Even if you’re not seeking venture capital, it’s still essential that you build a product that the market truly desires. In fact, Marc Andreessen has said, "The best team with the best product will fail if the market is not there.” He also believes that “Product-market fit is the only thing that matters and companies should strive obsessively to achieve it until they do.”
While it seems obvious that you need to find a market for your product, the number one reason why startups fail is lack of market need, according to CBInsights.
Here’s how to find your product-market fit and ensure you’re building the right product for the right market.
1. Test Test Test
To figure out if there’s a sufficiently strong demand for your product, you first need to build an MVP (Minimum Viable Product) that you can roll out to customers. Then it’s time to test your product. And test, and test again.
One strategy is to get your MVP out there on an inexpensive or trial basis, then survey your customers to see what attributes of your product are “must haves” — and what features your product still needs to create something your target market can’t live without.
This direct customer feedback will help guide the next iteration of your product, making it align more closely with what your customers actually desire.
Once you have a substantial customer base, ask them what other problems have that your product can solve. This help develop your product further or provide you with valuable feedback that may signal a need to pivot, or simply start over.
2. Control Your Burn
Given enough time and money, a strong team will eventually develop the right product-market fit. The problem is you don’t have unlimited resources. The key to success is not simply finding the right product-market fit but finding it before you run out of cash to develop, improve, and pivot to get there.
The number two reason why startups fail is because they run out of money. So how can you build the right product on the budget you have?
Keep your expenses low while you fine-tune your product. One rule of thumb is that you should not spend too much money scaling your business until you hit a critical mass of users that can't live without your product. That means, for instance, holding off on your first marketing hire until the product is ready for prime time. Overhauling the product is work that is best done — and most cost-effectively done — by the founders themselves.
By keeping your startup's burn rate to a minimum, you ensure that your company can stay in the game long enough to build a product that your market will rave about.
3. Know your customers and your metrics
To quantify how far along you are on the path to product-market fit, you need metrics that show you are earning a committed customer base. Sean Ellis, CEO of Qualaroo and GrowthHackers.com, suggests the 40% rule, which says that product-market fit is achieved when at least 40% of surveyed users say they would be “very disappointed” without your product or service.
While there's more than one way to measure product-market fit, you should pick metrics that are most relevant to your industry, and ones that can put you in the best light of a growth story.
In our experience with early-stage B2B SaaS solutions, we found these three KPIs to be strong indicators of whether a new product is meeting a market need:
Increase in number of users/accounts over time
Increase in repeat users/subscribers as a percentage of total users
Number of referrals
If you can clearly articulate your unique value, execute your great idea into a product, then show the demand from your target market, you have a good shot at convincing investors you have a bright future that's worth funding.
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