product-market fit

What is Product-Market Fit? How to Leverage Customer Development to Move Your Business Forward

So, you’ve got a startup idea. The first major challenge you’ll need to overcome is achieving product-market fit. So why do so many entrepreneurs leave this up to chance?

Creating a product that solves a real problem starts even before you launch your business. This is the process of customer development; and too few entrepreneurs do the hard work to find out if their idea might work before they go out and build it.

This article outlines the basic principles of customer development and particularly focuses on the benefits of hearing bad news. The most successful entrepreneurs know how to embrace bad news. They’ve learned how bad news can actually be good news, and how it is often the key to achieving true product-market fit.

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What is product-market fit?

Wildly successful venture investor Marc Andreessen famously stated in a 2007 blog post that product-market fit is “the only thing that matters.” And he’s not wrong.

I like to define product-market fit as a product or service that solves a meaningful enough problem that customers are willing to pay for it.

Many entrepreneurs and venture capitalists have similar definitions, but ultimately, it means that you’ve created something people really need or desperately want.

When Marc says it’s “the only thing that matters,” he doesn’t mean that once you find it, you’ve won. He’s simply stating that it’s the most important thing for a startup to get right. That’s because finding product-market fit doesn’t mean you will be successful, it just means that without it, you will fail. So, be sure you get that right before you do anything else.

Nobody likes bad news, but you should embrace it

Human beings aren’t built for bad news, and neither are entrepreneurs. But I’m here to tell you that bad news is the best way to find product-market fit. Think about it. When you hear good news, how likely are you to make a change? If you got an A in history, do you have any incentive to do things differently next semester?

When you get good news, there’s often nothing more to do. But bad news, well that’s actionable. Hearing bad news will give you the necessary insights into what doesn’t work so you can adjust and figure out what does.

The importance of customer development

When you’re building a startup, you need to talk to a lot of potential customers. All of the insights you need to find product-market fit are going to come from your customers. If you wait until after you’ve launched to reach out to your customers, you’re likely to make a lot of mistakes. Or worse, you’ll waste a ton of time and money working on something that nobody wants.

This is the promise of customer development — to gain critical knowledge about customer problems and to test potential solutions before you launch and scale your business. And finding product-market fit means you’ve identified a significant problem and figured out a solution people want.

I often tell entrepreneurs that customer problems are found in the “why.” That means you must talk to enough customers to understand why they do what they do. Customer development is a framework for extracting this information from people. It provides a structured approach to asking questions that get people to open up.

Without disciplined and thorough customer development, you’re largely relying on luck to find product-market fit, and that’s a bad plan.

Listening for bad news

The more customers you talk to, the more likely you are to hear things you don’t want to hear. But remember, just about every business that ever succeeded didn’t nail product-market fit on day one.

Here’s the thing: human beings are not only averse to hearing bad news, but also prefer not to give it. That means you have to ask the right questions to get the feedback you’re looking for. If you simply ask a customer “what’s wrong?” you’re likely to hear very little about what’s actually amiss.

As an entrepreneur, you’ll need to become skilled at asking the customer development questions that lead to honest feedback, good or bad.

Within this feedback, you’ll find the nuggets of truth you need to prove whether or not your idea is viable. That means you’re going to hear some bad news. You might learn that someone doesn’t like your idea, or that you’ve got the wrong customer. You might even realize you’ve got the problem entirely wrong. No matter how far off the mark you are, digging to find this feedback is the key you need to iterate toward product-market fit.

Turning customer insights into actions

Once you’ve successfully extracted insightful feedback, it’s your job to figure out how to turn this data into intelligent product decisions. Customers might tell you what’s wrong with your business, but they probably won’t be able to tell you what’s right.

Turning insights into good business decisions is an iterative process that takes some creative thinking. Entrepreneurs go through this process throughout the business lifecycle — from concept to prototype to product and finally to product-market fit.

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Test and tune your product

So, you’ve talked to customers, got the bad news, turned that into useful insight, created a product that people want, launched it, and are on your way to building your business.

That’s the process, but the drill isn’t over, not by a long shot.

Do you think that McDonald’s stopped iterating after perfecting the Happy Meal? Did Facebook stop after nailing the “like” button? Of course not. Successful companies that last know that product-market fit is temporary.

Markets change and so do people. What works this year might not work as well next year. Your job is to keep talking to customers and keep listening for bad news. Even your happiest customers will have gripes about your product. As luck would have it, hearing bad news from your best customers is truly a gift.

Now that you’ve found product-market fit, you don’t want to lose it. Don’t assume anything; especially don’t presume your most engaged customers will always be happy. These are the people who won’t be afraid to complain when your product isn’t on point. Listen up, because this is how you’ll learn where to take your business next.

How to begin

All of this information might make sense, but if this is your first startup, then you’re probably wondering how to even get started. How do you go out and get that bad news and find product-market fit if you don’t even have an idea? Great question, and one that too many entrepreneurs forget to ask.

People imagine that many startups just popped into existence after a founder had a “eureka!” moment. If you break down the early beginnings of every successful business, it’s very rare to find one that didn’t start from talking with and listening to people. In other words, you don’t need a big idea to start a business. Start with some exploratory customer development to uncover opportunities. Pick a customer segment or business category that interests you and start talking to people.

Find out what they like, what they don’t like, where they get frustrated, and when they are elated. There is no shortage of problems to solve, and there will always be innovations to uncover. If you talk to enough people, you are guaranteed to discover a business opportunity worth pursuing.

Bringing it all together

Product-market fit is one of the most important goals for a new startup to achieve. Now you know that achieving product-market fit starts by talking to customers, and you are clear that the process of customer development never ends. Now it’s time to act!

Embrace the scary. Get comfortable with being uncomfortable. If you’re lucky enough to hear bad news, then you might just be on your way to building a business that lasts.

Originally published March 31, 2021.

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