Learn / Guides / SaaS startup guide
Chapter 3: how to find product-market fit
You can think of product-market fit as sailing, where your product is the sail and demand is the wind.
For the boat to work, you have to build a sail and find the wind to power it—so in less nautical terms, for your company to succeed you need to build a product whose value proposition satisfies the needs of a market and its potential customers.
What is product market fit?
Product market fit, often referred to as ‘product/market’ or ‘product-market’ fit, happens when you have successfully identified your target customer and are serving them with the right product. After achieving product market fit, the next step is to scale by finding more customers within your target market through research (user feedback and interviews).
Measuring and understanding product/market fit
In principle, you can measure product/market fit with surveys that identify what percentage of your users think your new product is a ‘must-have’. But more often than not, product/market fit is less about hypothetical numbers and percentages, and more about an in-depth and tangible understanding of who your customers are, and how they feel about you and your product. Is it creating organic growth, where people spread the word on their own? Are people willing to pay for your product? If they are, you have product/market fit. The road to product/market fit is often driven by finding customers via word-of-mouth, before you build a marketing engine to scale user acquisition.
As a startup or early-stage company, your product/service will probably satisfy a small segment of the market (hopefully a good market!). As you grow, so will your understanding of the problem you are solving; and with this understanding, your customer profile might evolve. As we wrote in the previous chapter about product positioning: establishing a relationship with your customers and talking to them (over and over again) is crucial if you want to develop this understanding in the first place.
Own the relationship with your customers
One-on-one interviews with your users and customers help you identify problems, generate ideas, improve your product, and build relationships. It also forms the basis for your initial thinking around customer segmentation. But reaching out to them directly can be difficult and even feel weird at the beginning:
"You have to become comfortable with being uncomfortable. I was scared of randomly ringing people up or asking for an introduction. You might need to be cheeky, and pushy, and not afraid to ask, and that was a real hurdle I had to overcome as well in the early stages, having that confidence when no one knows who you are. But honestly, when you ask, 9 times out of 10 people are really flattered that you want to ask them and that you value their opinion. So, I think the advice is just to go for it and get stuck in."
User and customer interviews can take place over the phone, over a Hangout chat, or in person; depending on what you want to discover/investigate, you will need to prepare a template of specific questions, but you should also feel free to improvise and elaborate as the conversation continues. In general, you’ll need questions about:
your customer’s background - who they are, where they work, what does a typical work day look like for them;
what your customer is trying to do - what pain points they experience, what they are doing to solve it, what solutions they have tried
how your product might help - how they heard about it, how they are using it, whether or not they found ways of using it with other tools
Mike Fishbein’s ultimate list of customer development questions is a very good resource if you need to start building a list of customised questions. You can use a mix of multiple choice and open-ended questions.
Another way to collect data is through your internal team members, especially customer staff. If you are a small team, you need to be the support yourself; when you grow, if you can, keep customer support staff in-house: it is the only front line you have where people can come in and talk to you, and this can drive your understanding of what your target market and customers need.
You should also set up a system for your product team to report and store customer needs and problems. If/when you receive feature requests and complaints about product functionality or website usability, use them as a signal that there’s something for you to learn about demand, and begin a conversation. Talking about how and why your product is working (...or not) will help you work out useful solutions, which may or may not mirror the requests or changes your customers had suggested in the first place. As you work towards product/market fit, you will eventually use this knowledge to inform your marketing strategy.
Warning to startups: not all feedback is created equal
The context for customer feedback is always crucial. A piece of feedback that does not look relevant today might be good six months down the line if you switch focus to different markets or business goals. For example, if your next quarterly goal is to reduce churn (the percentage of subscribers who cancel their recurring revenue subscription), you can then specifically look for feedback submitted by churned users.
Usage frequency affects the value of someone’s feedback: feedback from customers who rarely use your SaaS can be weighted differently from those use it daily. The type of user—free vs. lead vs. paying—also affects their feedback value to your business. When you are looking at a piece of feedback or a feature request, you must know who it comes from: is it someone who has spent money trying to solve a problem, or put a lot of time into it? Is it someone who would hire/choose you to do the job for them? If you have a mix of users, record their feedback separately, as free user requests might skew your commercial priorities.
Product/market-fit is a two-way street
If you are an early-stage startup in need of cash, you might be tempted to say “yes” and build new features to get more paying customers, but that’s not necessarily a good idea. To build a sustainable company, short-term revenue is not the business metric you should be targeting and measuring yourself against. As a general rule, know that you can’t please everyone, so you should not try to.
In practical terms, this means: don’t act upon feedback such as “I like/don’t like this” or “I want/don’t want that”. Don’t launch into developing a feature just because somebody asked you to. Don’t blindly accept customers who are a bad fit.
"You want to have customers who pay you because they value what you’re doing; anything else is going to lead you away from where you want to go. Product market fit works in both directions: don’t just accept anybody that comes your way, learn to say "No” to prospective customers who don’t fit your vision and values."
As you grow your startup, you will get a lot of feature requests from your customers. Before you get ahead of yourself and flesh out a go-to-market strategy, verify if they fit into your roadmap in the first place. Then prioritize based on impact (how many people it will affect) and effort (how long it will take for you to deliver).
If the requests don’t align with your vision and plans, be honest and upfront about it: having a public roadmap you can share is a good first step (here is ours), and you’ll be surprised how much respect a sentence like “We really appreciate your feedback, but we will probably never build this / it’s not what we had in mind for this feature” will get you.
Similarly, if or when the time comes for you to make radical changes to your business model, be transparent: you should never force major changes upon your existing customers without informing them first. There are companies like Basecamp who, having outgrown their market and wanting to go after a new one, built three different versions of their product so customers could move if they wanted to, not because they had to. You won’t have to follow their example and maintain all your past products, but transparency in communicating your future roadmap and changes ahead will always be key.
Use one-on-one interviews to get to know your customers.
Get in touch with your customer support team and find out what customers are complaining about or struggling with.
If you are a small team, be the support yourself.
Welcome feedback, but always weigh it based on customer value: keep an eye on where it comes from.
Do not try to please everyone: be honest and open about your product roadmap.
Roadmap Poison: Voting for Features, Receptive Blog
How Does a Small Company Make Its First B2B Sale?, Alan O’Rourke
Video & Audio
How Groove Built a Better Mousetrap in Helpdesk Software, Alex Turnbull
XAwards: Product-Market Fit Panel, Hannah Chaplin and Ryan Singer