offering.
The same report revealed that 45% of startups experiencing consistent long-term growth focus on finding real world customers and getting their feedback, making it one of the biggest common factors we can identify among successful tech companies.
The most common focus of successful startups
If you want to make sure you’re in the minority of startups experiencing consistent growth, give yourself the best start possible; keep reading to learn how to ensure strong product-market fit.
What is product-market fit?
While definitions vary, you'll be happy to read that there’s broad consensus among leading entrepreneurs about how to define market fit.
Defining market fit
Most market fit definitions include the following:
- A currently unmet or poorly served need (sometimes called a ‘gap’ in the market) that you can meet
- A large and wealthy enough group of potential customers, clients, or users experiencing this problem for you to sell the solution at a profit
- Sufficiently strong ongoing demand among potential customers for a product or service that fulfils those needs
- A solution that effectively solves the problem (or desire) from the perspective of the user
Why market fit is important
Paying attention to market fit, sometimes called product-market fit, is what keeps us from selling dentures to people with teeth, or snow shoes in the Sahara.
Of course, real world mistakes are usually harder to avoid as the incompatibilities between product and market can be subtle. According to Peter Reinhardt, CEO at customer data analytics platform Segment, 80% of SaaS startups never achieve product-market fit.
How many startups achieve market fit?
Identifying all the possible ways potential users meet their needs can take time and effort (even establishing if they see their problem the way you do can be tough). But taking the trouble to do the leg work is vital, as you’ll now learn.
The downsides of poor market fit
Failing to challenge your assumptions is a big risk. However, almost every founder is passionate about their product. That’s great, but it introduces the potential for overconfidence.
You may ask yourself, ‘I’ve thought this through. People will really want this app, so I’m sure there’s a market for it. Why waste time checking when I can get started building my product now and get an MVP (Minimum Viable Product) ready sooner and start raising revenue?’
Hoping for the best is not a strategy, and overconfidence can set you up for failure. Have the confidence to go out and ensure you have market fit.
Failing to ensure your mobile, web app, or other digital product will be met by an enthusiastic group of early adopters on release can mean the following:
- Burning money and wasting time. However passionate you may be about your product, the sad truth is that potential users may not feel the same. Learning that sooner rather than later saves you resources (time, as well as treasure) to pursue a project that can succeed. Give yourself that opportunity.
- Wasted potential. With just a few adjustments, your product might have been transformative. By not doing the research and analysis to ensure good market fit, you deny yourself the information you need to make vital changes (which might be small) to either your product or target market that could lead to astonishing success.
- Lack of a clear business case. Tech is highly competitive and while it’s hard to quantify, there are potentially thousands of competitors for each segment of the market, each hungry for the investors’ cash they need to put rockets under their enterprise. When you go to an investor, don’t bring a knife to a gun fight. Have real research in your pocket that shows you’re a winner or be prepared to lose out to your better prepared competitors.
Why validate your product?
The effort of confirming product-market fit has a number of upsides, many of which go beyond avoiding the time, expense, and raw pain of backing a bad idea. Benefits include:
- You gain the opportunity to make changes and serve a real need in the market
- You gain a valuable tool that you can use to attract investment
- Confirming your assumptions is great for moral and can give you the motivation to keep going when things get tough
Let’s dive a little deeper into each of these points.
Testing your assumptions means you can improve your value proposition
Even if you invalidate some of your core assumptions about how your product will connect to the market that doesn’t mean it’s a lost cause.
Active research can show you where to improve. Adjusting your product or business model dynamically to match reality is smart business.
Solid research confirming your product-market fit is powerful marketing
If it turns out that all your assumptions were correct (well done, by the way), you can take that evidence and use it to support you in funding rounds. Amazingly, investors really do want to help you. They just need a good reason to be confident that you’ll succeed.
Showing potential investors the research demonstrating that there is a market for your product should quickly move them from skeptical to convinced.
Building a business is hard. Knowing you’re on the right path is motivating
When it’s good, it’s good. You can see your way to the finish line, you believe in yourself and have every confidence that your hard work will pay off.
