Product Marty Cagan

Product Market Fit

In earlier articles I’ve discussed various aspects of Minimum Viable Product (which I like to refer to as MVP Tests to avoid any confusion with an actual product). In this article I’d like to say more about the critical concept of Product Market Fit.

The term was first introduced by Marc Andreesen back in 2007, where he argued that for a startup, it is all about getting to Product Market Fit.   His key point is that if and when you reach this state, then you can tackle topics such as worrying about growth and scaling your organization, but until then, nothing else matters.

I have referred to this concept in various ways over the years: MVP Goal (to contrast with the MVP Tests), Viable Product, or in the more verbose form: the smallest possible product that customers will buy, can use, you can build, and your stakeholders will support.  However, I don’t think it helps to have all these different terms for the same basic concept, so I’ve decided to adopt Marc’s term.

So to summarize my use of nomenclature:

We create MVP Tests (typically measured in days) in order to discover our way to Product Market Fit (usually takes months).  We continue to evolve the product from this Product Market Fit state all the way to achieving the Product Vision(typically 2-5 years).

I define Product Market Fit in different ways depending on the type of product.  For a B2B product, I consider the product to have demonstrated Product Market Fit once you have achieved a threshold number (I advocate at least 6) of live, referenceable customers for a given vertical market.  This is a hugely significant milestone because now you can invest in sales and marketing without wasting large amounts of money and creating collateral damage.

For platform products, the idea is similar but we’re looking for a threshold number of applications to have been successfully built and deployed using your API or platform services.

For consumer products, especially those that are free services, we’re looking for an indicator of serious engagement.  I like Sean Ellis’ 40% benchmark but we often need to craft the test for Product Market Fit based on the unique situation.

Based on this general definition of Product Market Fit, a great many product teams never achieve this milestone, and there are several possible reasons for this:

– Sometimes the team fails because there really isn’t a market there.

– Many teams run out of money or time or management’s patience before they achieve Product Market Fit.

– Sometimes teams fail because the team is weak, and while the market is there they can’t come up with a product that meets the needs to a degree that people actually choose to buy.

– Sometimes teams fail because the techniques they are using allow for just a small number of MVP Tests when they really require many (dozens) more to achieve the learning necessary to achieve Product Market Fit (see The Need For Speed).

Remember, once a team has achieved Product Market Fit for a product, they are by no means done – it usually takes 2-5 years after that to achieve the Product Vision.  So you continue to improve and expand your product after you achieve Product Market Fit.

For B2B companies, I usually favor a product strategy where we tackle one vertical market at a time.  In this case, you’re looking to achieve Product Market Fit for each vertical (e.g. Manufacturing, Financial Services, Automotive, Telco, etc.).  For consumer companies, I like a product strategy which tackles one persona at a time (e.g. Product Market Fit on a per-persona basis).

Similarly, many companies, business and consumer, can use this strategy of focus on Product Market Fit for each geography.  This helps you quickly determine if there are key differences in each geographical market, and whether you need corresponding changes in your product.

The last point I need to emphasize is that just because you achieve Product Market Fit for a given vertical market or persona, this doesn’t mean that you’re done serving the needs of that vertical market or persona.  This is because while your initial set of reference customers may be enough to ramp up sales and marketing, we know there will be additional needs to be met as you work to penetrate that market.