Finding Product-Market Fit: Does Your Idea Fill a Gap? #scottsthoughts

Welcome to Success Story, the most useful podcast in the world. I'm your host, Scott E. Clary. The Success Story podcast is part of the HubSpot podcast network, as well as the Blue Wire podcast network. Now, the HubSpot podcast network has incredible shows like the Martek podcast hosted by Benjamin Shapiro. The Martek podcast is all about maximum value in 30 minutes or less. The Martek podcast shares stories from world class marketers who use technology to generate growth and achieve business and career success all in your lunch break. If you like any of these topics, you're going to love the Martek podcast. Some of the topics are zeroing in on the ideal product price point, identifying loyalty plays for smart marketers, finding the line between sales and marketing and SaaS, extending the lifetime value of your customer. If these are topics that are interesting to you, go check out the Martek podcast hosted by Ben Shapiro, wherever you get your podcasts. What's going on, Scott D. Clary here. Today, I'm going to be talking about product market fit, what it is, what it isn't, how to find it, how to measure it, how to use it to grow your business. There's going to be three people that are generally listening to this video. There's going to be people that know what product market fit is and they're trying to find it and they're struggling desperately. I really hope I can help you. Don't worry. This is what this video is all about. There's going to be people that know what product market fit is and feel like they don't have to worry about it right now. You're wrong. I can tell you point blank full stop. You're wrong. You're going to spend time, energy, money, spinning your wheels and then you'll eventually have to figure it out. Then there's going to be a group of people that don't know what product market fit is and also don't worry. I got you. I'm going to explain why it's important. If you're building a business or if you're launching a product, it doesn't even have to be a startup situation. You're going to want to know what PMF is or product market fit. To save yourself from hearing product market fit a thousand times in the next 10 minutes, I'm going to say PMF every time. PMF. First, let's define what product market fit is and what it isn't. Obviously, if you're starting a business coming up with an idea is not that hard. It's usually executing against that idea. What PMF is, what product market fit is is that when you have a service or a software or a hardware or some product that you're selling that's going to be the product for your business, you need to make sure there's actually a market for it. You need to make sure that when you launch your business and you decide to become an entrepreneur, you're actually solving someone's problem. Now, the actual definition of product market fit, how do you gauge when you hit that threshold of, okay, now I have product market fit? Well, the answer is going to differ, differ depending on who you ask. If you ask a venture capitalist that's invested money into your business, that person is going to have a pretty high threshold for product market fit, meaning that they're going to say you have product market fit when you have so much demand that you can't keep up when your servers are maxed out all the time because you have too many users on boarding. When you have so much money coming into your bank account that you can't figure out how to spend it all. That's how a venture capitalist or an angel investor is going to talk about product market fit. That's BS. That's not what we're here to discuss today. What I'm trying to help you out with is if you're an entrepreneur, you're starting a company. How do you figure out if your idea is valid? I need you to get past the point of you just spinning your wheels. That's my definition of product market fit when you sold to your first 50 to 100 customers. When you've identified a viable need in the marketplace and there is an audience or a customer base that is receptive to the thing that you're selling in the way that you're selling it, okay? So after you sell to those first 50 or 100 customers, you will probably have an idea of who's buying your product, why they're buying it, and then you can use that to hopefully scale out your operation and your business. And you can craft a strategy sort of reverse engineer those first 50 customers. Also, if you don't believe me yet why product market fit is so important and why the research to come up with an idea of whether or not there's PMF for your product is so important. Let's break down some numbers. So I pulled some data points. In 2019, failure rate of a startup or a small business was 90%. That's a depressing stat for any entrepreneur. But you have to realize there are key differences between those that fail and those that succeed. In 30, for instance, 38% of failed startups go downhill due to lack of funding, which is the most common reason for failure. After funding, the next most prevalent reason is the lack of market need. And then that's at 35% and then lastly, being outdone by competition is at 20%. So 38% due to lack of funding, 35% due to lack of market need, 20% due to being outdone by competition. All three of these factors are due to you not doing enough research before you launch your product. If there's a lack of funding and doesn't matter how you're getting funded, it could be investors or it could be through your customer purchases, a lack of funding that means that there's some gap where you're trying to sell a product and even nobody's buying it, customers or nobody's buying it, investors. If there's a lack of market need, it truly means that the disconnect between what you're selling and what the market needs. And lastly, being outdone by competition, that means you'd not properly evaluate your market ahead of time, meaning there could be a red ocean, meaning that there's too many competitors that have similar price points, products, value props, USPs, and you're not differentiating yourself enough by whatever you've launched into that market. Also a reason why you should do research ahead of time through research is what yields a proper view or understanding of product market fit. So 55% of businesses failed because there was lack of an insufficient market research ahead of time before they launched their product. So how can you avoid this mistake? Quite simply, you need to understand how to read the market and assess whether there is a need for your product. Obviously, this is easier said than done. Now, I want to sort of do a caveat here and just do a sidebar. I'm going to give you the formula to figure out if there's PMF. I'm going to give you the formula to figure out how to gauge and measure PMF, and then I'm going to give you the formula how to build feedback loops. Before I do that, I want to speak about MVP, so many acronyms. I know I'm sorry, MVP minimum viable