But like me, you’re human. And sometimes humans have doubts. If you’re building a business that provides real value, you’ll have to work hard. Even when you’re struggling for motivation.
Having cast iron, verifiable evidence that there are people out there who love what you’re doing and will use what you’re building can give you the confidence and determination to get out of bed and see it through to the end.
The experience of travelling while listening to music has transformed. Spotify and Uber are largely responsible.
How Uber got started
Uber’s founders came from Uber’s target market - San Fran tech conference attendees. Back in 2008, taxi rides in the San Francisco Bay Area were an expensive but necessary way of getting to and from the numerous tech conferences.
Uber unlocked a solution that brought the cost of travel by road down in a city of more than 7,000,000 with often unsatisfactory public transport. Even if they stuck to the Bay Area, that’s a ton of potential users.
Saving people money compared to other available solutions is one route to differentiating yourself in a market.
The founders (Garrett Camp, Oscar Salazar, Travis Kalanick, and Conrad Whelan) began sponsoring regional tech events and offering free rides to attendees through the app in its early days. This got Uber in front of target customers who offered valuable feedback (mostly by continuing to use the app - validating its value proposition).
As the app gained popularity - largely through word of mouth - Uber was able to start charging full price after offering 50% off to users on their first ride (a practice that continues today). At this point, Uber could be confident in their product-market fit as users were demonstrably willing to pay for the service.
One year from launch, Uber was bringing on one new driver for every seven riders.
How Spotify makes money
For many people, the success of Spotify seems crazy. Despite offering a service for nothing (unless you go premium - which isn’t necessary to enjoy the core service), the company is currently valued at around $21 Billion.
The free service is essentially an audience aggregation tool for the business and is only free from the perspective of the user. It’s monetised by charging advertisers access to their large audience. They can target subsets based on anonymized data.
Market capitalization (or ‘market cap’) is arrived at by multiplying the number of total shares in a company by the current share price, providing the stock market’s valuation of the company.
The free service also functions as part of the sales funnel for Spotify Premium, where users pay a monthly subscription for ad-free access to a vast library of music.
Perhaps the greatest strength of Spotify has been its product-market fit. Daniel Ek and Martin Lorentzon founded the Stockholm-based startup partly as a direct response to the rise of piracy.
There was clearly a large appetite for on-demand music, and people had become used to accessing it anytime at zero cost through peer-to-peer (P2P) sites like Napster, LimeWire, and The Pirate Bay.
Enjoying music seems to be something the vast majority of people have shared across recorded history. Building a product that serves a core human need can help to ensure broad long-term appeal.
While individual file sharing sites could (sometimes) be shut down, trying to outsmart millions of users looking for free music seemed an impossible task. Napster shut down their P2P service on July 11th 2001 after a successful lawsuit by the Recording Industry Association of America (RIAA). But this simply drove people into the arms of other P2P platforms.
Spotify’s founders realized that trying to police the entire Internet wouldn't save the music industry. But they also realized that the clear demand from consumers for a simple and affordable (ideally free) way to access music presented a massive opportunity.
Let’s evaluate Spotify’s product-market fit against our earlier definition:
Spotify's product-market fit evaluation
Unmet/poorly served need, or ‘gap’? Yes, from three directions: - Reliable access to on-demand music at zero-to-low cost from consumers - Access to financial compensation for artists and record labels in exchange for access to their music in an era when traditional record sales were declining - Access to a large audience for advertisers, at a time when the number of regular radio listeners was also declining
Sufficiently large market? In February 2001, Napster’s user base peaked at 26.4 million users.
Strong ongoing demand? In 2012, scientists discovered the earliest yet evidence of humans producing and listening to music - radiocarbon dating placed the flutes (one of which was fashioned from mammoth ivory) at between 42,000 and 43,000 years old. The details of the study are freely available.
Humans haven’t stopped listening to music since.
If science is anything to go by, strong demand for music will continue.
Of course, none of that would matter for Spotify if people didn’t want to use the Internet to access music.
