Product-market fit - Back to the basics

What is Product-Market Fit?

Product/market fit, also known as product-market fit, is the degree to which a product satisfies strong market demand.

That's the definition of Product-Market Fit as per Wikipedia.

Why is Product-Market Fit so important?

When starting any new venture, the idea and the vision alone are not enough. 

As a matter of fact, 90% of startups in the world fail. Out of these failures, 70% happen during years 2 to 5 of a business. Those numbers are huge, and the bad news is that these failure rates seem to be fairly similar across industries.

As an entrepreneur or startup founder do you really want to fail 9 times out of ten? Do you want to build 10 startups to only succeed with 1? That is assuming you're learning from every previous failure as you might very much as well start and try a100 times but still fail every single time. 

If you're looking for success when pursuing your ideas then Product Market Fit is something you need to understand and want to keep a close eye on.

Why is that you say? That's because the number 1 reason for failure in the startup world is not having Product-Market Fit or having a weak Product-Market Fit.

But my family and friends told me my idea was great!

Wrong! You do not rely on your family or friends to validate your business or idea.

The first reason why you should not rely on your family or friends for idea validation:

Your family and friends may very well tell you your idea is great only out of politeness. They may tell you it's great only out of fear of seeing you deceived. They may tell you your idea is great as a way to encourage you as they can probably see how passionate you are about the idea.

In an alternative scenario they may tell you your idea is bad and you need to forget about it and according to them, you're just being crazy or ridicule. They may even bring up to you that 90% of startups fail, so of course for them, why would it be you the one to succeed? 

Their discouragement could be some sort of jealousy or not wanting you to succeed. Hopefully, it's because they really worry about your failure. What kind of friends would you have otherwise?

The second reason why you shouldn't rely on family and friends for idea validation:

They may be the wrong people to listen to for business advice. It may be they lack the analytical skills or they don't have the right entrepreneurial mindset.

What's most important though is whether they're part of your target audience or not!

For example, say you have an idea for some app for men to book barbers online and have a haircut at home. Not saying your wife's opinion is not needed! But don't rely on her opinion if she's not the one who's going to end up being your customer and paying you. A £100 haircut at home might seem great to her, but does it feel the same to the lad down the building paying a tenner at his local barber?

That's why it's so important to understand Product Market Fit 

Let's go back to the basics of Product-Market Fit:

Product Market Fit is not just about "can we sell the product" or "can we get people to use it".

Product Market Fit is also not just about whether your product is good or not.

Product Market Fit is about:

• Having a product that is needed or wanted
• Being in front of the right audience
• Meeting the audience with the right message
• Offering the product for the right price

Examples explaining Product-Market Fit:

A good example I can think of at the moment is inspired by my living in Poland.

Have you ever had or heard of how good Lebanese food is? It's delicious!

Why is there not a single Lebanese restaurant in the area where I currently live?

Isn't Lebanese food delicious? Lebanese restaurants are everywhere in cities like London and Paris.

Great business idea for me then, shouldn't I open one in my part of Poland? Well no.

From my observations here, people have their own taste and own food that they're used to eating; they don't like trying new things. Based on that, a Lebanese restaurant would probably not find Product-Market Fit in a city like Klodzko.

How about a Lebanese restaurant in the more diverse and bigger city of Wroclaw? Yeah, that's better. Actually unsurprisingly that's probably why one can find Lebanese restaurants in Wroclaw.

To find Product-Market Fit, we need to align:

• Product
• Demand
• Audience
• Message
• Price

And because a picture is worth a thousand words, here's an easy example that can help to grasp the concept even more.

A Bentley is a really nice car! It's a great car!

But would you expect the hard-working guy below to buy it? Probably not. That doesn't mean the guy doesn't need a car, but just not a Bentley being at the very wrong price for him.

How about those young city workers? Probably not, if they're used to biking everywhere in their busy city. Let's also assume they also have an active and healthy lifestyle and want to keep it that way. 

How about the gentleman below? Let's assume he's wealthy, already owns a Bentleys and wouldn't mind another one. But mate, the guy's in hospital and you're just catching him at the wrong moment. Whatever's your message here it probably just wouldn't align.

A more concrete example of Product-Market Fit:

FreeUp, a freelancers marketplace, is a company that's been going for years (6 years by the time of this writing). They've even been acquired in 2019.

I believe they have Product-Market Fit.

The demand is there. Freelancers need clients and work, and companies need freelancers' help.

The pricing (15% cut from freelancers) is accepted by freelancers. It's pretty much aligned to industry standards anyway.

I have personally used them as a freelancer. I don't think they have a good product. I actually think their product is crap (sorry FreeUp).

Despite having a crap product, their messaging is great! They know how to speak to the needs of their users. They make it very easy to understand why you may need them and why you better choose them over their competitors.

How do you know you found Product Market Fit?

Ending it here with Oussama Ammar's answer to the question. In one of his interviews, Oussama Ammar is asked: "how do you know you found Product Market Fit?".

Oussama answers with humour and says something along the lines of:

When you find Product-Market Fit, you'll just know you found Product-Market Fit.

According to him, a strong Product Market Fit is when your customers are easily coming to you. When you're not having a hard time selling them your product, and you can't even cater for all their demand.

An example I can give and that's again inspired by food: a kebab shop on a Saturday night in London.

No matter how crap this shop's kebab is, you know it'll have long queues after young people get out of the clubs. At some point will come the turn of some lad or some gal, and they'll hear the owner shouting "no more kebab. Finish for today".

What a perfect way of ending the topic. It's 11:35pm here and I must admit, one good shawarma would come in handy right now.

Hope this was helpful and cleared up any basic questions you may have had about Product-Market Fit.

Please let me know your thoughts in the comments.

And as always, until next time!

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