How to Find Product-Market Fit to Accelerate Word of Mouth
A Step-by-Step System to Get Product-Market Fit
An idea is worthless without execution. Or so the saying goes.
But execution on an idea is worthless without the perfect product that fits the market. Or so says Andy Rachleff, co-founder of Wealthfront.
And few have seen as many successful startups as Rachleff.
As the co-founder of Benchmark Capital, Rachleff and his team became early investors in many well-known startups. Some of Benchmark’s most notable investments include eBay, Snapchat, Uber, OpenTable, and Twitter. He’s also the co-founder of Wealthfront, an automated investment service with over $10 billion assets under management.
So why is execution not as important as a product that best serves the market, according to Rachleff?
“When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.”
Source: The Only Thing That Matters
Thus Rachleff coined the term, product-market fit. Because while a great team is important for success, it cannot replace a great product.
What Is Product-Market Fit?
“[The] number one problem I’ve seen for startups, is they don’t actually have product-market fit when they think they do.” Alex Schultz, VP of Growth at Facebook, Source: Lecture 6 - Growth.
What matters most for growth?
Think for a moment.
Did you say, “A great product customers love?”
And what do you want those loyal customers to do? (Hint: It’s the “holy grail” of marketing.)
Spread the word about your product. Word of mouth.
And what do you get when you combine:
- A great product,
- With customers who love it, and
- Who keeps coming back to spread the word?
Rachleff defined product-market fit when a product creates rapid organic growth through word of mouth.
“The only way that you can achieve exponential organic growth is through word of mouth,” Rachleff says. “And the only way to achieve word of mouth is if you truly delight your customers.” (Source: Nailing Product-Market Fit and Building a Successful Startup).
Marc Andreessen, the co-founder of Netscape and of Andreessen-Horowitz, defined product-market fit in a similar way:
“Product-market fit means being in a good market with a product that can satisfy that market.” (Source: The Only Thing That Matters)
Until you’ve hit product-market fit, sales cycles will be slow. Marketing will be a long and painful process. But once you’ve hit product-market fit, much of this will fall into place.
Co-founders realize growth marketing (or “growth hacking”) is important. But until they’ve reached product-market fit, co-founders need to focus on surviving.
That’s because many customers won’t buy their product because the messaging doesn’t match. And of the customers who do will simply churn, because the market expects things to “just work.” Early adopters are forgiving because they have a burning pain your product solves. So investing too soon hiring an A-list team will only increase your burn rate.
This is why Sam Altman, chairman of Y Combinator, advises startups to focus on product-market fit before growth hacking:
“Do any users love [y]our product so much they spontaneously tell other people to use it? Until that’s a ‘yes’, founders are generally better off focusing on this instead of a growth target,” (Source: Before Growth).
Therefore, the only goal that matters for startups growing from idea to scale is to get product-market fit.
What Are the Key Indicators of Product-Market Fit?
“...There are certain companies where growth seems to come easily, like guiding a boulder downhill. These companies grow despite having organizational chaos, not executing the “best” growth practices, and missing low hanging fruit.” Brian Balfour, Founder, and CEO at Reforge, ex-VP Growth @ HubSpot, (Source: Why Product Market Fit Isn't Enough).
Andreessen gives a vivid picture of what product-market fit feels like:
“You can always feel when product-market fit isn't happening.
The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close.
And you can always feel product-market fit when it's happening.
The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers.
Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can.
Reporters are calling because they've heard about your hot new thing and they want to talk to you about it.
You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck's.” (Source: The Only Thing That Matters, Part 4 of The Pmarca Guide to Startups).
Reaching product-market fit is bliss, a feeling of euphoria that you’ve finally made it.
But none of this happens until after you’ve reached this milestone.
So what indicators should you use before you reach product-market fit?
In other words, what is a leading indicator that will help you know you are on the right path to product-market fit?
Product-market fit happens when a product perfectly solves a painful problem the market has. Thus if the product no longer exists, their pain will reappear.
One key indicator of product-market fit is to ask customers how they’d feel if your product wasn’t there.
More specifically, how many would be very disappointed.
How can you test if your customers would be very disappointed if your product was no longer there? You ask them.
What Are Good Ways to Test Product-Market Fit?
“Until you get product-market fit, you want to a) live as long as possible and b) iterate as quickly as possible.” Sam Altman, chairman of Y Combinator, (Source: via Twitter).
Sean Ellis, CEO of GrowthHackers.com, discovered a common trait among successful startups: they all had product-market fit.
By asking one question of his customers, Ellis was able to test to see if a product achieved product-market fit:
“In my experience, achieving product-market fit requires at least 40% of users saying they would be “very disappointed” without your product… Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%.” (Source: The Startup Pyramid).
To do this for your product, set up a survey using a tool like Google Survey, Survey Monkey, or Typeform. Then email your customers who’ve experienced your core product offer about their experience.
If you need help emailing your customers, read: This Dastardly Email Outreach Program Put Us in the Top 25th Percentile of All Marketers.
Here are four questions we ask our client’s customers to test if they have product-market fit:
1. How would you feel if you could no longer use our product?
- Very Disappointed
- Somewhat Disappointed
- Not Disappointed
2. What type of people do you think would most benefit from our product?
3. What is the main benefit you receive from our product?
4. If you were to run our business, what is one thing you would do differently?
If possible, I recommend getting between 30-50 responses to this survey (Ellis also recommends at least 30 responses). This is when consistent patterns become clear in your data.