Analysis by Statista.com shows consistent year-on--year revenue growth in the music streaming industry, from $10,127.4m in 2017 to $12,434.9m in 2020.
A solution that effectively fills the gap?
For Spotify to succeed, it needed to offer users access to an almost inconceivable quantity of music on a reliable basis while giving the owners of that intellectual property a way to make money from it.
Despite the majority of artists preferring traditional record sales due to the comparatively tiny amount of money they can make from each listen on Spotify versus an individual album purchase, Spotify isn’t a solution for them because it earns them more than the traditional retail model.
It’s a solution because it offers artists a better deal than an illegal download (even if it’s just listens₤8 for 90,000) and access to a huge audience. As of December 31st 2019, Spotify claimed to have over271 million active monthly users spread across 79 markets.
That’s very attractive to emerging artists looking to expand their audience.
From a user perspective, ready access to a collection of music they’d be unable to listen to in a single human lifetime (more than 1.2 million artists could be found on Spotify by January 2020) is quite appealing, with all the choice and access to new music that implies.
As is the fact that it’s legal (assuming that you don’t wear an eyepatch and own a parrot). In an age of ‘ethical consumerism’, many are uncomfortable listening to music without compensating creators.
Definitely an effective solution for multiple parties (all kinds of parties, in fact)!
The mamoth ivory flute suggests that the smart money is on music continuing to appeal to humans in the long term. That’s what the evidence shows, anyway. Try to objectively assess your own product-market fit based upon hard facts and test your assumptions. Image credit: BBC News.
By carefully considering the different elements of market fit, you can see that the success of legendary startups like Uber and Spotify was no fluke. Looking for similar success? Pay attention to these factors and base your decisions on real data.
Since Daniel Ek launched Spotify in 2008, strong user growth in the streaming music industry segment has continued. Look for objective and verifiable data from trusted sources about the industry you’re targeting when assessing market fit.
How to achieve product-market fit in six steps
Before any coding takes place, do the following:
- Confirm that the need or desire your product will address is real.
- Get to know your target user.
- Establish your USP (Unique Selling Point) or value proposition.
- Seperate your must-have from your like-to-have features.
- Build your prototype (using a mockup or prototyping tool, this is different from your MVP).
- Have real potential users test your prototype.
Once you’ve completed this process and taken on valuable feedback from potential users, you’re ready to start developing your MVP. But before getting into the weeds of building an MVP your users will love, take a closer look at each of these steps.
1. How to know the problem or desire you address is real
Solving problems is only part of the battle. People still need to be prepared to buy your product. For examples of how solving a problem alone isn’t enough to guarantee a solid market for your product, consider the Japanese practice of Chindogu - the art of deliberately inventing products that solve real problems but that nobody would actually buy.
That said, solving a real problem (or fulfilling an actual desire) goes a long way toward making your product marketable, even if it’s not as fun as an umbrella tie.
The umbrella-tie. Solving a problem may not be enough to guarantee success, but it goes a long way.
Here’s a list of tactics you can use to make sure you’re addressing a real need or want:
What’s the Internet asking?
The first place most people go to solve their problems is often the Internet. Scour Quora or other popular Q&A or discussion sites for questions relating to the need your product focuses on.
If there are lots of questions asked very frequently and the responses leave people unsatisfied in some way (usually because the solution offered seems like it requires too much time, money, or effort to implement), you may have a winning product.
You can also check popular search engines like Google. With an ads account (no money needed to sign up) you can see approximate search volumes for keywords relating to the problem you want to solve and try to gauge if there’s a big enough market out there.
Compare your product to the existing solutions
A classic mistake among entrepreneurs is trying to offer a new solution to a problem that’s already been solved in a way that is preferred by the end user.
It doesn’t necessarily matter if your problem already has a solution. Yours might be better. Before Uber, people taking longer journeys still had options and even now, taking a local taxi in a major city can still be more affordable than an Uber - especially at peak times. For example, the median price for a yellow cab in New York is $19.50 but $23.50 for an UberX ride.
People expect Uber to be cheaper and under many circumstances, it is. It’s also reliable, convenient (remember trying to phone around for a cab home? Plus, who wants to pay at the end of the ride?), and mostly very safe.
