Business Analysis · Business Strategy

How do I know that I've found a Product-Market Fit?

Jakub Zajíček Looking for tech co-founder (We can move anywhere)

Last updated on February 10th, 2019

Hello everyone! Recently, we finished our app MVP (still pre-launch) and we chose a quite small target market (out of many possibilities) we want to "attack" first.


My question is – How do I know that THIS market is the right one? – Is it because I'll see organic growth? Or is it because of the actual app usage per one user? If so, how should I choose what's considered to be a "good enough"?


In other words – How do I know that I've found a Product-Market Fit?


Right now, we just want to test the waters, since the product we're building is quite unusual and original. → That means that we cannot properly compare it to the different apps in the market.


Thank you for your answers. :)

Parvez Husein Co-founder and CTO @ Portable Office Company. Exited.

February 12th, 2019

really difficult to answer that question... but if you want something based in fact... then you have to look at the numbers.

if you have product market fit you should see evidence of

1) LTV (lifetime value) at least 3x greater than CAC (acquistion cost). the best companies have a LTV:CAC ratio of 7-8x or greater. this may be difficult to assess if you haven't got out to market.

2) CAC is recovered in under 12 months. you should actually be aiming to recover your CAC in 6 months or less.


The second metric is a better one to understand if you've got product/market fit and then scaling from there. Calculating both those metrics will force you into identifying other metrics first, like churn rates etc... which will give you greater confidence into whether you've found it or not.


Hope that helps... and good luck...

Pavel Demeshchik Co-founder & CEO at datarockets. I know how to build successful IT products & companies

February 11th, 2019

Hi Jakub,


It's hard to speak of a product market fit until you don't test your business model in some way. You see, having a business model in place you can define your conversion goal and set up some real metrics.


I'd not recommend you to rely on such metrics as app usage per user or overall number of users / sessions. Eric Ries in his book The Lean Startup defines them as "vanity metrics". I've seen many times when businesses had thousands of users/sessions a month, but zero conversion rate and revenue. Even if a user spends a bunch of time in your app, how do you know they'd pay for that?


You know that you have achieved a product-market fit when your idea becomes a steady business. In my understanding, you have a steady business when your profitability is more than 30%. That is a long road, but you need at least assume your business model in order to set up actionable metrics that can give you a basic idea about your profitability.

Kanwal Fatima Entreprenuer & Startup Consultant

February 11th, 2019

To know your product is good for market, you'll first need to test it to see whether customers will adopt it and they are willing to pay for it? User feedback will be very valuable for you at this stage when you have MVP.


I would recommend Product hunt. Its a very good tool to get early customer and their feedback. You can get a feel about your product, the perception of users about the product what they will like or dislike in terms of features, functionalities.

Nischal [ Nic ] Hathi Founder - Director : Startups Mantra Private Limited OPC

February 12th, 2019

Hey Jakub, First of all congrats for your new venture. Yup, its a very tricky task to determine the exact Product -Market Fit , although what i suggest is that just don't try to "attack" one particular market at a time. Spread your reach across more than one market. Diversify, if possible.

Another thing is talk to your end users before , during & after you launch your MVP. Communicate with them to know their needs upfront, even before you choose a market. Maybe you may have to make some alterations in your MVP before you launch it. As your Product is quite unusual & original , it may be possible that your end users may not altogether understand it's benefit initially as you and your team does .

As Kanwal Fatima rightly mentioned, User Feedback is essential here. I too am on the same page as she thinks about this.

What may be "good enough" for you may never be so for the End user. Am being a Devil's Advocate here indeed, but this is what we experience in reality. So it's not that you may end up in choosing the market for your product , but the market will choose your product down the line. So go all guns blazing and have a MVP launch . I am sure your MVP would be a wonder indeed . Best wishes to you and your team .

Abhinav Rege CEO and Co-Founder socialdonut.co, financeforesight.com

February 11th, 2019

You'll early adopters will let you know, No one knows for sure until they roll out the product and start taking feedback

robert chiu experiences and dedication

February 11th, 2019

Since your APP voice story is targeting ins users, why do not you find a big influencer(related to the voicestory) and do a shoutout. You will get an idea from how people react and comment.

