A significant milestone for any startup company is achieving Product-Market Fit (PMF). But this commonly-used term is often misunderstood. We may have a vague idea of what it is, but do we deeply understand the term? How can we tell when we reach this milestone and how can we work towards it?
“I have not failed. I've just found 10,000 ways that won't work.”
– Thomas Edison, inventor of the light bulb
In this article, we dig further into PMF by way of some examples to help us comprehend this startup milestone. First things first: do not think of PMF as a single, distinct event, nor a checkbox exercise for your company. Rather, entrepreneurs need to perform various experiments with their product and their market in order to get closer to Product-Market Fit.
Remember, it took Edison several attempts before finding the right solution.
The Spark of an Idea
Coming up with an idea for a disruptive new product is a tricky part to the entrepreneurial journey. This is your starting point and an important hurdle to overcome. But your product development journey has just begun, and a smart startup founder will quickly work toward gaining good PMF. With a good product or concept, you may feel like you have found the promised land. Soon you might be expecting big sales and great success. However if you’ve come to this point, you likely created or discovered a potentially novel technology or product but you surely do not know yet if it has a market.
Start Experimenting & Solve Real-World Issues
Just like a good inventor, a good entrepreneur runs a series of experiments until she or he has built a product the market actually wants – or rather demands– eventually finding and maintaining their PMF.
Between 1878 when Edison filed his first patent on the light bulb, to the early 1900s when the General Electric Company commercialized this invention, there was a series of product, market, and commercial experiments leading up to success.
Over several decades the light bulb has evolved in several ways. Today the market accepts something of a standard, with a certain performance and price. If you’ve created a more energy-efficient light, for instance, you need to be running several new experiments to reach a PMF for your new product. Importantly, you should be looking to solve real-world problems. Here’s a deep dive on why the use of technology to solve real problems not only makes sense, but also makes for a sound investment decision.
Tailor Experiments to your Product and the Market
Experiments you run are going to range based on the kinds of problems you’re solving, the type of your product you’re building, and the type of the market you’re aiming for. Note that hardware product experiments differ from software product experiments. In most software projects, you build a Minimum Viable Product (MVP) and release it to test the market. With software, you can release an update later, and fix most bugs post-shipping.
The MVP for hardware-oriented projects looks quite different. If you release a hardware device that somehow injures your user for example, you are in big trouble. One strategy you might adopt is to first do some of these experiments with someone else’s white-labeled hardware in combination with your own software, while staying focused on solving the real market problem.
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IoT products involve hardware, firmware, cloud-hosted services, and multiple other interfaces and customer touch-points that all needs testing and experimentation. Focus on the problem you are solving and what experiments you need to validate your PMF.
Before we delve into what PMF really is, let’s illustrate with some examples of what it is not. This should help you decide for yourself what to focus on are when executing your product and finding the right fit.
An IoT SmartBulb
Suppose you build an IoT SmartBulb, a revolutionary new way to power the connected home experience. You’ve built the prototype, created the iOS and Android apps, launched your product on Kickstarter and raised $2.5M in crowdfunding and seed capital investments. Imagine the press is talking about it, even quoting the co-founders saying, ‘this product is going to disrupt an age-old industry as the next industry NEST’. (NEST is an IoT thermostat that Google acquired for $3.2 Billion in cash, according to Forbes.)
When your new SmartBulb is successfully crowdfunded you surely have PMF, right? No. You may well be onto the next big thing, but raising money via crowdfunding or venture capital does not validate PFM either. Once the product is successfully manufactured, gets shipped to your early backers and most of them say it’s pretty cool, you’re getting closer. When there are less than 1% defects or product returns, you’re getting even closer. The app could be buggy, but you know that’s easily fixable. So this is PMF, isn’t it? Not yet, but you are getting close.
You need to consider that early adopters may not be a true representation of your actual market. Pebble, a wildly successful Kickstarter project comes to mind; the key point here is that a successful launch campaign doesn’t guarantee a successful product or PMF. At this stage, you have a validated product with some proven demand but there are still more experiments ahead.
So maybe the key to PMF is tons of users and big sales numbers. This is a good market validation, but not PMF per se. Another example should make things clearer. Let’s assume months later, you found a good market niche, say in the UK/Germany region, you’ve signed on with distribution partners, and built a stable supply chain. Your top-notch sales team is now selling your product. The sales team was just paid bonuses last quarter and the company is on its way to great success. Congratulations, but you still may not have validated your PMF.
This is a common mistake some startups make in their early-growth stage. They start to be influenced by inflated growth achieved through buying market share, rather than earning it. They use their venture capital money to aggressively push the product or technology into the market and fund growth, rather than have their market pull the right product and pay the right price for it more organically. Potentially skewed experiments normally do not lead to a happy ending. As a startup team, you can learn lessons from others successes and failures. If the IoT startup venture Juicero had conducted better PMF experiments before scaling prematurely, it may even have had a different ending.
Seek to Find and Validate your PMF
A simpler way of going about finding your PMF is to run a series of early experiments that helps you and your team learn the truth about your product and market simultaneously.
You have PMF when you have built a product that creates significant customer value by solving a real market need and does it better than any other alternative in the market.
As described by Dan Olsen, product management expert and author of The Lean Product Playbook, PMF as an end-game for your startup where the market both welcomes and accepts the product as the right fit to its problems. There is no single trick or tip to reaching this point, except running the right experiments. But how do you know when you have actually reached this point?
“You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close. And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account...” – Marc Andreessen
According to Andreessen, “product/market fit means being in a good market with a product that can satisfy that market.” Andreessen summarized this from the works of Andy Rachleff who is known to have originally coined the term.
NBT Resources Help Reach and Maintain PMF
The spirit of experimentation is not only desired but necessary when it comes to finding your PMF. It is equally important not to get discouraged by failure. NBT CEO Harald Zapp suggests, “train your resilience to withstand defeat and failure ‘unscathed’, and not be intimidated by it”.
When solving big problems you will inevitably encounter road bumps. At these times, remember Edison: you have not failed, but rather discovered what does not work. You need to explore yet another route to reach your PMF.
Don’t forget this sequence either: try to reach PMF first and then scale (quickly), and not the other way around. If you’re a startup founder or entrepreneur who is not sure how to apply the concept for your company, we can help. If you’re struggling with projects or ideas and feel that you lack an understanding of market maturity within your product development, especially in blockchain & IoT, check out resources from NBT.
With NBT, you start with a full set of business and technology skills from the first day. Through our deep knowledge and understanding of how to create a startup with a product relevant to the market, your chances of success are higher.
If you’re building the next big thing in IoT or blockchain, our venture development department would love to hear from you. Schedule a call with our senior venture developer Warren using the button below.