These factors combined made Uber appealing enough to enjoy rapid growth, regardless of the fact that there were, and still are, alternatives.
Get to know these pre-existing, competing solutions as well as you can. Test them out. What was good? What was bad? Is your product actually better? Take the time to find out.
2. How to do user research
72% of new products fail. Why? Many studies show that 36% of startups are building a product that nobody wants. A recent report by CBInsights put that figure at 42%. That’s the opposite of market fit.
Getting to know your target user well means you can serve them better. If you know their frustrations you can fix them, and knowing their likes means you can cater to them. That’s why this step is so important.
Perhaps you feel you don’t need market research? If so, I challenge you to read this list of common reasons founders avoid researching their users. It might save you a lot of blood, sweat, and tears.
Top reasons founders avoid market research
- You think you already know what users want. But do you have evidence, like a statistical survey of representative potential users or interviews with them?
- You think you can’t afford it. Do you know the actual cost of the research, though? Have you thought about the cost of failure (yes, it can happen to you).
- Deep down, you’re afraid. There’s nothing wrong with that. But hearing something you don’t want to hear can help you, not hurt you.
- You’re not a talker. Not a problem! The ideal researcher is a listener, particularly during interviews.
- You’re not sure how to do user research. The first step is admitting it. Then you can do something about it. Here’s a good resource to get started with user research methods.
- Your product isn’t ready. But wouldn’t it be helpful to have input from your target users while you’re building it? Don’t wait to find out you’ve built something people don’t want.
Getting to know your user
Just doing research isn’t enough. You must do it well. The first question to ask is, ‘Am I validating a product or searching for a problem?’
If you’re validating a product, you should be testing demand for the product (not tweaking it to make it ‘better’ at solving a problem that doesn’t exist).
Validating an idea for a digital product can be intimidating, and many skip it. Remember that if you find there’s no market for your product, you did yourself a favour by finding out now. You can move onto your next idea.
If you’re looking for problems to solve for users (80% of startups experiencing consistent growth do this during the discovery stage, according to research by Startup Genome), make sure your questions give respondents the opportunity to say what they think is a problem.
Don’t get caught in the trap of unconsciously steering them into confirming what you already think.
How to learn about your target user
Surveys give you the opportunity to gather a large amount of numerical information that gives you a basis for claims about the overall market for your product.
For example, 74% of gardeners agreed that difficulty finding reliable localized information about the growing seasons for their produce was a problem they’d experienced.
Finding a way to disseminate your survey so that it reaches your target user can be the biggest challenge. Ask yourself where your audience hangs out. What podcasts do they listen to? What subreddits are they on? How about their Facebook groups?
Be sure to ask permission from whoever manages the particular community you’re trying to reach before posting your survey, however. Upsetting a major opinion maker among your target audience could damage your brand at a fragile early stage.
Interviewing your target users is a great way to gather in-depth information about their problems, preferences, and characteristics.
You may find that recruiting interviewees is easier than you think. If your product solves a real problem for them or otherwise excites them, interviewees may be willing to contribute to it by being interviewed for free. If so, this is a promising sign for your market fit.
If not, don’t be discouraged. You may be able to entice interviewees with a small reward. Try to keep the value of this gift relatively small, however.
When preparing questions, don’t just ask interviewees whether they like your product. Ask them searching questions that are open ended (can’t just be answered with a single word, such as ‘yes’ or ‘no’).
When conducting an interview, try to put your subject at ease and remember to ask exploratory questions that can’t be answered with a simple yes or no.Show gratitude to your interviewee, even if they offer feedback that’s tough to hear. They’re here to help you.
If your product solves a problem, ask how serious of an issue it is for them. Ask them to describe the last time they faced the problem, and how they addressed it. To what extent was the solution satisfactory? Why did they take that approach, rather than another?
Go online and find out where your target market goes for information and advice about the subject addressed by your product. Some helpful starting points to try include:
Look for commonly asked questions. This will give you some idea about the problems and priorities of your target users, and you may be able to find great detail about the nature of their problems, how’re they’re currently dealing with them, and how seriously it affects them.