Jakub Zajíček Looking for tech co-founder (We can move anywhere)

February 13th, 2019

Hello everyone, thank you so much for your answers! I really appreciate the effort you put into. Most of you are talking about money and revenue in terms of product-market-fit.


But isn't more important the actual usage with this type of tool? We don't have any monetization features implemented in MVP. First, we want to see if people will actually want to use it. Then we'll start monetizing.


Pavel Demeshchik: Great answer, thank you. Yes, I know The Lean Startup book. In fact, I read it a multiple times. I think one of the key metrics we'll focus on will be the MAU + "Story Time" - meaning: "How many seconds of stories each user makes per month". What do you think about that?


Parvez Husein: Thanks for the very analytical approach - I like that! Is there a way to measure CAC if we'll be using viral marketing as our main growth engine? All the stories will be watermarked "Made with Voicestory", so more people will use our app, more people will install it.


Our target is 4 - 5% conversion rate from free to paying user.


Abhinav Rege: Thanks for your answer! Yes, our go-to market strategy to get early adopters are Product Hunt and Instagram influencers (already have some lined up). Then we should be able to get A LOT of relevant feedback. :)


Kanwal Fatima: Great tips, thank you. First we need to see if the product is viable. Then we'll start implementing the paid features.


Robert Chiu: Yes, exactly. That's the exact thing we are going to do! Btw, can't wait to talk to you today! :)


Nischal [ Nic ] Hathi: Thank you very much for your thorough answer and for being a Devil's advocate here, Nic! It's quite interesting what you're saying about not focusing on one specific market.


That's actually completely different than what majority of entrepreneurs or VCs are saying. So you think that we should go WIDE instead of NARROW, let the market decide and THEN focus on the niche what reacts the best?


Please, correct me if I'm wrong here!


--


Guys, again, thank you all so much for answers and the time you put into them. I really appreciate it and looking forward to the further discussion. :)

Tom Kearney Building Profit, Inc., Pres.

February 17th, 2019

Jakub. Why couldn’t you identify ALL possible target markets, and then setup a separate committee for each ... for input, feedback, surveys, ideas and other discussions. Each committee/team should be made up of industry professionals or associations that each market represents. Find top individuals per each target market that want to be part of developing their own needs (relating to your app). In other words, beta test per each potential market. Keep discussions separated from other groups so not to limit/stifle ideas, at scale. See what each group comes up with … without trying to sway their feedback. Watch, listen and learn (limit your talking & selling).

pat riemitis Senior product and market strategist, marketer and entrepreneur in Business, consumer and education.

February 19th, 2019

Interestingly, I don't see any mention of what problem you are trying to solve for the target customer. A career spent in product management taught me this lesson very quickly. Before you can begin to specify the MVP feature set, you must first know what value is being provided to the target customer. How is the product helping them do their job better, save them time or money, etc? Testing the MVP with potential customers is the process for evaluating whether you have met their needs, not trying to convince them to buy something they may not see any reason to buy.

Asdrubal Romero Director at The Founder Institute

February 20th, 2019

You have made 2 questions. I will answer BOTH.


The simplest way (quickest and somewhat superficial but valid)it to measure the PUSH - PULL marketing effort. Is the market PULLING your service with little or no effort form your side? That is good enough. If the PULLING if making you to devote more time on systems to scale, improvements, etc. then that is the final sing you have reached a Product-Market fit, which also possibly is a local maximum niche, yo do not need to pivot.


You asked also "is this the RIGHT market"? It depends on your criteria of what is right. Depends on what you want: Profit, exposure, beta-testers (are not necessarily those who would buy at the end), early-adopters. etc.


On your very early stage, it seems you have the rigth sweet-spot. But you have to ask yourself: Are the characteristics (demographic and profiles) or these people very similar to the ones will buy/use at the end as of a profitable businees?