“Product-Market Fit” is a term that is often thrown around and I have been guilty of saying it myself. However, often the term framing gives rise to the wrong understanding and later used inappropriately while talking about ideas. It is argued that the correct way of talking about the concept is to use the term – “Market Product Fit”. So, should we call it the other way around?
Market-Product Fit is a better term. This argument is not new, however, there aren’t many supporting artifacts for it. I will try proving it with the help of First Principles Thinking – deconstructing the term, arriving at the fundamental truth, and then building the term on top of it.
Origin of Product-Market Fit
The term Product-Market Fit was coined by Andy Rachleff, however, it was Marc Andreessen who made it popular in his highly insightful essay – The Only Thing That Matters. He writes,
Product/market fit means being in a good market with a product that can satisfy that market.
Breaking down his definition, we have 3 constructs:
Now, let us break down these terms to arrive at the fundamental truths.
A Good Market
The market in the product world is similar to the market in the real world, with an important distinction. We have a level playing field with the internet.
What is the market for the product?
A market is a group of customers with a common need or related needs.
These customers should also have purchasing power or something to trade for solving their needs.
And these customers might be using the solution for their need, or looking out for one, or don’t even know that solution exists.
For example, a group of teens who want to communicate secretively with their close friends – they would be deleting the messages or using alternative apps than WhatsApp for their need, however, they would want a better solution. Or small size businesses who want to market their offerings without spending a bomb on ads. Or users who wanted an amazing mobile experience, that they didn’t explicitly realize until iPhone came.
A market, on the other hand, has sellers or product organizations, offering their solutions for customer needs. Sellers differentiate their offerings by features, which define the value of the products.
What is a good market for a product?
For a good market that is talked about in the original Product-Market fit definition:
- It should be substantial
- It should be growing
- It shouldn’t be a mature market
The first point is no brainier. The initial market should be large enough to make it worth invested time and money. We can argue that the product can start in a very small market at first and then move to a larger adjacent market, given the core need is the same. However, each market has its special demand for which the product needs transformation, and unless the product is successful in one market, can we surely say that it will be a success in the adjacent market?
Next, a growing market is good for the business. If it isn’t growing, then there will be an inevitable fight between the competitors to capture the market share. Definitely, not a good place to be.
For example, laptops and milk packets are products in the stagnant market. Market share is mostly dictated by price. Gaming laptops and skim/low-fat milk are growing segments, however, still limited by the stagnant parent market. Whereas tablets and new dairy products represent new markets altogether, giving better opportunities for new ideas.
Lastly, the market should not be mature, as customers become satisfied and habitual with the current products. Also, with time, existing products fortify their positions. Therefore, emerging and new markets represent better opportunities. For example, soaps, online survey tools are products of a mature market, difficult to replace them from customers’ minds. Whereas, shower gels and customer experience feedback tools are concepts of the new markets, giving products a better chance to succeed.
The next in our classical definition is the Product, which gets built from the user story or the job-to-be-done or pain point.
A product is a solution to customer needs.
The product has features to solve different derived needs. And, when these features are grouped, it translates into a product value, which is the proposition to the customers. Product also has characteristics to make it efficient like easy to learn and use. These characteristics also add to product value.
The product can be built in different ways, with different flavors, with different capabilities, which differentiates one solution offering from another.
For example: WhatsApp, Telegram and Signal are 3 competitive products in today’s mobile messaging market. WhatsApp is built for reliability and ease of use; Privacy and security are the forte of Signal; And, Telegram offers numerous capabilities and features.
There are numerous mobile messaging products that I deliberately did not use in the above example. Because they did not have the most important part of the product-market definition – Market Satisfaction.
This is where the magic happens.
We now know that a product solves customer needs and a market means customers with common needs.
Therefore, if the product satisfies the needs of the market, then we have a match called the product-market fit.
Pretty easy right? Wrong.
There is a subtle and important difference.
Market has to be satisfied with the product rather than product solving the need of the market.
If the market is not satisfied i.e. customer needs are not met, then the product is of no use. No matter how well the product was built with an exceptional idea, it will get discarded. And, thus no fit.
Therefore, the term should be “Market-Product Fit” and not “Product-Market Fit”. It is a market that comes first, which has customer needs and the product should be built to solve these needs.
Here are some examples for market satisfaction with bare and well-built products.
Twitter 1st version – bare-bones yet good traction:
Microsoft Zune – Well built but a flop product:
Pinboard – Simple, effective and successful
Google Neighbourly – Customers had need, but the market was not satisfied
From the above examples, it is evident that customers determine whether their underserved needs are satisfied or not. And they will always compare the fit with the existing solutions in the market. So, it is not just sufficient to have a fit, but necessary to be better than the competition in solving the underserved needs.
Often products are talked from the viewpoint of ideas. A good idea is sometimes believed to be the base of a good product that can succeed in a market. And, thus the term “Product-Market Fit” gets misused. The term incorrectly signifies that the product is built from the idea and it has to find it’s fit in the market. However, it is the market that always decides.
If the market has customers with the underserved needs, then the product which satisfies these needs will find its fit. Market will specify whether it is satisfied or not by adopting or discarding the product.
Since the market holds such great importance that it is much better calling the concept – “Market-Product fit”.
So don’t get a wrong understanding with the term Product-Market fit. It’s actually the other way around. Without the market, a product won’t be able to sustain. It is the market that is responsible for the product growth, or its success. You can have the best product in the world, but if there is no market for it, what value does it provide then?
Before we understand each one of them in detail, it struck me that –
- The statement lacks customer needs but emphasizes on market satisfaction.
- It also does not talk about segment or audience.
Both of these thoughts can be easily refuted –
- Market satisfaction is satisfying customer needs
- A segment in itself is a market.
- And, the definition is coming from Investors, whose language is different from product managers or founders.
However, both Andy Rachleff or Marc Andreessen were being prudent when they say Market and not Customer. A product, which satisfies customer needs, is not guaranteed to be a successful one. How easy life would be if that was the case?
Customer is at the center of a product, but it is the market that defines its success.
To support the above statement, we can look at the numerous empirical examples from both sides: Highly useful products fail to leave their mark, and barely working products go viral.