May 26, 2021
What Is Product Market Fit?
The term “product market fit” was first coined by renowned entrepreneur and venture capitalist Marc Andreessen. In a 2007 blog post entitled “The Only Thing That Matters,” he said that “Product-market fit means being in a good market with a product that can satisfy that market.” Put another way, it’s about getting the right product to the right customers at the right time. As Francisco Ponce, Operations Director at 3Pillar Global, explains, product market fit really comes down to “solving problems that customers are willing to pay to have solved.”
Among other considerations, this means that there needs to be a clear connection between what a product claims to do and how it will benefit users. After all, if you aren’t solving a real problem, then there isn’t any market potential for your product. Patrick Campbell, CEO of Profitwell, a financial reporting SaaS company, points out some of the serious ramifications of failing to achieve product market fit: “Having a misaligned product-market fit will affect your business model and means your advertising, marketing, rate of growth, and churn rates will take a hit.”
Clearly, understanding whether or not there is a real market for your product is critical. This article will discuss how to find the market potential and evaluate the target market share for your product to ensure that you’ve nailed product market fit.
Understanding Your Product’s Market Potential
It’s tempting to think that once you’ve come up with your product idea, the hardest part is over, when in fact, the hard work is only beginning. According to the Pragmatic Institute, “Creating a product is just the first step in a long, complex equation. The world must be ready for your product, and people must understand how your product solves their problem.”
With that in mind, let’s look at the steps that will help you uncover your product’s market potential.
Define Your Target Market
Cassi Lup, Senior Manager of Product Development at 3Pillar Global, defines target market share as “the total [number of] buyers or users with the same problem that your software is aiming to solve.” So it makes sense to begin by gaining a better understanding of who exactly these users are.
Dividing your market into manageable segments is a good place to start. You should be able to describe both the demographics and the psychographics of your target market. Demographics include things such as age, education level, income, and location. Psychographics encompass less tangible qualities such as attitudes, beliefs, personality, and values.
For each market segment you identify, create personas to breathe life into your target customer’s profile. An empathy map can help you do this by encouraging you to brainstorm about your target market’s goals, challenges, needs, and pain points. Be aware, however, that it’s best to cap your personas at 3-5; otherwise, you’ll end up with too much information, and it won’t be easy to focus on what really matters. If you find this limit too challenging, you may be better off sticking to segments. As a general rule, the most useful insights you’ll glean will always be informed by solid research.
Once you get a better sense of who your customers are, you can map out their possible customer journeys to get an even greater understanding of where and how your product may fit into their lives.
As you do this, it’s critical to keep in mind that the buyer and user of your product may not be the same person. Scott Varho, SVP, Product Development at 3Pillar Global, explains that “The one feature in B2B software products that many people overlook is that there are differences in the motivations of the buyers and the users of the product. A lack of understanding of these dynamics can undermine a product's success. This is not totally unique to software products as the same applies to, say, a construction company buying tools for builders to use, but seems to be more frequently missed.”
Identify Underserved Needs
Once you’ve created your personas and better understand your target market’s needs, consider specific pain points that aren’t being addressed or met by other products and evaluate your market potential. What underserved needs could your product fulfill? You probably wouldn’t want to enter a market that’s dominated by a solution that customers already love and are loyal to unless you’re prepared to offer much greater value (in the realm of 10 to 30 percent), which is a high bar to clear.
Of course, being a disruptor can potentially put you in a great position when it comes to market potential. But depending on your product, you may choose to enter a crowded market and scale fast based on the mistakes of your predecessors in that space.
While exploring and defining your target market share, you should also evaluate the competition in terms of market saturation. Are the problems you solve already being solved in such a way that the solution has become a coveted commodity? This kind of intel can either shape your strategy or compel you to pivot and find a better problem to solve.
Identify Your Value Proposition
Customers are always going to compare your solution to what’s already on the market, making it critical to analyze the competitive landscape. As we’ve said, finding your market potential involves knowing both the problems you solve and the benefits you offer. That means that researching the competitive landscape is a step you must not skip. Francisco Ponce points out that this field may be wider than you think. Remember to consider “the alternatives that may include using no product at all.”
As part of your research, make sure to ask yourself:
- What needs does my product fill?
- Is it a must-have or nice-to-have?
- What unique features may excite my target market?
Looking at your target market’s pain points and needs in tandem with what you learn about the competition will help you identify your unique value proposition. This is your product’s strategy to meet customer needs better than the alternatives. While your product could address multiple needs, it’s important to choose those that focus on and align with your value.
It’s worth mentioning that if your product is similar to a competitor’s, it doesn’t mean you have to start from scratch and come up with something brand new. It can be enough of a competitive advantage to leapfrog them and do as they do, only much better. Keep in mind, however, that if you decide to take this route, you’ll need to be 10 to 30 percent better than the competition to stand out in the crowd. In other words, differentiating yourself by offering superior value in a crowded market can work, but it’s not simple to achieve.
A Value Proposition Canvas can be your best friend in this endeavor. First developed by Alex Osterwalder at Strategyzer, this canvas can help you graphically visualize your value to the customer—how you “relieve pain and create gains”—and adjust your value prop based on what you learn for achieving the perfect product/market fit.
How To Evaluate Market Size
Once you’ve found your market potential by understanding the underserved need or problem your product will solve, it’s time to evaluate the market size.
Gartner recommends a structured approach that “narrows down market opportunities from broad estimates to more targeted, segment-based opportunities.”
In practice, that means:
- Combining a top-down and bottom-up approach to research for getting a complete picture of your potential market share
- Shifting focus from defining the global market for your product to defining the actual addressable market
- Realistically assessing your company’s total serviceable markets. In other words, to get an idea of your target market share, Gartner advises that you “gauge how many customers are expected to buy either as early adopters or as more mainstream adopters in your targeted market.”
Keep in mind that it’s not just about market size—you need to consider saturation as well. Saturation happens when new demand for a specific product or service is no longer being generated because the market is already crowded. While it’s not impossible to succeed in a saturated market, competition will be fierce; you’ll need to up the ante when it comes to the unique value you’ll offer.
As we’ve seen, finding product/market fit is ultimately about solving problems in ways that users would pay for. And that comes down to providing tangible value that excites your target market.
As Alina Perde, Technical Manager at 3Pillar Global, puts it, “I don't believe a software product serves a business. I think we should look at software products as the business. Products should serve a purpose, they should be built for a very specific need, and they should always delight their users.”
To learn more about 3Pillar’s services and how we can help you understand your market and create products that solve real problems, contact an expert today.