Product Market Fit - concept overview lecture.
Agenda
(1) Why most of startups fail?
(2) What is Product Market Fit?
(3) Customer Discovery for Problem Solution Fit
(4) Customer Validation for Product Market Fit
(5) Indicators of Product Market Fit
(6) After PMF - scaling and company building
2. Mark Opanasiuk
Product Manager @ EPAM
CPM, SAFe PM, PSPO certified
Ex-PdM & Biz Dev @ Genesis
Product Market Fat podcaster
3. Agenda
Why most of startups
fail?
01
What is Product Market
Fit?
02
Customer Discovery for
Problem Solution Fit
03
Customer Validation
for Product Market Fit
04
Indicators of Product
Market Fit
05
After PMF - scaling and
company building
06
4. Learn Product Market Fit
concept and indicators
Goals for this
lecture:
Know key elements affecting PMF
on product and market levels
Know the process of Customer
Development for getting PMF
01
02
03
6. Why up to 90% of
Tech Startups Fail?
Source: https://www.failory.com/blog/startup-failure-rate
- 9 out of 10 startups fail.
- 7.5 out of 10 venture-backed
startups fail.
- 10% of startups fail in the 1st year
- 70% of startups fail in 2 to 5 years
8. There's just one mistake that kills startups: not making
something users want. If you make something users
want, you'll probably be fine, whatever else you do or
don't do. And if you don't make something users want,
then you're dead, whatever else you do or don't do…
“
“
Paul Graham
Founder @
Y Combinator
Source: http://www.paulgraham.com/startupmistakes.html
9. The #1 company-killer is lack of market. When there
isn’t a market, the quality of the team and product don’t
matter; conversely, when your market is booming and
customers are banging down your door, it’s really hard
to screw things up.
“
“
Marc Andreessen,
General Partner @
Andreessen Horowitz
Source: https://pmarchive.com/guide_to_startups_part4.html
10. Number #1 reason that
startups die:
They don’t achieve Product
Market Fit
21. Product-market fit, means being in a
good market with a product that can
satisfy that market
“
“
Marc Andreessen,
General Partner @
Andreessen Horowitz
Source: https://pmarchive.com/guide_to_startups_part4.html
25. Minimum Viable Product
Source: https://tproger.ru/articles/chto-takoe-mvp-v-programmirovanii/
This is not MVP
This is not MVP
This is MVP
MVP 1 MVP 2 MMP PMF
26. Definition of MVP Minimum viable
product
is a version of a
product with just
enough features
to be usable by
early customers
who can then
provide feedback
for future product
development.
Source: https://brianpagan.net/2015/lean-startup-mvp-how-to-make-meaningful-products/
27. Source: adapted from Intercom on Jobs-To-Be-Done, 2017
4 Forces influencing the switch a new product
Customers switch when:
Pull x Push > (Habit x Anxiety) + Transaction Cost
Current
solution
New
Solution
Reasons to switch
Reasons to stay
Transaction Costs
Attraction to
new solution
Problems with
current solution
Habits &
Preferences
Anxiety &
Fear of change
30. What is a good market?
(if you dream to become a huge company like Genesis)
TAM SAM SOM
Gigantic TAM
VCs likes products
that can scale up to
>$100mln annual
revenue. This means
TAM >$1bln
Huge SAM
You never get the
whole TAM. It means
your SAM should
have potential of
$100mln annual
revenue and more.
Pretty big SOM
SOM to make you
profitable and scale
with available
resources. Can you
make $3mln annual
revenue?
31. Startups may launch products
in smaller target markets that
get bigger progressively over
time
45. Define your target customers
Achieving PMF
Identify underserved customer
needs
Define your value proposition
01
02
03
Create your MVP
Test & iterate your MVP with
customers
04
05
Iterations get feedback that is used for
new iterations till your product creates
enough value to satisfy customers and
make profits.
46. PMF Framework - 5 steps to PMF
Source: https://medium.com/radikal-studio/pmf-framework-5-steps-to-product-market-fit-2021-4c95a0c964ad
47. There is a business idea or
product idea for observed
business opportunity to:
● solve a problem;
● address a need;
● create joy and entertain.
Where to start?
49. Great products came from great
ideas.
In order to get to PMF we can
apply Lean Startup methodology
and experimentations approach
and processes.
If speak about
Products:
53. Customer Discovery
who are your customers
for your product?
is the problem you’re
solving important to them?
01
02
answers two questions to get
Problem-Solution Fit:
Customer discovery requires a
lot of user research and
market research work.
How?
