Posted on 5/21/2022, 12:39:12 PM
The most important goal for a startup is to achieve product-market fit. Product Market Fit happens when you have a product that customers want. Many startups fail because they run out of cash before finding the moment customers want what they are selling.
Marc Andressen, the co-founder of VC firm Andreessen Horowitz, defined product-market fit as "being in a good market with a product that can satisfy that market."
The goal is to build a product that creates significant customer value and meets customers' needs in a better way than your competitors.
When achieving product-market fit, think about the following:
Who is your target audience? Use market segmentation to define the target customer. What are they like? Start with a high-level hypothesis of your target customer and iterate as you tweak your product.
The narrower the market that you focus on, the better. That allows you to have more targeted messaging and a feature set that is highly tuned to the customers' needs.
For example, Offer Up is a popular mobile shopping app competitor Craigslist. They launched in the Seattle market. They launched Facebook ads to target users in specific zip codes in Seattle. They focused on women and saw great engagement from female shoppers in the Seattle market. They were able to raise significant funding and expand to additional markets nationwide. Now, they are in the top 50 apps in the App store and raised $380 million in funding.
What are your customers' underserved needs? In order to create value, Identify their needs. Address the needs that are not being well met.
What is your value proposition? How will your product meet your customers' needs better than the alternatives? What unique features will delight customers, and how will your product outperform your competitors? Choose which needs to address.
Build an MVP: You will need to build a minimum value product that will allow you to validate your idea. You will also need to obtain feedback from customers to iterate on the MVP until it is viable. Use a screener to ensure market research participants have the attributes of your target customer. Schedule one-on-one meetings with each customer to test. Conduct user tests in waves of 5-8 users. What does the customer do while using the prototype? Ask non-leading open-ended questions to identify patterns of similar feedback and prioritize customer concerns. Refine the prototype and incorporate customer concerns.
User growth is not a product-market fit. Driving engagement and retention should be your goal to achieve product-market fit. You should be able to see material customer growth without spending too much money on marketing because of powerful word of mouth.
For example, Branchout was a professional networking product launched in 2011 on the Facebook platform. It grew to 33 million users and raised 49 million dollars in funding. However, because of low engagement and retention, once Facebook shut off access to its social graph, Branchout's user growth decreased.
When you have a product-market fit, customers return your calls, your sales cycles will be shorter, and the press will contact you to write about your product. Customer engagement and retention will be high.
Product-Market fit might take time. It took Netflix 18 months to find a repeatable, scalable business model that worked. After many failed experiments, Netflix was able to achieve product-market fit.
To achieve product-market fit, focus on engagement and retention. There should be specific metrics that you track that are based on critical user activities. For example, you could track the daily active users on your platform and monthly active users. The DAU/MAU ratio is the frequency of user visits during the month. Over 20% is considered very good. Over 50% is considered exceptional.
Instagram started as a social check-in app called Burbn, but when they saw that its users were primarily interested in sharing photos with their friends, they pivoted to Instagram today. To track retention, track daily cohorts of users and see how many are returning on day 1, day 7, and day 30. Give yourself three months before deciding whether to pivot to a different idea if you do not see good retention.
Achieving product-market fit is a process. To help you with this, book a call with a mentor on MentorDial.com. They will get you up to speed with what product-market fit is and the process that you need to take to achieve it. Our mentors have started and sold companies. They can help you achieve your goals.
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