The elements of the Product-Market Fit for your SaaS business

Seven elements you have to nail down to achieve the PMF.

Product/market fit means being in a good market with a product that can satisfy that market. - Andreseen

Every startup has a unique success story, but they always share three things in common: a product, a market, and fit in between. All the rest comes into play as the story unfolds.

Product-market fit (PMF) is the launchpad for success and the number one challenge for all startups. It is a complex concept with no clear definition and approach to it.

But why is it so important? What’s the buzz about it?

Broadly speaking, PMF happens when your company creates a unique product for a big enough market where people are desperate for it. It's when your customers not only buy and actively use the product but also spread the word about it to others. With PMF, everything changes and becomes much easier. It is the basis of your company’s growth and success.

Without PMF, you can forget about scaling. However, I would say forget about your business without it. This blog post is my attempt to understand the basic elements of PMF. I’ve explored various sources and success stories and identified seven key elements that form the foundation of PMF. I'll break them down for you in the sections ahead.

So, what are the ingredients for the PMF? What do you need to achieve it?

Urgent Problem

What problem are you solving? How painful is this problem?

“Things you don't need to launch your product: a great name, a one-word domain, a beautiful logo, an ever better website, brilliant copy, perfect code, custom illustrations, shiny buttons, optimized CSS… Things you do need: a product that solves a problem for someone. That's it.” - Sahil Lavingia, the founder of Gumroad.

A customer “hires” your product to solve their problem. The problem can be anything, from the desire to have fun or kill time to building and growing a business, increasing productivity at work, improving health, etc.

The key to achieving the PMF is to find a “hair on fire” kind of problem that pushes the customer to seek a solution. There are many problems worth solving, and your task is to find one so big that people are willing to pay for its solution and that you can solve it.

However, there is the eternal founder’s dilemma. The problem or the solution: that is the question. Unfortunately, most founders try to build a business on a solution. But the market always wins!

42% of startups fail because they have a solution that no one is interested in because it does not solve a real problem. Or the problem is not big enough for someone to want to pay for it. This is called a solution in search of the problem. Avoid it.

Don't think of solutions; look for problems!

A craving market

Who are you solving the problem for? How many people have this problem?

"Strong brands always work for one person. They know her name, exact age, and school nickname, and they know what songs she sings in the bathroom in the morning"—Yaroslav Serdyuk, Banda Agency.

A craving market is a market in need. It has two components: your ideal customer and the market size, or how many such ideal customers are out there. In other words, these are the customer persona and the total addressable market (TAM).

Your ideal customer is someone already paying money to solve an urgent problem or unsuccessfully trying to solve it on their own. "Desperate customers" are those who pull the product out of your hands and are ready to stand on long waiting lists to get it.

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

Remember, PMF is about finding your ideal customers and understanding how many are available on the market. If you think you have found a PMF after talking to several people who are excited about your product and want to pay for it right now, I will disappoint you. No, this is not a market-fit product; most likely, it is a solution fit.

Although this is a good sign that you are moving in the right direction, those few people, even 100 potential customers, are not the total market. Even if these people represent the total market, can you build a profitable business from it?

The craving market has to be big enough to support a sustainable business.

No matter what you do and what problem you try to solve, remember for whom you are doing this! Find and understand your ideal customer.

A unique insight

What is your unique insight?

“The true sign of intelligence is not knowledge but imagination.” —Albert Einstein.

A unique insight is a vision of the future supported by knowledge and intuition. Such insights usually emerge during major market or technology shifts. Andy Rachleff says, “Without change, there’s seldom opportunity.” For example, Figma has used new technologies, such as WebGL, to create an innovative multilayer UI design platform that designers can use via browser.

You can spot opportunities other incumbents overlook because they seem unattractive or risky. For example, back in the day, big data analytics was somewhat unattractive to mainstream tech companies, so Palantir, with its massive analytical platform, targeted government and financial sectors, which were perceived as complex and risky.

Insights can bend reality to open new, unforeseen opportunities. This is a superpower of successful founders who see ordinary things in “a radically different way”; they can see the extraordinary in the ordinary, find atypical solutions to typical problems, listen carefully to their customers, and, most importantly, catch the vibe of new opportunities.

Insights don't come out of nowhere; they result from hard work, trials, and errors. In most well-known startups, the insight that led them to success came through many failed experiments and sharp business turns.

Success comes from listening carefully and looking closely at what is happening around you and your ability to reshape this reality.

Groundbreaking solution

How do you solve the problem?

The only way to make money is to be right and non-consensus. - Andy Rachleff

A groundbreaking solution is a product that communicates your unique vision by solving a customer problem. However, for the user to pay attention to your product, it must solve the problem in a fundamentally different way and be a no-compromise solution among “good enough” alternatives.

Andy Rachleff emphasizes that adding more features won’t beat the status quo if people already use a good enough solution and are happy with it. Even if not fully satisfied, people often stick with what they know. They're used to their current solution and its quirks and might be hesitant to learn a new product, even if it's cheaper.

People need a compelling reason to switch to and pay for your product. The reason that creates a big difference between a good enough and an ideal product, the reason that becomes a real revelation from which the customer exclaims in ecstasy “Aha, this is it! I love it!”