Getting more responses will get you closer to statistical significance. It will also give you better data to improve your product road map.
If you expect you’ll get less than 30 responses, ask your customers for a 20-30 minute interview instead. The quality will make up for the lack of quantity. Either way, some data is better than no data.
You can get a ballpark of the number of responses when you create your hypothesis. For example, let’s say you expect 30% of your customers to respond. That means you need 100 customers to get 30 responses (30 / 30% = 100).
Finally, if you offer different product pricing tiers, you should segment your customers by each plan.
If you have not chosen your pricing tiers yet, I recommend you offer only one price tier before product-market fit. I explain why in “Pricing Strategy: How to Precisely Price Your Product.”
Segmenting by pricing tier will allow you to know how to develop each part of your product.
Now you know how to test if you have product-market fit. What do you need to do to reach product-market fit?
How Do I Find Product-Market Fit?
“In the early days, by focusing on solving one problem really well, you’re betting on making a small amount of people very happy (sic). If you let any user that walks in the door steer the product roadmap you’re going to end up doing a s***y job at half-solving a lot of problems.” Michael Seibel, CEO and of Y Combinator, co-founder of Justin.tv, (Source: Users You Don’t Want).
Contrary to popular belief, the customer is not always right.
And listening to the wrong customer is a quick sprint down the startup graveyard.
Paul Graham, a co-founder of Y Combinator, explains why:
“When a startup launches, there have to be at least some users who really need what they're making — not just people who could see themselves using it one day, but who want it urgently.
...Which means you have to compromise on one dimension: you can either build something a large number of people want a small amount or something a small number of people want a large amount.
Choose the latter. Not all ideas of that type are good startup ideas, but nearly all good startup ideas are of that type.” (Source: How to Get Startup Ideas).
But if you should only listen to some of your customers, who are the right customers to listen to?
Sometimes, this is obvious.
For example, if you’re a web hosting startup, you don’t want to help a customer using your servers for criminal activity. But let me assume this isn’t the case for you. How do you know which customer you should listen to, and which you should ignore?
Do you remember your primary goal? It is to get to product-market fit. In other words, to have the most customers who will say they would be “Very Disappointed” without your product.
Therefore, you have three objectives:
- Listen to everyone who is “Very Disappointed.” This segment will tell you how to double down on what’s working.
- Listen to customers who will become “Very Disappointed.”
- Politely ignore everyone else.
This is where customer segmentation comes in handy.
With your buyer persona data in hand, look at which personas make up the “Very Disappointed” segment.
If you do not have this data, you can ask your customers for this information too.
Additionally, look at those who answered: “What type of people do you think would most benefit from our product?” If they describe themselves, this is another signal they are a delighted customer.
Pro tip: Look at the words used by “Very Disappointed” customers to describe themselves. This is the language that resonates most with them. This is a key part of how we create words that sell with our copywriting services.
Next, you should find out why do “Very Disappointed” customers love your product.
To answer this question, look at the answer your customers gave you to the question, “What is the main benefit you receive from our product?”
The more frequent an answer pops up, the more your product road map should focus on the benefit. You can see the most frequent solutions easier by copying and pasting the answers into a word cloud, such as this one by Jason Davies. This allows you to double down on what’s working.
Doubling down on what’s working is the best way to prevent your competition from stealing your customers.
But doubling down on what’s working is a slow path to product-market fit. You need to figure out how to convert those who are “Somewhat Disappointed” customers into “Very Disappointed.”
Again, you need to listen to the right customers.
Next, remove every customer who does not match the description of someone who is “Very Disappointed.”
These are the customers you will politely ignore.
Look at the answers from your filtered list of those who are “Somewhat Disappointed.”
People who are “Somewhat Disappointed” are the easiest to become “Very Disappointed.” So these customers are your low hanging fruit to improve your minimum viable product.
How do you convert these customers from being “Somewhat Disappointed” to “Very Disappointed?” By relieving the problem you have not fully solved for them.
Segment this list a second time. Look at those who are “Somewhat Disappointed” who share the main benefit of customers who are “Very Disappointed.”
Then look at the answer they gave you to the question, “If you were to run our business, what is one thing you would do differently?”
Put these answers into a word cloud. Look for 1-3 primary themes.
Do they want a desktop version of your app? Are they itching to use your app on Android? Do they wish your search algorithms were more precise?
Whatever the main problems are, this is where your product team should focus their energy. This will turn “Somewhat Disappointed” customers into loyal, “Very Disappointed” customers.
This will help you get 40% of customers to say they are “Very Disappointed.”
We’ve Hit Product-Market Fit. Now What?
Congratulations! You have achieved what many startups long to accomplish.
With 40% or more of your customers saying they’d be “Very Disappointed” without your product, you are one step closer to becoming a scalable company.
It is critical to survey new customers the product-market fit question as you scale. By creating a tight feedback loop with your customers, you will keep competitors from finding a weakness in your product to exploit.
As new customers come in, you will need to run the product-market fit test with the new set of customers.
Doing the product-market fit survey is especially important if you have a small sample size, or if most of your customers come from your network. This will make sure you don’t create a product that a large number of people only want a small amount.
Next, you will want to create your marketing strategy and establish your scalable marketing channels.