The importance of finding and establishing your product-market fit according to Gigi Levy-Weiss
CTech presents a full chapter from Build Brilliant Brands, a new book released by Facebook, featuring articles by 22 tech executives from around the world. In this chapter, NFX co-founder Gigi Levy-Weiss explains the meaning of product-market fit, why it is so essential, and how both startups and major companies can go about achieving it
Below is the full chapter written by Israeli angel investor and the co-founder of Silicon Valley-based venture capital firm NFX Guild, Gigi Levy-Weiss.
In the startup world, every entrepreneur knows that the main goal of a new company is to find its product-market fit (PMF). There are many different definitions of the term product-market fit, but, in essence, they all revolve around three basic components: identified customers, who want your solution, in a market large enough to justify the business.
In simple terms, PMF is that magical moment when you become a must-have in your customers’ minds, which, in most cases, means your product brings them real value. To simplify it even more, you can call it “product love”—when your users love your product.
This could be because you solve a real problem, or you help them do something 10 times better, or you allow them to do something they couldn’t do before. But the outcome is clear: they love your product and would be upset if it was taken away. That’s what product-market fit is about.
Why is PMF so critical? In the startup world, the answer is fairly simple. The reason startups fail is that they run out of money before achieving product-market fit. Once you have product-market fit, funding is usually dramatically easier. But there is a lot more to it.
Product-market fit is the prerequisite to sustainable growth. There is little point in aggressively marketing a product, which brings no value to its users. They may initially come if you advertise well enough, but, eventually, they’ll leave. It’s like pouring water into a leaky bucket: even if it seems full for a second, it will very quickly become empty again. That’s why PMF is so critical.
Much has already been written about attaining PMF that you can find in well-known books such as Eric Ries’ The Lean Startup, for example. The basic theoretical framework is fairly simple and can be summarized as follows:
– Determine who your customers are
– Find their under-served needs or desires
– Define your value proposition
– Specify and build your minimal viable product (MVP)
– Test it with customers
– Iterate fast until you find product-market fit
This simple framework has helped small startups find their “red hot center” and grow exponentially quicker than traditional companies. In recent years, however, this framework has also been adopted by many large companies in new product development.
Finding your product promise
But, is PMF truly the cornerstone of every product development? It is clearly a critical step, but I believe there is an earlier step, one that I call the product promise.
To understand product promise we need to break down the risk of not finding product-market fit into two different risks: not having a product idea that users want and not being able to develop the product at all (or not in a way that works well for the users).
Once you have a crystallized product promise, the rest of the process is very simple. You create an ad campaign (or a few, to ensure that your results are not skewed due to a single campaign being set up incorrectly); you set up a landing page that has the right call to action; you define your audience on your chosen platform; and you start marketing.
What do you market? You market your product promise, send your users to your landing page and try to convert them to respond to your call to action. And, you measure everything, every step of the way.
People often ask whether testing a product promise can annoy or frustrate users. Wouldn’t they be upset that the product is not live? That you “tricked” them into clicking what ended up being a waste of time? The answer is a very simple “no.” You can tell them the product is coming soon. You can give them a large discount. You can reward them for assisting. Or, if you are really worried, you can launch the test campaign under a brand which will be different from the final brand.
At worst, you will be slightly upsetting hundreds or thousands of users as opposed to millions or billions. And that’s not a reason to build the wrong MVP without testing its product promise first.
Let the data guide you
These are very different risks, of course. One of product concept and one of execution. The theoretical approval users give the idea of a product—or the product concept—is what I call the product promise. The traditional PMF process bundles both of these stages together, as discovery is done through exposing the users to the actual product you build or at least something that mimics it. But, why spend time and money to build the product if you can first check that your product promise resonates with your customers?
Why did people build products before testing their product promise? Simply because there was no other way. Before the days of modern online marketing, the theoretical way to check your product promise involved focus groups. But, as many brands found over time, users didn’t always behave in these groups the way they eventually consumed a product. Plus, the way you asked the questions often impacted the outcome of the focus group.
So, for lack of choice, building the product early (or at least its most important core, the MVP) became the norm, even in the agile startup world. This is no longer true today, especially now that you can test your product promise before you even start building your product.
The product promise is, in fact, the first step of finding your product-market fit and testing its validity should be done before putting any effort into building the product. What you are actually testing is that customers respond well, in a measurable manner, to your product concept. You are using language as your building blocks, telling your product’s story the way you would market it, had it already been built.
For this reason, the description needs to be precise. You will only be tricking yourself if you verify an imprecise product promise. And you mustn’t over-promise either. There’s no point in getting good feedback for features you might only be able to deliver in five years—you are aiming to ensure that the MVP you are about to build is well received.
From product promise to PMF
When it comes to testing your product promise, the need for benchmarking data is critical. Without data, you won’t be able to analyze the campaign results and find out whether your product promise is positively received, or whether it’s had only a lukewarm response. For instance, if you don’t know what click-through rate to expect on your ads for your specific audience, you will not be able to reach meaningful conclusions. Is a 1% click-through on an ad for small business owners in New York great or horrible? And if only 2% then leave their email, what should you make of it?