● Business model
hypothesis
● Customers problem
validation
● Experiments to validate
proposed solution
55. Validating Customer Problem
1. Have we identified a problem that customers want resolving?
2. Does our product solve this problem?
3. Do we have a viable business model?
4. Have we learned enough to go to the market and sell our
product?
Answering these questions requires research from both secondary
and primary sources.
If you’re worried that talking to potential customers will reveal
bad news about your idea, then it’s probably a bad idea.
56. Business Model Design
Use of lean canvas, business model canvas, value proposition canvas, “business
plans on napkins” to define hypotheses and assumptions, adapt business model
and eventually get product-market fit.
Groupon Business Plan on a napkin:
57. Sources for users & market
research
Primary
Secondary
User interviews
(qualitative)
User surveys
(quantitative)
Just Google it, use
research databases
& spy tools, experts
interviews, social
media analysis etc.
58. Users Interviews Users Surveys
Gather quantitative information, are made
quickly and cheaply to collect large
dataset.
Good for:
● to measure attitude, intent, or task
success (e.g. from 0 to 10)
● to track user attitude changes over
time (what changed after feature
release)
● to track problems (how many users are
experiencing a problem?)
● Collect user’s choices from limited,
well structured list of questions.
Bad for:
● to discover reasons behind and what
users really care about
● to understand actual users behaviors
Gather qualitative information, it is better to
use interviews for customer problem
discovery.
● Flexible and open, can capture more
nuanced data.
● Use open-ended questions. User
should speak more than you.
● Not use leading questions, or closed
(YES / NO questions.
● Use classic who, what, when, where,
why, and how questions.
● Ask for examples or explanations to
better understand the user’s thoughts.
● Look for patterns and different
perspectives when analyzing
responses from interviewed users.
● Avoid jumping to conclusions till you
conduct enough interviews
64. Run Low Budget Experiments to
validate problem and solution
How?
● Fake product pages where interested users may leave
information or attempt purchase - test and iterate those.
● Targeted ads to fake landing pages to gather more info
about your potential customers - test and iterate those.
● Have User interviews with interested customers - gain more
insights on user needs and Jobs to be Done.
● Demo low fidelity prototypes or MVP to interested customers
based on gathered insights - define your MVP.
65. When to Pivot?
✅ You were right, and your hypotheses are validated with real users >>> you
can move to the Customer Validation stage = you have Problem-Solution Fit.
⚠ You were partially right/wrong and there are some key differences to
consider that were discovered via user research >>> you need to adjust your
hypothesis accordingly before moving to Customer Validation stage.
🛑 You were totally wrong and your hypotheses about users problems are not
problems at all >>> you need to form new assumptions and hypotheses that
need to pass Customer Discovery before moving to Customer Validation.
68. Attract first customers
At this stage we get the first sales, attract first users that are ready
to pay for MVP
● LEARN how to sell what will be our final product.
● Designing the sales funnel (AARRR = Awareness >> Acquisition
>> Activation >> Retention >> Revenue >> Referral funnel).
● Designing and testing Sales and Marketing Materials (FB Ads,
email chains, social media, google ads, bloggers &
influencers, Tik-Tok, Affiliate programs etc.
● Better understanding of User Journey and user emotions
through the funnel
● Validation of customers channels and initial conversion rates
● Creating the first working traffic pipelines
71. Validating Traffic Channels
● Run traffic experiments to define the best distribution channels
for your product.
● Analyze channel economy to calculate ROMI/ROAS for each
channel.
● Small and low-budget experiments within traffic channels to
find top creatives within channels to start scaling later.
● Defining key partnerships and alliances for our growth.
72. Validating Pricing
Models & Strategies
● Low-budget experiments to test various pricings for the
product / its services / features.
● Testing various monetization models and mixes applicable to
your product:
○ Ad monetisation
○ Subscriptions
○ Freemium
○ Affiliate RevShare
○ Transaction commissions
○ Web sales, etc.
● Testing Various Pricing Strategies.
74. Defining the key metrics to track
When it comes to measuring PMF, there is no one North Star metric.
Rather, several metrics come into play at different parts of the journey.
Acquisition
Activation
how well are you getting customers to your site or app?
are your customers having great ‘first run’ experience?
how often are your customers coming back?
are they telling others about your product?
are you able to monetize your customers?
Retention
Referral
Revenue
75. Validating Product Market Fit
● At this stage, through sales, traction, and qualitative metrics
we may conclude that we either have PMF and can scale our
sales OR we need to do pivot :(
🛑 If Customer Validation is not successful then you need to do a
pivot and form new problem hypotheses and talk more to potential
users in Customer Discovery stage. For example, there is a problem
identified, but no one wants to pay for your product to solve it.
