Product + Market Fit = Cha-Ching

Posted on Posted in App Business 101

The objective of product/market fit is to maximize your business’s ability to gain customers and generate revenue. The worth of your business isn’t strictly the value of its product, or even a multiple of its profit (more about that in another post).  But it sure helps when thousands of people want to pay tons of money for what you are offering them, and this is why product/market fit is so important to the worth of your business.

How do we identify a good product/market fit?

Product Market Fit Blast Off Apps

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Example: Mobile phone services display an excellent example of a good product/market fit, considering that many households in the United States are willing to pay upwards of $200 or more per month ($2400/yr — the price of a car lease or a small mortgage) for cellular service.

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First, pick a large enough community of people who will pay you “enough” to solve a problem or perform a service for them. In the mobile phone service case above, it might be all individuals in the United States that have an annual income of, say, $15,000 or more. This can be expressed as the Total Addressable Market for the entire group of buyers that you consider to be in a position to purchase a solution such as yours. It should be possible to calculate the size of your Total Addressable Market in both units and in dollars.

Second, we look for an essential job to be done in the Total Addressable Market, or a pain that has to be relieved.

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Example: Sending documents to business associates is a great example of a need that has emerged in a digital work world. That is why spreadsheets sent through email, or more recently, docs posted on Dropbox or Google docs have great product/market fit. They have a high degree of utility, and the need is ubiquitous.

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Third, make sure the person who makes the purchasing decision is the one you consider your customer (and this is not necessarily the end user). It can be easy to mistake a user for a customer, if your user is the one who has a need for your product, but someone else has to pay for it. Find the person who typically makes the decision to pay.

Next, identify the customer’s problems or barriers to getting the job done or relieving the pain. What other options does your customer have? If you can offer the best option at a perceived lower cost than comparable solutions, you may have a great product/market fit.

How can we predict whether we’ll have good product/market fit for a product that hasn’t been introduced yet?

We get out of the building and ask prospective customers open ended questions about the value of performing a service or resolving a pain, and we look for adjacent pains that may be worth more to solve than even the one we had in mind when we started. We want to identify the problems that are worth the most to solve. Then we take the most valuable solution concept out to the market in interviews, on web sites, in presentations and in minimum viable product forms. We test and refine the value proposition for our particular product until we can confirm that at least 40% of prospective customers would have severe displeasure (and their lives would be significantly impacted) if the product was never introduced or it was taken away from them. When you hit that 40% magic number in your research, then start coding because you have identified a solution with a good potential product/market fit.

Can you improve the product/market fit for your app, in a quantifiable way? Check in with us to find out.