date: 'Saturday, August 24 2024' title: 'Understanding Product-Market Fit and Using the Framework' description: "Learn about product-market fit an why it's a necessity for any business." image: 'indie-hacking-pros_opipco' author: 'Brian T. Sullivan' editor: 'Lindsey Woldt'

category: 'learn'

Understanding Product-Market Fit and Using the Framework

Written by Brian T. Sullivan • Edited by Lindsey Woldt

What Is Product-Market Fit?

Product-Market Fit is one of those terms that are pretty self-explanatory: It is when a product fits into a market. Of course, that's just moving the words around and hoping that you can connect the dots. Another way to put it is that product-market fit refers to a situation where you have created a product that provides a solution or service to enough customers in a market that it is able to be profitable. Achieving this involves numerous factors that we can delve into here.

Product-Market Fit Framework

Product-market fit (PMF) is especially important for start-ups, though it can also be a factor for established companies when looking to enter into a new business sector or maintain their share in their current market. Without evidence of PMF, venture capitalists will be reluctant to invest in your start-up. After all, they want your start-up to be profitable, like you do. PMF can be a good indicator of profitability.

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Do You Need Product-Market Fit?

Being really cool won't matter a whole lot if your product doesn't meet the needs of a market. Sure, a certain market might need "something really cool," but you'll need to determine if that is actually the case. It's good to figure that out before you dump a lot of time, money, and effort into making your product. To help design products with PMF in mind, Dan Olsen created the popular Product-Market Fit Pyramid:

As with most pyramid diagrams, the items toward the bottom are fundamental needs that must be met before higher-up items are addressed. In this case, it is important that you first identify your target customer(s), and then determine what needs your target market has that are being underserved in the current market. With this information, you can start working on your product!

Of course, there is also a hierarchy to consider when making your product. This means that, even though the user experience (UX) is crucial to long-term user satisfaction, it won't matter how nice your interface is if your product doesn't do anything. That's why you start with the value proposition; where you propose a product or tool that is of value to your target customers. Then, you can flesh that out by defining the feature set and designing the UX.

What's My Market?

It's all good to say that your product should meet the needs of a certain market, but how do you do that? How do you find a market that needs your product? Sequoia Capital proposes three archetypes to consider in the Arc Product-Market Fit Framework, which considers how customers relate to problems:

1. Hair on Fire

Some customers have clear and very immediate needs. Such a market can be a great opportunity to offer a product that addresses those needs. The only thing is that many other people may be working to create the same solutions. As a result, this adds pressure as you are then required to make a product that stands out above your competitors. It can't just be marginally cheaper or a little nicer to use. Customers need to view your product as a gold standard against which no other options can compete.

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2. Hard Fact

This is something that nobody likes but everybody just accepts it as a "hard fact of life," as Sequoia Capital puts it. In this instance, you would reveal that this is not a fact of life, but rather a problem that your product nicely solves. This can mean your product is revolutionary, but you'll have to contend with the possibility of nobody caring. After all, your potential customers will be used to the way things are. It can be hard to break away from the familiar to use something new, even if it's better.

3. Future Vision

These are the types of products that people point to decades later and say are "visionary." On the surface, such products can seem like solutions looking for problems. As a result, you have to do a lot more to make customers desperate to buy your product. This usually means convincing them that you have created something that will improve their lives immensely in some way, without making it sound like snake oil. While the other archetypes can be more heavily supported by actively meeting needs, this one also relies a great deal on public perception of your product.

Product-Market Fit Considerations

The archetypes of the Arc Product-Market Fit Framework can provide some things to consider, but there can also be other factors too.

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Price and Features

Price can be a major influence, as can certain practical features that some might consider "irrelevant." A classic example of this would be the Video Tape Format Wars of the 1970s and '80s, where VHS won out over Beta, despite the belief that Beta offered higher-quality video. In this case, the market was less concerned with the video quality than with the cost of the players (VCRs for VHS tapes were cheaper than those for Beta) and the capacity of the tapes (VHS tapes could record longer).

User Experience

A more recent example could be the mobile-first paradigm for designing websites and digital services. This means identifying that your customer base will tend to access your product from their smartphones and thus designing the interface to work seamlessly in that environment. Conversely, your product may be more sophisticated and thereby be expected to have the more complex interface accepted on desktop computers, appealing to customers who are not interested in a mobile experience.

Product-Market Fit Concept

Product-Market Fit is a vital metric to determine your product's viability. If you are making a product to be profitable (as is usually the case), it is extremely important that it meets the underserved needs of your target customers. In the process of meeting customer needs, your product must also be perceived as a good product (usually for an acceptable price), so that your customers will expand your market through positive word-of-mouth. Eventually, if your product does fit well in its market, you will find consistent profitability and growth.

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