76. Types of Pivot
Technology / Platform
Pivot
01
Customer Segment
Pivot
02
Zoom out | Zoom in
Pivot
03
Engine of Growth /
Distribution Channel Pivot
04
Business Model Pivot |
Value Capture Pivot
05
Customer needs pivot
06
80. 6 Indicators of PMF
High customer demand for
your product
01
You know well your
customer
02
You measure what
matters
03
People love your
product
04
Positive unit economy:
Users LTV > CAC
05
Product cannot be easily
replicated or copied
06
81. Source: https://www.departmentofproduct.com/blog/how-to-measure-product-market-fit/
1. High Customer Demand
Scaling personnel doesn’t drive growth. Addressing a clear
customer need (and finding product market fit) drives growth.
scaling too soon is often the cause of death for startups.
On the flip side of the scaling coin is growing so slowly that your
company is completely caught off-guard when product-market fit
starts to occur.
You have to be prepared to recognize that it’s about to happen
so that you can start to scale accordingly.
82. 1. High Customer Demand
“Are people willing to pay you for this product? Ask them this
directly. Even try to get them to pay you now (i.e. literally send
them an invoice) to get early access to the product. Nothing will
be a better signal of interest and PMF if you can get people to put
down money before you have a product
For enterprise businesses, at the end of your free trial, you should
pull the trial. If the customer doesn’t scream, you don’t have PMF.
Because if they aren’t going to buy it at the end of the 30 days,
they aren’t desperate. And if they aren’t desperate, you don’t
have PMF.”
Doug Leone / Andy Rachleff
Source: https://greatness.floodgate.com/episodes/andy-rachleff-on-how-to-know-if-youve-got-product-market-fit
84. 2. You Know Your Customers
Your company knows
user personas,
conducts user
discovery, has clear
understanding of user
analytics, has user
needs driven
backlog, etc.
85. 3. Measure what matters:
AARRR Framework
https://youtu.be/irjgfW0BIrw
88. Source: https://brianbalfour.com/essays/product-market-fit
3. Nice Flat Retention Curve
“Plot the % active
users over time (for
various cohorts) to
create a retention
curve. If it flattens off
at some point, you
have probably found
product/market fit for
some market or
audience.”
Brian Balfour
Founder & CEO
@ ReForge
90. Source: https://www.departmentofproduct.com/blog/how-to-measure-product-market-fit/
4. People Love Your Product
40 percent rule — How would your users or customers
feel if the product or service was taken away?
If at least 40 percent of your users or customers
indicate that they would be “very disappointed,” this
is a good measure of product-market fit.
* Product Market Fit survey by Sean Ellis
92. The real metric for both consumer apps
and enterprise is — do someone’s
pupils dilate when they use your stuff?
“
“
Steve Blank
Author of Cust Dev
books
Founder @ Rocket
Science Games
93. You have very strong customer
feedback, even from a small group of
people. For example, you are getting
literal love letters from customers
“
“
Ellad Gil
Co-founder @ Color,
ex-VP @ Twitter,
startups adviser
97. Source: https://www.departmentofproduct.com/blog/how-to-measure-product-market-fit/
6. Product cannot be easily
replicated or copied
This is related to retention but something a good product manager
should be tracking as a separate indicator as well.
● Is your company’s product unique? Or does it have the
potential to become a commodity?
● Can it be easily copied? Does it have powerful brand?
● Does it have any legal or policy protection?
● Does it have unique advantage not available to competitors?
(e.g. first mover advantage, proprietary in-house technology,
exclusive partnership deal, etc.)
99. PMF Myths
● PMF is a discrete big
bang event
● It is clearly obvious
when you get PMF
● Once PMF is achieved
you can’t lose it
● PMF protects product
from competitors
Business Model Fit
(Company Building)
You turns from a start-up into a
mature business with a
profitable product :)
● Scale Operations
● Scale Organization
● Focus on Growth Metrics
● Keep improving product
● Raise investments
● Scale profitable channels
● Keep talking & analyzing
users
109. PMF Books
1. Jobs To Be Done by
A.W.Ulwick
2. The Lean Product
Playbook by Dan Olsen
3. The Lean Startup by Eric
Ries
4. Blitzscaling by R.Hoffman
and C.Yeh
5. Guide to CustDev by
B.Cooper
6. The Four Steps to the
Epiphany by Steve Blank
110. @wtf_is_pmf
TG channel for PMF
podcast
My Medium blog with
publications on CustDev
& PMF
PMF podcast where we
speak with PdM