In a nutshell
Product-Market Fit is the key to a successful business. To make Product-Market Fit happen, an entrepreneur must identify a need in the market and build a solution capable of satisfying it. This is no small problem, the inability to come up with something that customers will want to buy is one of the main reasons why startups fail.
Falling in love with the solution is a trap into which entrepreneurs often fall. To illustrate, Ash Maurya, author of the inspiring book Running Lean, suggests that the innovator should rather fall in love with the problem.
Instead of starting from the solution (building a product), an entrepreneur might start from defining the actual problem, make a demo, and then selling the solution. This is the primary difference between product/market fit and product/solution fit.
How to measure it
• Engagement: Interaction rate is a metric that can indicate the level of consumer loyalty to a certain brand. Recognizing the value of the product, customers tell others about their experience, and the company can attempt to replicate the success with the new users thereby attracted.
• Customer Lifetime Value: A measure that indicates the average revenue generated by a customer over the duration of their relationship. CLV makes it possible to estimate a customer’s profitability and the company’s long-term growth potential.
• Net Promoter Score: A solution used to measure the degree of customer satisfaction, which allows to predict the company’s growth curve. To understand customer reaction, the company makes a calculation starting from a question (“How likely would you recommend our company/product to a friend or colleague?”). The answer must be a number from 0 to 10. Subtract the percentage of detractors from the percentage of promoters and here is the result, expressed as a value between -100 and +100.
• Product-Market Fit in the audio streaming industry: Spotify
The famous music streaming platform was born after the death of audio file-sharing program Napster. In 2006, the creators of Spotify identified the opportunity to come up with an application that would allow users to conveniently stream music anytime and anywhere through a subscription.
• Product-Market Fit in the primary goods industry
German company HelloFresh responded to the need to improve nutrition without detracting anything from a convenient supply. From the marriage of two needs related to quality and food supply, came a platform that allows people to order kits that contain all the ingredients they need to create healthy recipes. This is done through a monthly subscription that can be canceled at any time.
• Product-Market Fit in software development
Originally created as a video game, Slack is now a messaging platform for businesses. It represents a great digital space in which users can also devote themselves to fine-tuning projects and tasks. Slack is a clear example of how careful market analysis can lead to the identification and design of a product capable of responding adequately to market demands.
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