Startup Advice

What the hell is product-market fit, and how important is it really?

Dominic Powell /

product-market fit

Gen George. Source: Supplied

It’s a term thrown around time and time again but regularly misconstrued or misinterpreted by startup founders. What the hell is product-market fit, and how important is it really?

The term was first coined in 2007 by famous American entrepreneur and investor Marc Andreessen, and later popularised by marketing guru and entrepreneur Sean Ellis.

Andreessen defines the term as “being in a good market with a product that can satisfy that market”. So if you’re Canva, your market is everyday punters wanting good-looking graphics, and your product is an online platform that easily makes good-looking graphics.

Or your market might be news-hungry startup founders, and your product is high-quality daily articles about the Australian startup scene (wink).

But despite being a top-line buzzword often thrown about at conferences and emblazoned across pitch decks, the term product-market fit can be confusing for a lot of early-stage startup founders. So we asked local startup guru Alan Jones what he views product-market fit to be, and his definition will likely clear a few things up for befuddled founders.

“I’d define product-market fit as the point in the growth of your startup at which it gets significantly easier to acquire new customers and retain existing customers (which you should be able to see in your metrics quite clearly over, say, a three-month period, if you’re tracking them properly),” Jones told StartupSmart.

“It’s an inflexion point at which most things in the business start to feel a little bit easier.”

The way Jones’ describes it, product-market fit is a fluid and changeable metric that can be achieved at any point along a startup’s lifecycle, not something that must be identified and locked down from day dot.

Focusing too much on product-market fit is actually having a detrimental effect on many startups, says Jones, who believes many founders are “flagging false signals” of the metric by shoe-horning smaller trends into the definition.

“If you’re still manually concierging your product, and customer numbers are correspondingly small, then a small difference in one or two customer relationships can make it seem like a positive trend, but that trend might evaporate by next month,” he says.

“An experiment with a redesign of your online advertising, your landing page or your UX can often suddenly trash what was looking like positive trends — you don’t usually have product-market fit if changing your landing page design results in a significant downturn in conversions!”

So how important is product-market fit?

Now you’ve got an idea of what the elusive concept of product-market fit is, you might be wondering about its importance to the happy and successful everyday running of a startup.

Three-time startup founder Gen George, who is currently working on her new adtech startup tamme, tells StartupSmart her experience with building three different businesses made her realise the importance of product-market fit.

“[Product-market fit] is critical to the success of the business. Especially for the medium to long-term survival of the business,” she says.

“The first days are all about finding it. Testing theories out, getting people to use the product/service and finding what gets traction.”

George says that even after working at the helm of three companies, finding that fit is always a challenge; there’s “no guarantees” regardless of the number of companies you’ve been involved with. She believes the biggest risk is missing the signs altogether, going too far down one path in pursuit of product-market fit that you miss it staring you in the face from the start.

George advises startups to continuously test product-market fit theories with minimum viable products along the line to avoid spending too much money on an incorrect attempt. And don’t be afraid to make a call on what is and isn’t working, she says.

Here’s for more tips from George when it comes to obtaining and maintaining product-market fit:

– Be systematic about it. Set clear guidelines of what a test looks like, what needs to be achieved for it to be successful and then iterate from there.

– Keep it small, keep it cheap.

– Failure is not stopping something because it isn’t working. That takes guts!

– Once you find product-market fit, you then need to work out how to scale that. Which of course requires you to test ways of achieving this out while trying not to affect the traction you have achieved to date. This is how we ended up working on our business tamme. We were testing ways to scale one of our businesses in the US for a partnership opportunity. This led to us having a 400% increase in our marketing efficacy over a 2-week test. We have subsequently headed down the path of making this publicly available with clients now in the EMEA and Australia.

NOW READ: How alcohol delivery startup Tipple is using its data to increase orders by 54% per year

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Dominic Powell

Dominic is the features and profiles editor at SmartCompany.

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