Product Collective - Identifying Product-Market Fit

Identifying Product-Market Fit

Most product people are familiar with the term product-market-fit, but many struggle to describe when they reach it. Some follow the same test Justice Potter Stewart used to identify obscenity - “I’ll know it when I see it.” That approach seems… rather subjective. So we’re sharing more concrete ways you can use to know when you’ve reached product-market-fit that isn’t R-rated.

Meanwhile, in product news, Europeans are both regulating and investing in technology, apps aren’t making much money from subscriptions, and SaaS companies are raking the case in from enterprises.

Deep-Dive: Product-market-fit. For product people, achieving product-market fit is a critical milestone. Especially considering how fast-paced and ever-changing the world of tech is, only products that resonate deeply with their target audience will carve out a space for themselves. Mike Belsito takes a deep dive into product-market fit - how you actually achieve it and what happens after you’ve achieved it.

Navigating product-market fit. Startups view product-market-fit (PMF) as their ultimate goal, but it’s equally important for established companies seeking to launch new features or products. Traditionally, startups discover whether they have PMF if they see rapid growth in user adoption or revenue. However, established companies like Intercom that build complex features for sophisticated users need a better way of gauging PMF. So the folks at Intercom devised a new approach to identifying PMF. Rather than releasing a product or feature and seeing how it performs in the wild, they created the “PMF Panel” – a small, representative group of potential customers with specific needs that their product could not meet.

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This Week’s Video

Product-market-fit is dead! When building new products, it's often the aim to achieve the ever-elusive product-market fit. Sometimes, though, there can be major pieces getting in the way of us ever even achieving that. Dave Martin, Founder and Product Leadership Coach at Right to Left explores the challenges facing companies trying to deliver the product strategy and how to overcome them using the Product Value Creation Plan.

This video, and many more just like it, are available on our Member Hub. If you don’t have access to the Member Hub already, you can join the community today for free.

Product-Market Fit of Waze

As my family leaves today for a good ol’ fashioned family road trip for a long weekend to Mammoth Cave, Kentucky – we’ve already got Waze fired up and ready to go. So it’s only fitting that earlier this week, one of the Waze founders wrote about his take on Waze’s “unicorn” journey.

The core of the essay outlines a structured 'startup evolution map', which delineates the critical phases a startup must navigate: finding product-market fit (PMF), fueling growth, and establishing a viable business model, interspersed with essential fundraising rounds. The narrative underscores the inevitability of these phases, likening the journey to that of tech giants like Amazon, Netflix, and Google, which, despite their current dominance, took decades to amass the bulk of their value. This challenges the common misconception that these companies achieved rapid success, highlighting instead the gradual, often painstaking process of refining their offerings and business strategies.

At the heart of the startup odyssey is the quest for PMF, described as a rigorous exploration of creating customer value, followed by growth and revenue generation. The essay stresses that PMF is a fundamental cornerstone that remains consistent over time, serving as the foundation upon which further expansion and monetization strategies are built.

Overall, it’s a great read and gives a glimpse into the sequential approach to growth and monetization for companies like Waze, advocating for a tailored strategy based on the startup's unique value proposition and user engagement patterns. The narrative ultimately conveys a message of perseverance and adaptability, championing the notion that enduring the rollercoaster journey of startup evolution, with its myriad challenges and phases, is key to achieving lasting success and impact.

So off to Kentucky, we go. As Waze will help guide us along the way, I sure hope those of you championing early-stage products find yourself guided to achieving that ever-elusive Product-Market Fit for your product!

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There’s an app for that, as long as you follow these 10,000 rules. Apple is planning to make further changes in EU countries to allow some developers to distribute their iOS apps directly from a website. The new web distribution feature will be available with a software update “later this spring,” according to Apple, providing developers with a key new way to distribute iOS apps in EU markets with no need for a separate app store — as long as they’re willing to adhere to Apple’s strict rules. If you can’t beat them, fund them. Italy plans to set up an investment fund with an initial endowment of 1 billion euros ($1.09 billion) to promote Artificial Intelligence (AI) projects, Prime Minister Giorgia Meloni said on Tuesday. This appears to be an effort by Italy to expand its influence in how AI develops by pairing funding with regulation. How do you make a small fortune with an app? Start with a big fortune. According to a new analysis of the subscription app economy from RevenueCat, the top 5% of apps generate 200 times the revenue of the bottom quartile after their first year, while the median monthly revenue an app generates after 12 months is less than $50 USD. The “State of Subscription Apps” report offers a bird’s-eye view into the subscription app universe, and it ain’t pretty for those hoping to build an app and retire in a year. Those apps must not be selling to the enterprise market. Gartner data shows that software spend is the fastest-expanding segment of IT spending and that its pace of growth has sped up in recent years. If Gartner’s forecasts bear out, the software portion of global IT spending could crest $1 trillion in 2024. That trend could lead to an upswing in venture investments for companies building enterprise SaaS software if you look at particular categories.

Prices increase on April 1st!

The New York Product Conference (a Product Collective/INDUSTRY event) returns to the Times Center in Manhattan on April 18th for a packed day of:

• Keynote talks on product leadership, AI, product positioning, and more.
• Interactive working sessions on AI for PMs and Customer Research.
• Small group discussions, networking, an end-of-day reception, and more!

BONUS: Purchase a Plus Pass or Superpass, and get access to a half-day workshop on April 17th (Influencing Without Authority) and/or access to online training programs.

Vercel’s path to product-market fit. While achieving product-market-fit in any form is cause for celebration, Guillermo Rauch reached its highest level, what the folks at First Round call “extreme product-market-fit.” This means his product has earned profound, widespread customer love and delivers demand through a scalable, profitable go-to-market motion. The folks at First Round took a deep-dive into Rauch’s process for building such beloved developer tools, his fresh approach to monetizing an open-source project, the early PMF signals he detected, and what he would go about differently if he could do it all over again.

Think $1M ARR means you’ve achieved product-market fit? Think again…. A common belief among founders these days is that $1M in ARR is the magical number that equals product-market fit. After evaluating hundreds of companies of signs of product-market fit Kaitlyn Henry has found there is no specific revenue benchmark that definitively signifies product-market fit. Kaitlyn describes why $1M in ARR means very little to her as an investor and describes the frameworks that she uses to assess product-market fit at Series A.

Resources and news curated by Kent J. McDonald.

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