Product Market Fit Startup Phase – how to achieve it
Product market fit has successful when you identify your target customer to serve them with right product and put interest in your product. You probably heard a quote “never test depth of a river by using your both feet”, well it’s not only applied on investment side, but it also applied when you start a new business.
If you haven’t see our first article on startup 101 series – How to start a startup in 5 phases to follow, please take your time to check that first, without that you will have incomplete information of specific terms that we will be using on this article. but if you did already let’s continue reading product market fit process.
The Old Way Product Market Fit
There’s an old way of how you can run your tech startup business. Let’s say you have the idea and functionalities defined, then you start to build it for 4 months or so. Once the product ready, you start do the marketing effort.
But after sometimes unfortunately there’s no enough market captured from your promotion. Later down the road, when you analyze with your team, one of them is by asking your current customers. You’ll be surprised they might say that your idea and product are fine. But, there’s a specific problem they are facing right now, and no one in the market is solving it yet. And from there they will start explain to you what they actually need from your product.
Getting Feedback As Early Possible
There is an interesting story from us, while we were doing testing for our product market fit framework, at the time we were doing testing of a product that does channel manager for online commerce. The idea is when someone wants to sell a product online, they only need to add their product information on 1 place and it will automatically distributed to multiple online e-commerce like amazon, lazada, ebay etc.
One of our High expectation customer, his name is donny and his response was the idea is good and solid. But there’s something he really needed help. It turns out that lots of small business owner that sell online don’t have a good knowledge on accounting. So they couldn’t create a proper accounting report to deliver for their investor, annual report or use it to get loan from the bank.
From this point, we started to realize that product market fit process is not only to know will the idea be captured by the market or not. On the other side it will give you some insights of what improvement that you could add to your product. So the goal is to get your idea out there to the market ASAP. Then start getting feedback and improvement from the actual market.
Minimum Criteria Of Success
In order to start your product market fit process, first you have to define your minimum criteria of success. We usually use 2 things here, first is response rate for example you got. If more than 80% positive response, then we can assume the idea is valid. Second one is High expectation customer, where at the end of your meeting you will ask are they willing to try out your product when it’s available on the market?
If they answer is yes, then we count them as high expectation customers. With high expectation customer we use it as an absolute number. For example if we got more than 13 high expectation customers, only that we can assume the idea is valid.
In early 70s, IBM did a market assessment relate with how big is the demand of PC at that time, so they hired an external contractor and did the market assessment. The result is, there will be no more than 300 units per year for PC will be sold, so IBM drop their interest on PC right away. After few years Apple release their product Apple II, and it was a massive success in the industry.
IBM then regroup and tried to analyse why their market assessment failed. It turns out that people who did the market assessment don’t have anything to see in front of their eyes. Something to experience or try out how the PC will look like, and since they got no idea how the PC is, they say not interested at all. And that’s why a prototype is super important before you start your product market fit process.
Let’s take this on another example. You are in a shopping mall and in front of you there are two sales men trying to sell you a condominium. First salesman start giving you pictures of the condo. He start explaining about facilities, prices and any information you needed to know about the condo. Second salesman roughly do the same thing but at the end of his explanation, he invited you to their show unit. Then you simply agree and visit their show unit.
Once you arrived inside their show unit, you started to experience how it feels like when you bought the condo. You go to the bathroom and start washing your hands and face, then go to the living room and watch TV. After all, you return to your home and start to think. As the customer, which one would you prefer to buy? Which one would you be interest on? The first salesman gives you complete information about the condo. The second salesman who gave you experience about how you would feel when you bought the condo.
Meet Your ideal Customers
Once your prototype ready, it’s time to meet your ideal customers. It will depends if you are targeting your local market. Then that would be better if you could meet them face to face. You can start explain about your product by using your prototype to show the features and benefit.
If you wants to go online, for example Linkedin and start filter people out based on your criteria, you might want to schedule a meeting with them, but the most important part at the end of the meeting, you have to ask them, are they willing to be your high expectation customers or not?, because that’s the only matter. Once they decided to be your high expectation customer, that means they put interest on your product.
At the end of whole product market fit process, you might take a look at your minimum criteria of success, and check:
- Does your response rate exceed what you expected?
- Does your number of High expectation customers exceed compare with what you define on your minimum criteria of success?
Let’s do a recap of what you will get from the product market fit process:
- Minimum Criteria of Success. Where it basically will tell you wether your product market fit is a fail or a success
- Product prototype. It’s not only used when you talk with your ideal customers. Later down the road, it also will be use when you start your development phase
- The most important one. You will get your customers even before you launch your product by asking them are they willing to be your high expectation customer or not?
To get more popular information about startup, check others article in Blankontech.