3. How to establish your USP (Unique Selling Proposition)
Your Unique Selling Proposition (USP), sometimes known as your Unique Selling Point, defines the strength of your market fit. It’s useful to keep in mind not only when you’re developing your product, but also when raising funding or marketing.
A solid USP helps you cut through the noise and carve out a market niche.
Your USP is the competitive advantage of your product or service over existing solutions. It could be that your product delivers the desired result faster, or cheaper, more conveniently, or to a higher standard. It is the stand out characteristic of your product.
If your product combines all the above features (economical while offering quality, for example), your USP could be that it is the only solution on the market offering that combination of advantages to the consumer.
Deciding your USP
With your market research in hand, working out your USP should be a simple matter. Ask the following questions:
- What makes you an outlier? In other words, what is most distinctive about your offering? Focus on that when bringing your product to market.
- Why might customers prefer your competitors? If your competitors USP is in one area (such as price), focus on something else.
- What motivates a user to download, purchase, or subscribe? Connect this to your answers to the first two questions.
4. Separate must-have from nice-to-have features
Now that you have quality market research and you USP in hand, deciding the essential features to include in your digital product should be simple.
Your digital product’s USP is a promise to the end user. Now that you know your USP, ask yourself, what is that promise?
As an example, the promise of Tesla’s solar roof tiles are that they collect electricity while looking like traditional roofing tiles. It’s advantageous that they’re more affordable in the long term than most traditional solar panels, but the most unique aspect is the combination of solar technology and attractiveness.
People who just need a cheap roof have other options.
So, when deciding on whether to include a feature, ask whether the USP requires it.
5. Build your prototype
It’s a common mistake, but don’t confuse a prototype with the first version of the product.
The prototype is simply a representation of how your mobile application, web app, or software will work from a user’s perspective.
Imagine you were trying to design and build a car. Our prototype is like a life-size model of that car. You can walk around it, look at all the details, even open the door and sit inside. You can appreciate the visuals and see how you’d use it.
The best products almost always go through a prototyping stage.
But you can’t drive it off the forecourt. It doesn’t have an engine.
In the world of digital product development, this means constructing digital prototypes that don’t have a back end, but show the envisioned user interface (UI) will work.
The model should be clickable, meaning users can navigate through the various links and interact with each page. This is particularly useful for testing the user experience (UX).
Two platforms our designers use at Develocraft are Invision and Figma. Whichever you choose, you will find building a clickable prototype helpful for user testing and to clarify the objective for your developers.
6. Let users test it
Now you have a prototype to show users. By letting real users try out a clickable prototype of your app, you get the opportunity to find out if it meets their needs.
Keep your goals in mind when user testing. One of the biggest mistakes you can make is to show up to testing without a clear idea of what you’re testing for.
Since you’re doing this before beginning any coding (this is all still pre-development), you can focus on the user's overall view of the product, and not just the UX / UI.
- If the users can work out what the product is for
- If they can easily understand how to use it
- Whether they would use it in their own lives (as opposed to alternative solutions)
For best results, avoid explaining how your product works. You want to know if users find it intuitive, so give them the chance to find out for themselves.
A powerful tactic to see if users mean it when they say they like the product and would use it themselves is to give them the opportunity to pre-register at a special rate (for example, 20% off an annual subscription).
People who are really enthusiastic will not hesitate. If you need to approach investors again, they’ll be impressed to learn that you’ve already convinced people to pay money for what you’re offering.
Ready to excite?
You’ve read the guide. Now it’s time to turn that knowledge into real business results. Market fit is the bedrock of your success. Go forth, and build a digital product that people actually want.
We hope you found this guide helpful. If you did, why not share it with others you think could benefit from it? And if you have any questions or feedback, hearing from you would make our day.
Hello! I'm the head of content at Develocraft. I'm also a startup guy (no joke)! I've worked with a lot of them and learned so much. I'm here to help you by sharing that knowledge. I'm always open to collaborations. Find me on LinkedIn.