A groundbreaking solution taps deeply into the problem, its context, and the customer's persona, including attributes like age, gender, occupation, preferences, etc. It doesn’t need to be an innovation; it just needs a fresh look.

Take Duolingo, for example. They solved the problem of expensive language courses by offering a free game-based learning program that made learning a new language accessible and enjoyable for anyone, anywhere.

Value Experience

How do you share the value with the customer?

“You've got to start with the customer experience and work backwards for the technology”. - Steve Jobs

The essence of commercial activity lies in the exchange of value.

Business is an act of value co-creation. Your company receives value in the form of monetary compensation from the user who receives value from using your product. This value is transmitted through experience, in other words, value experience.

Value experience is a part of the offering through which you realize your competitive advantage; the customer experiences the value from it by solving their problem, and your company receives value from the customer.

Under the value experience umbrella, I put two concepts, User and Customer Experience (UX, CX), two main components of your value proposition. It is everything your customer interacts with, from the user interface, onboarding, payments, website, customer support, and even your brand, style, etc.

Modern users are experienced and picky. It's not the 2000s or especially the 90s when online technologies were new and unusual. Now, users have established patterns of evaluating a product by looking at a website, registration flow, or payment process. I'm not even discussing the application interface, performance, and security. Any carelessly placed button can have negative consequences.

But why is experience so important?

There was a time when tech companies competed with hardware technologies and then with unique digital products. But now, when the market is saturated with similar products, the focus has shifted to providing the best experience possible, leaning toward hyper-personalization.

Value experience is how you realize the unique vision and insight into the customer’s problem. Don’t neglect it even in the early stages of your startup. People evaluate your product by how it looks and feels now, not by how you see it in the future.

Once the king of social networks, MySpace lost its dominant position to Facebook largely because of its failure to innovate and improve the user experience. MySpace became cluttered with ads, and its interface was not user-friendly, leading users to migrate to the cleaner, more streamlined Facebook platform.

Viable business model

How do you make money?

"The most powerful sign of product-market fit: A product that makes money while you sleep. You don’t need salespeople or partnerships to sell products that reach this elusive point", - Paul Graham, co-founder of Y Combinator

It is often believed that you have found a product market fit if users sweep your product off the virtual shelves faster than you build up your digital capabilities. Yes, it's definitely a good sign that people are interested in your product, but only if you're charging customers and not just giving away your product for free.

“Start charging on day one,” suggests Ash Maruya. Otherwise, you won’t be able to test your value hypothesis. Your business model shows whether the market is ready to pay for your solution. You should find out how and how much the market has to pay by testing your model, along with the value proposition.

Earning revenue as an early-stage startup is more about proving your product's value than making money. You can’t understand whether your product is valuable if you're not charging.

Only organic sales growth is an important indicator of product market fit. Organic growth is natural growth that does not result from paid marketing or aggressive sales.

Be smart when pricing; it should be aligned with your customers’ needs and budget to secure a profitable and long-lasting future for your business. This refers back to knowing your customer.

Your business model, especially how you price your product, is key to achieving product-market fit. It's how your company will make money to reinvest and grow.

Technology stack

Do you have an appropriate technology to solve the problem?

“My number one predictor of whether or not a company will find product-market fit: High shipping cadence.” - Naval Ravikant, AngelList

Finding an interesting problem, developing an original solution, and defining a business model is actually half the battle. Now, all these need to be implemented. And for this, you need the appropriate technology, or rather technologies, because writing code alone won’t be enough.

The technology stack is your business's foundation. It isn't just about your product's coding language. It includes all the tech that makes your business function. Let's explore some key aspects.

First, you need the right development tools to build a first-class, reliable, scalable product that can be delivered quickly and often with proper quality. The main thing you should consider is the solution's context. Is it a consumer—or business-oriented solution? Do you need a user interface, or is your solution API-based?

Also, it's super important to know how people use your product and how it's performing. Analytics tools like Mixpanel or Amplitude will show what features users love, where they're having trouble, and what keeps them coming back.

Customer feedback is your fuel for achieving PMF. You need tools to gather and analyze feedback, such as SurveyMonkey, UserVoice, or Intercom, to understand what customers think about your product, their satisfaction, and areas for improvement.

“Our success at Amazon is a function of how many experiments we do per year, per month, per week, per day,” says Jeff Bezos. You’ve got the point: experimentation is a cornerstone of finding PMF. Running experiments is a practical way to test your value and product hypothesis.

You must also consider other things, such as user onboarding and engagement tools, cloud infrastructure and services, CRM and marketing tools, security technologies to ensure compliance and data protection, etc. Sure, it might seem complex, but each tool supports your journey toward achieving PMF.

Conclusion

Product-market fit is "the only thing that matters" for the early-stage startup because you can’t build a thriving business on a product no one wants. You achieve the PMF by creating a unique product for a large enough market that desperately needs it.

The seven elements of PMF are an urgent problem, a craving market, a unique insight, a groundbreaking solution, value experience, a viable business model, and an appropriate technology stack.

Everyone ventures on their own unique entrepreneurial journey. With all the above said, you have all the elements necessary for product-market fit. Now, it's your turn to assemble them to complete your business success puzzle.

Thanks for reading Exponential Growth

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