How Product-Market Fit Really Works (Part 2)
The journey to product-market fit might seem random, but it actually has a well defined high-level structure. In order to successfully navigate it, you need to understand how it works. Here is part two of the guide that will help you find your way to product-market fit.
When I first started my consulting business, I attended a sales coaching workshop. It was a funny story actually, I saw a post where the lecturer said that she had decided to give two spots for free for those who will share why they need it most. I said that I had just started a business, and then the lecturer recognized me since our kids were together in daycare and actually quite friendly with each other. I totally missed that! Can you imagine how embarrassed I felt? But I have put that aside, accepted her kind offer to join for free, took a brand new notebook, and set out to learn.
She started the workshop by sharing her own personal story. She was a salesperson for a small business that just started scaling. Everyone told her that she should learn from failures, but she decided she is going to learn from what works. If you think about it, it makes perfect sense: if something works, let’s understand what in it made it work, and do it again to repeat the successful outcome.
This is an important principle in the product-market fit journey. You want to listen carefully to those signals from the market that tell you that you are onto something, understand what it is, and do it again hoping to achieve similar or even better results.
Last week we talked about the first steps in this direction. You need to have a product in the market so that you can start getting signals, and then you need to pay attention to what works. More specifically, the customer profiles that work best. Then, you can start crafting your ideal customer profile (ICP) — a detailed description of who is best suited to get the most value out of your product. There are two things you want to do with that profile before you continue: the first is to validate and test it for a while. See if you can identify more such customers within the ones in your pipeline and if your assumptions about them being most suitable for the product continue to provide positive signals. The second thing you want to do before you continue is to understand if this profile represents a large enough market to build your business on. In other words, are there many more like them that you can sell to, assuming your product is most suitable for them? The desired number, of course, depends on the goals of your business (and doesn’t have to be super accurate, we need a ballpark estimation). But if it’s too niche you are going to have a hard time building a scalable company, which will make it harder for you to raise money along the way.
Today we will talk about what to do once you have identified your ideal customer profile and the remaining three stages of the product-market fit operating system.
Stage 3: Succeed With a Few Customers Representing Your ICP
Now that you have a good idea of who your ideal customer is, it’s time to make sure your product is extremely valuable to them and is worth paying for. The way to do it is to work closely with a few such customers (those who represent your ideal customer profile) and develop the product as well as the value proposition together with them.
Your goal here is to make those customers happy, as well as convert them into paying customers who ideally would recommend your product to others (that’s a great signal that they are truly happy with it, aside from the additional value of having a reference customer or some product virality).
This is a long stage of the ongoing development of the product as well as refinement of the value proposition and the ICP definition itself. You will be learning with your customers what works best for them, what they really need in order to get the most value out of your product and to be willing to pay for it the amount that works for you and for them, long term. Sometimes you will learn that there is an additional characteristic of some of them that make them work better than others, and you should add that to your ICP definition. Many times along the way you will learn that the value you thought they needed isn’t what they really need and that even if it is your product doesn’t truly deliver it the right way.
Other than crystalizing your assumptions and strategy, this stage is about results. You cannot move forward without having at least some evidence that what you do actually works. And the best evidence is happy, paying customers.
How many is a few? Depending on your market and business model (B2B works differently than B2C in terms of numbers), but you should get to a point where you feel that you know what works and you can repeat it. You will most likely start to test these repeatable constructs within this stage, and then when you feel you know enough your focus will shift to that entirely, which means you are in stage 4 ahead.
Stage 4: Make It a System That Works Consistently
So you started identifying what works. You have results — it really does work! Now it’s time to make it a repeatable, consistent process. Start by writing down a simple playbook that explains what a customer needs to go through in order to become a happy, paying customer. It should follow the customer journey from start to finish. Explain how they hear about you, what they expect, why they would give it a try, and what happens as they try it that makes them both happy and ready to pay. What needs to happen to then fully convert them?
You need to address their entire journey end to end, and maintain two points of view at the same time: the first is theirs — tell the journey from their point of view and see if it makes sense. For example, I heard from my friend about this great new product that does X. Honestly, I have been thinking about X for a while, but I’m not sure I’m ready for it (still trying to solve it on my own). I don’t know, I will sleep on it and see if I want to try it. At this point, they will most likely forget about you and your product, and that brings me to the other point of view that you need to maintain throughout this journey: the playbook itself. What do you need to do (or what do you need to ensure that they experience) to make them convert to the next stage of their journey? For example, since most potential customers would forget about the product at the stage listed above, you need to send them constant reminders of why the problem is important and it’s not worth dealing with it on their own. Since they are not yet your customers and you might not have their details yet, a remarketing campaign to those who have visited your website could be a good idea.
That’s just one example though. You want to have it listed at that level of detail for the entire journey. Once you have it written, it’s time to start implementing it. It could be by letting people address the sales process more systematically (if you are selling with traditional B2B salespeople, the desired outcome is that a new salesperson would know how to sell the product just by following the playbook — that’s how you know it works). It could also be by automating some of the touchpoints through marketing and product efforts.
Whichever is right for you, at this stage you want to have a system that proved to be working consistently: that is you send it leads of the certain profile that you have defined, the system (with or without people, but with a clear and well defined process) converts them eventually into happy, paying customers.
Stage 5: Bring More Like Them (AKA Scale)
Once that system is in place, it’s time to feed it with more and more relevant leads to convert. Assuming you have enough such leads to feed into the system (and you should, since when you selected your ideal customer profile you made sure it represents a large enough market), that’s where your scaling starts, and generally you can say that you have product-market fit.
Scaling here might bring its own challenges (if you have more demand than you can address that’s actually a good signal!) and require further automation or optimization on the playbook you defined in the previous stage. It could also require you to technically scale the product to support the increasing demand and ongoing usage.
On top of that, another way to scale is to expand to a slightly different customer segment or a slightly different problem to solve for your existing segment. You will most likely meet these along the way, and once you have nailed it for your first ICP it’s perfectly fine to move on to support another one. Note that that’s a whole new product-market fit journey, since you are either changing the market segment (the ICP) that your product was best suited for, or you are changing the problem that you product aims to solve for your existing ICP, which means changing the product. That’s the way to scale and expand, just make sure you don’t kill your already existing product-market fit in the process.
Now I invite you to look at the five stages of the product-market fit journey and identify your current stage in it. Where are you? Do you have a clear ICP? Do you know how to convert them? Do you know how to do that repeatedly and consistently?
Use these five stages as your guiding map, whenever you need to plan and prioritize your work. Don’t forget to also communicate that to your stakeholders, so that expectations are aligned all the way through.
Finding product-market fit takes time and success isn’t guaranteed. But understanding what the journey looks like should help you navigate smartly along the way. Good luck!
My free e-book “ Speed-Up the Journey to Product-Market Fit” — an executive’s guide to strategic product management is waiting for you at www.ganotnoa.com/ebook
Originally published at https://ganotnoa.com on August 3, 2022.
