Product-Market Fit Decoded: What is it and what do you need to achieve it?

In this article I've explored the origins of the Product-Market Fit, defined what it is, and what elements it consists of.

May 14, 2024

In the era of rapid digital product development, some products took off rapidly, while others disappeared without a trace. The most successful ones turned into unicorns with billions of capitalization and millions of users. But how did they get there?

New times and challenges require new approaches to managing the company's success. What worked for technology companies in the 80s or 90s was no longer relevant in the 2000s. Companies have moved from business plans as a way to predict business outcomes to evolutionary product development based on analysis and experimentation. This is how the Lean Startup movement was born.

Having accumulated experience mainly on the failures of technological products created without understanding the market's needs, it became clear that the old approaches didn’t work. Marketing and aggressive sales didn’t bring the expected results, and the presence of significant resources does not guarantee success. That's when a new concept was born, which is now the most wanted for every startup and to which investors pay attention in the first place: the product-market fit.

Product-market fit (PMF) is the most desired yet mysterious moment in startup life. It’s considered a number one priority for founders and product managers during the early stages of start-up development.

PMF is the key to taking your business to the next level. Once you've nailed it, you know your company is on the right track and can scale up.

We debate a lot about what PMF is and even more about how to achieve it.

In this article, I aim to clarify the origin and meaning of the concept of Product-market fit.

Let’s dive in…

What is the only thing that matters for your company?

A team, a product, or a market?

The answer will define the most critical factor in a start-up’s success or failure.

Marc Andreessen's fundamental article about PMF, The Only Thing That Matters, clearly answers this question: the market.

Why market?

In a great market—a market with lots of real potential customers—the market pulls product out of the startup. - Marc Andreessen

In a great market, the product is pulled out of your hands; people are “fighting” to have your product; they are talking about it everywhere. This is the product-market fit, according to Marc Andreessen.

He argues that the first viable product that arrives will fulfill the market need, regardless of the team's competency, as long as the product works. When the market is great, you can easily improve the team.

However, even with a top-notch product and the “killer team,” if the market isn't there, your startup won't succeed. You might spend years seeking customers that don’t exist, demoralizing your team, which will eventually quit. Your startup will finally fail this way.

Marc Andreessen credits Andy Rachleff with the Law of Start-up Success.

The #1 company-killer is lack of market.

Based on this premise, Andreessen was the first to define the Product-Market Fit:

The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.

Things feel off when you haven't hit product-market fit. Customers aren't too excited, word of mouth isn’t spreading, and sales take time if you have them at all.

But when you achieve PMF, you'll feel it. Customers can't get enough of your product, your company's growth speeds up, and the media gets interested.

Andreessen splits the startup’s journey into two phases: before product/market fit (BPMF) and after product/market fit (APMF).

In the BPMF phase, your number one job is to achieve PMF. This may involve making big changes like swapping team members, modifying your product, or switching markets, but it all aims for your startup's most important goal: Product-market fit.

Once you've hit your PMF, you'll realize that startup success isn't about having a perfect strategy, marketing plan, sales model, workflows, and operation. It's about finding that sweet spot where your product meets the market needs. You can screw up everything else.

Andreessen warns that many startups fail before finding their PMF, but you're on the path to success once you do.

What do you uniquely offer that people desperately want?

Andreessen wasn’t the first to coin PMF. Andy Rachleff, cofounder of Benchmark Capital and Wealthfront, explains that he first learned this term from Don Valentine, the founder of Sequoia Capital.

Don used to say, “I’m looking to invest in companies that can screw everything up and still succeed because the customer pulls the product out of their hands.”

Startups are bound to make mistakes, but if the market demand is strong enough, they'll succeed no matter what.

Andy Rachleff picked this idea and was the first to name it as Product-Market Fit. He defines it as "a unique product offering that people desperately want."

Andy Rachleff highlights three essential ingredients critical to achieving PMF:

a unique insight;
a radically different vision;
a desperate customer.

The first ingredient is a “unique insight.” It often emerges from significant changes within the market or technology that create new opportunities.

Successful entrepreneurs have a unique insight that allows them to identify unmet needs, which leads to creating products that people desperately want. This insight could point out a market need overlooked by existing players, possibly because it targets a segment they find unattractive.

Rachleff emphasizes that a founder’s strong vision and leadership skills alone are not enough for success; it's a unique insight that truly differentiates a company.

“I think entrepreneurs succeed because they have a unique and powerful insight that leads to a product that people desperately want.” — Andy Rachleff

A “radically different vision” is a new idea that grabs customer interest and significantly differs from existing solutions. This is particularly true if this idea is not commonly discussed within their networks and communities. Typically, customers are satisfied with"good enough" alternatives, so incremental improvements on existing products are less likely to attract attention.

“If you're just going to add incremental improvements to your product, it's unlikely people are interested, because there's a good enough alternative they already use,” says Andy.

A "desperate customer" must feel a compelling urgency or a "hair on fire" problem to adopt a new product, especially from a startup. This desperation comes from frustration with current offerings or the lack of viable alternatives.

According to Andy Rachleff, PMF occurs when a product is born from a unique insight with a radically different vision that addresses a desperate need customers urgently want to solve.

What is your business model?

Steve Blank defines product-market fit as a crucial milestone in the customer development model where a startup discovers a repeatable and scalable business model that meets the needs of its customers.

Product-martket fit is a “match between product features and the ability to solve customer problems and needs” - Steve Blank

This concept is a core of the lean startup methodology. To find the perfect PMF, you need to understand your customers' needs and continuously adapt the product based on their feedback.

Blank's approach encourages you to rigorously test hypotheses about your business model and customer segments and iterate the product development until you find a fit between what you’re offering and what the market really wants. If you don’t see it, take your experience and pivot to explore other business opportunities.

In their book The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company, Blank and Dorf define PMF as a combination of three factors:

Answering to a problem or need that is urgent or vital to lots of customers;
Solving the problem or filling the need at a price customers will gladly pay for;
Having enough customers “out there” to deliver a sizable business opportunity.

Like Andressen and Rachleff, Steve Blank points out that you must find and address an urgent problem with a valuable solution for a big enough market to achieve PMF.

However, Blank also highlights the importance of value perception. It's not enough to build a product that meets customers' needs. You must do so at a price that feels right to the customer, balancing cost with the product's perceived benefits. Proper pricing is vital to attracting and retaining customers and securing the product's market position.

Desirability, Feasibility, Viability

A group of university researchers suggest another interesting approach to product-market fit. In their model, a product must meet three overlapping criteria to achieve PMF:

Desirability: What do people want?
Feasibility: What is technically possible to develop?
Viability: What is a sustainable business model?

To achieve PMF, you have to understand what people want (desirability), devise a sustainable business model (viability), and confirm that your ideas are technically doable (feasibility).

Feasibility is another important aspect that has yet to be encountered. No matter how great your idea is, you have to be able to realize it.

Often, you’ve got a great idea that solves a real problem in the real market can't be implemented with existing technology because the solution is way ahead of its time. Such ideas are rather risky moonshots that are difficult to build a business upon. But that doesn’t mean you have to give; you must be careful and reasonable.

In this article, I examined various approaches to product-market fit, all of which share a common element: the market. The market shapes your product, team, technology, business model, and the company's success.

Simply put, Product-market fit is a unique product offering that people desperately want.

It is the moment when a product gains traction in the market.

Achieving PMF is not a one-time event, and it doesn't guarantee permanent success.

Like everything in life and business, it is a process of trial and error, conclusions, and actions.

The Exponential Growth

Discussion about this post