Luckily, this data, which used to be the most secretive asset of each company, is now a lot easier to come by. And between open sources and marketing experts, it’s much easier today to benchmark your product promise campaign results.
One critical thing to remember is that numbers don’t lie. They can be a bit off due to poor creative (which is why you should try a few different creative options) or a wrongly set up campaign (which is why you set up more than one campaign). And similarly, the conversion to the call to action can be off if the landing page is not great (and you should set up more than one landing page to avoid such mistakes), but, in general, the numbers are always directionally right.
If they show your product promise is very well received, then you are onto a great product and you can start building your MVP. If the numbers are bad, you should continue iterating on your product promise until you get it right. And, if they are just okay, then I strongly recommend iterating until you find a great product promise.
Over the years I have tried this strategy with dozens of companies with growing success, especially as platforms such as Facebook have allowed for better targeting of specific customer segments with incredibly precise messages. What was impossible 10 years ago is incredibly easy to set up today: precisely targeted campaigns for very specific audiences, with amazing tracking abilities, which allow you to easily analyze responses to your product promise campaign.
One of the best examples I can think of came from one of our portfolio companies that decided to pivot some four years ago. The team had three different ideas and before deciding which one to go for, launched three product promise campaigns to the target audience of each idea. All three were in the SMB space so we expected similar conversion numbers for the ads. Two of the ideas yielded a decent 1% click-through rate. The third idea was an amazing 12%. And there was a similar ratio between the different ideas on the call to action on the landing page.
We had two decent ideas. But one amazing one. The company launched an MVP based on the third product promise, got immediate love from the market, and eventually was a very fast exit to the main incumbent in their field. And the potentially upset users? They left their emails and became the company’s initial paying audiences once the product was launched. We saved months and millions of dollars by checking our product promise before actually building the product.
True PMF means real value for users
Remember the ultimate test of product-market fit: what will your users reply when asked, “if this product was to be taken from me, would that be a problem?” If the answer is no, it doesn’t have real product-market fit. The strongest product-market fit comes when users find they cannot live without a product.
When Slack was in its early stages, many companies would try to stop employees from using it, saying it was against corporate security guidelines. Employees were so unwilling to do without the product, however, that companies were forced to find a way to accommodate their demands.
Products with product-market fit should bring real value to users; products that don’t bring value are not sustainable. That value, however, can take many guises—monetary, entertainment, efficiency, etc. A lot of that value can be verified by using marketing to check your product promise, before writing even a single line of code.
The importance of PMF for large corporations
One of the questions I often get asked when talking about product-market fit is, “is this relevant to large companies?” The answer is, clearly, yes. To start with, most successful large corporations today learned that, to succeed, they need to follow the same methodologies followed by startups: fast iterations, rapid cycles, smaller deliveries rather than quarterly software drops, etc.
To stay competitive in today’s fast-moving market you have to be startup-like. You no longer have the luxury of sitting on the sidelines and waiting to see what smaller competitors are doing—consider how Blockbuster waited to see how Netflix would perform, or how Nokia was sure that the iPhone was only a fad. You need to continuously reinvent your company and your products, and that means finding new product-market fits all over again—be it in the roadmap of your core product or in new products you want to launch.
Using the framework in a large company is similar to a startup when building a new product. When working on the next features of versions to existing products, the principle stays the same — you first define your product promise and then test it before writing a single line of code. But, the tactics may differ. You may try the product-promise test using online marketing but with a fake product name, for instance, to ensure that you don’t confuse your customers.
New world, new processes
We live in exciting times where fast, iterative new product launches are not just part of startup life, but also part of the way large companies operate. Achieving PMF is the key to successful launches — and the best way to find it starts with using marketing to test your product promise.
Find a problem, build a solution, market it, is no longer the most viable process. Today, we should all embrace a new reality: find a problem, describe your solution, market your product promise, and build your successful product. We’re entering a brave, faster, and more efficient new world.
Some practical advice
What key metrics would you suggest looking at to determine whether you’ve achieved product-market fit at the stage of checking the product promise?
The key metrics you must monitor are your ad’s click-through rate (CTR) and the conversion of the landing page’s call to action (CTA). These will help you determine (compared with the benchmarks) how users have responded to your product promise. For the actual product-market fit, retention analysis—especially a cohort analysis—is usually the best KPI to determine if you’ve achieved PMF.
What’s the best way for marketers to get involved in the product-building or planning stage?
In the new world where marketing can be used to determine the level of the product promise, marketers have a critical role in helping product people get the right data and analyze it. This is a major change. Marketers are no longer only getting involved after the product is built—they are now a core part of the team determining what should be built.
What are a few key ways big brands can think and act more like startups?
Follow the working practices implemented at startups. Focus on fast iterations, rapid cycles, and smaller deliveries rather than quarterly drops. Also, remember that you need to continuously reinvent your company and your products, and that means finding new product-market fits—whether that’s in the roadmap of existing products or in new products you’re looking to launch.
Gigi Levy-Weiss is an Israeli angel investor and the co-founder of Silicon Valley-based venture capital firm NFX Guild.