Product/market fit, also known as product-market fit, is the degree to which a product satisfies a strong market demand. Product/market fit has been identified as a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).

History

According to

Benchmark Capital Benchmark is a venture capital firm based in San Francisco that provides seed money to startups. History The firm's most successful investment was a 1997 investment of $6.7 million in eBay for 22.1% of the company. In 2011, it invested $12 mill ...

co-founder

Andy Rachleff Andy Rachleff is a co-founder and Executive Chairman of Wealthfront. He had previously been the executive chairman of the company after stepping down as the CEO, but then returned to the CEO role on October 31, 2016. Rachleff co-founded Benchmark ...

Sequoia Capital Sequoia Capital is an American venture capital firm. The firm is headquartered in Menlo Park, California, and specializes in seed stage, early stage, and growth stage investments in private companies across technology sectors. , Sequoia's total a ...

founder

Don Valentine Donald Thomas Valentine (June 26, 1932 – October 25, 2019) was an American venture capitalist who concentrated mainly on technology companies in the United States. He had been referred to as the "grandfather of Silicon Valley venture capital" ...

developed the thinking behind product-market fit, but it was Andy who first put a name to it. Venture capitalist

Marc Andreessen Marc Lowell Andreessen ( ; born July 9, 1971) is an American entrepreneur, investor, and software engineer. He is the co-author of Mosaic, the first widely used web browser; co-founder of Netscape; and co-founder and general partner of Silicon ...

Andreessen Horowitz Andreessen Horowitz (also called a16z, legal name AH Capital Management, LLC) is a private American venture capital firm, founded in 2009 by Marc Andreessen and Ben Horowitz. The company is headquartered in Menlo Park, California. Andreessen ...

would later popularize the term in the mid-2000's. Andreesen credits Rachleff for the concept, referring to the idea as Rachleff's Corollary of Startup Success: "The only thing that matters is getting to product/market fit."

defined the term as follows: “Product/market fit means being in a good market with a product that can satisfy that market.” Many people interpret product/market fit as creating a so called ''

minimum viable product A minimum viable product (MVP) is a version of a product with just enough features to be usable by early customers who can then provide feedback for future product development. A focus on releasing an MVP means that developers potentially avoid ...

'' that addresses and solves a problem or need that exists.

Steve Blank Steve Blank (born 1953) is an American entrepreneur, educator, author and speaker based in Pescadero, California. Blank created the customer development method that launched the lean startup movement, a methodology that recognized that startups ...

referred to the concept of product/market fit as a step in between customer validation (step #2 in his book ''The Four Steps to the Epiphany'') and customer creation (step #3). Blank, Steve and Dorf, Bob (2012). ''The Startup Owner's Manual,'' K&S Ranch (publishers), Blank, Steve (May 2013)
Why the Lean Start-Up Changes Everything
in ''

Harvard Business Review ''Harvard Business Review'' (''HBR'') is a general management magazine published by Harvard Business Publishing, a wholly owned subsidiary of Harvard University. ''HBR'' is published six times a year and is headquartered in Brighton, Massach ...

Interpretations

Product/market fit might be interpreted in terms of

Alexander Osterwalder Alexander Osterwalder (born 1974) is a Swiss business theorist,Arent van 't Spijker (2014). ''The New Oil: Using Innovative Business Models to turn Data Into Profit.'' p. 70 author, speaker, consultant, and entrepreneur, known for his work on busin ...

Business Model Canvas The Business Model Canvas is a strategic management template used for developing new business models and documenting existing ones. It offers a visual chart with elements describing a firm's or product's value proposition, infrastructure, custome ...

paradigm as comprising

value proposition In marketing, a company’s value proposition is the full mix of benefits or economic value which it promises to deliver to the current and future customers (i.e., a market segment) who will buy their products and/or services. It is part of a co ...

customer segment In marketing, market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as ''segments'') based on some type of shared characte ...

, relationship, and

channel Channel, channels, channeling, etc., may refer to: Geography * Channel (geography), in physical geography, a landform consisting of the outline (banks) of the path of a narrow body of water. Australia * Channel Country, region of outback Austral ...

. Achieving Product/market fit implies these are set without requiring additional changes or pivots.

Popular metrics

The 40% rule

One metric for product/market fit is if at least 40% percent of surveyed customers indicate that they would be "very disappointed" if they no longer have access to a particular product or service. Alternatively, it could be measured by having at least 40% of surveyed customers considering the product or service as "must have". Sean Ellis is noted for popularizing this

heuristic A heuristic (; ), or heuristic technique, is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is nevertheless sufficient for reaching an immediate, ...

after examining many startups. Rahul Vohra of Superhuman has developed a survey-based model based on the 40% Rule to help post-launch startups test and optimize for this metric.

Analytics metrics

There are five metrics any online business can measure to empirically verify if they achieved product/market fit. They are 1. Bounce Rate, 2. Time on Site, 3. Pages per Visit, 4. Returning Visitors, 5. Customer Lifetime Value. Low bounce rates means a visitor's expectation is being met. High Time on Site and Pages per Visit indicate that the experience of the user is satisfactory. High Returning Visitor reflects the lasting impact a product has on their customers, causing them to come back, and Customer Lifetime Value measures the profitability each customer brings to the company. If these 5 metrics are above average and your 40% rule is met, you'll know you have a product/market fit company.

Common mistakes

It is important to differentiate between product/market fit and problem/solution fit when measuring a company's customer base. More specifically, when gauging a customer's desire, companies need to be sure they are measuring desire for the product or service—not just for a solution. Misinterpreting customers' desire for a solution as desire for a company's product or service will end up being a

false positive A false positive is an error in binary classification in which a test result incorrectly indicates the presence of a condition (such as a disease when the disease is not present), while a false negative is the opposite error, where the test result ...

for product/market fit. Product/market fit is not binary. For a fledgling startup, a ''minimum'' degree of product/market fit will not be adequate in order to achieve market traction and success. Rather, what is actually required is a high degree of product/market fit, or ''extreme'' product/market fit.

References

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