product. So even if you do find PMF and you do your research, I still want you to think about MVP when you're launching the product. Obviously, this movie in this video is not about MVP and minimum viable product, but I have to throw it in because it's important because if somebody's watching this video, they have to know about that too. So what is minimum viable product? Minimum viable product. Well, okay, so let's bring it back. So if you're ever launching a company, I want you to always think about this line. Think big, but start small. So I want you to have this grandiose vision for whatever it is you're trying to create, but I want you to aim small and not in the sense of you should lower your confidence levels or you don't think whatever it is that your creating is going to be good. I want you to leave room for your concept to develop. It's okay if your idea turns into something different than the initial pitch deck, leaving room for growth in your product is how you launch a minimum viable product and then you can launch your MVP in scale. The concept MVP comes from the lean startup model. It's a popular model in the entrepreneurial startup space. Basically, what it means is you're launching the most bare bones version of your product. This is called the minimum viable product, the minimum thing that you need to do to get feedback to communicate with your customers. That's the MVP. You launch this MVP in order to collect feedback, re-evaluate your idea if necessary. Basically, just get a finger on the pulse of the market without spending a lot of money. Even if you do your homework and you do research for PMF and you figure out there is a viable market that you want to launch your product or service into, you still have to launch an MVP so that you don't blow through money. Let me give you a story in an example of how a company did this right. There's a company buffer. Buffer is a social media scheduling analytics app. You can go to buffer.com, I think. Then you can go purchase it. It's a monthly subscription. You can sign up. You use this app to schedule your posts out. You can get analytics to see what time of day is best to post or which posts get the most engagement. It's like a social media management tool. When buffer launched, they didn't code a single line of code before they launched. What they did is they threw up a website and they threw up a call to action, a CTA that brought people to a form. That form was basically like a pre-registration waiting list form. It's allowed people to answer some questions and collect emails so that the buffer team could know everything from if somebody was actually going to use their app, how much they would pay for it, what features they wanted, a little bit of information about that person's individual characteristics, maybe job title, where they found out about buffer. They got some data points. They collected emails and they validated their idea because they told people what they were doing on the website in the form and people left feedback. They left their information. Then the buffer team said, hey, we have a couple thousand signatures. Let's go build this app because we know that we have at least a couple thousand customers where some people just launch an app with zero feedback, zero customers and then they're surprised when nobody actually signs up. If you build it, they don't always come. This was a great example of an MVP. The MVP for buffer was a website with a form. That's it. If you're having trouble thinking of an MVP for your product or service, remember MVP applies to everything. It could be a grass cutting service. It could be a coaching or consulting service. It could be a software. It could be a hardware. It could be CPG. It could be direct to consumer dropshipping. I don't give a shit. MVP applies to everything. You want to measure whether or not there's a need for your product or service. You can follow the buffer model with literally any business that you want to launch. You put up a website and you put up a form. You see if people care and you run some, maybe if you don't have enough traffic and you don't get enough feedback, maybe you go run some ads to that lining page and see if people actually convert into registered wait list people. If they leave their email address, that's a good sign and of course that's who you're going to sell to when you actually take your product to market when you actually spend the time and the money and the energy building the thing. So that is MVP at its core. Find a way to MVP your product. I don't care what it is. Find a way to MVP your product. Even if you do the PMF research, you're going to have to do this so that you don't screw yourself and end up with a $300,000 $500,000 developer bill or a warehouse full of inventory and you haven't validated or tested your idea. Please just test your idea. You don't have to quit your job to test your idea. You don't have to go to venture capitalists or go to bank to test your idea. You just have to be a little bit patient and test. That's it. So now that you understand the importance of MVP, now we're going to talk more about PMF, which is what this video is actually supposed to be about, but I just wanted to stress how important MVP actually is and how to do it properly. Of course, we're talking about MVP, but obviously it feels like we missed a step because we still have to do our research, right? Before you present a pitch deck or you lean launch a product, even if it's just the landing page, you have to have a rough idea of whether or not your idea is viable. So what determines if your idea is viable and you may say, isn't any idea viable with enough funding and brain power? Wrong. You're incorrect. No. Even if somebody takes an idea to market and it seems like there wasn't a category, there actually behind me is a book called Play Bigger and that book is all about category creation. It doesn't mean that there wasn't a need. It just means that there was an untapped need that wasn't defined to a category yet. You still have to find that category and then you have to find a way to actually solve a problem in that category. So not every idea is viable with enough funding and brain power. The marketplace of ideas and products doesn't shift to accommodate a new concept. It needs to happen the other way around. Entrepreneurs need to find space for their idea and make sure that there is already demand for what they want to sell in the way that they want to sell it. So if you want to figure out PMF, these are the questions you have to ask yourself before you launch a product. To whom is your idea so important that after opening your website once, they'll open your website a second time. How does that person's life change as a result of your product or concept? Are you replacing something? Are you consolidating something? Are you saving someone time? Are you saving someone's stress and what are you doing for your target customer? By asking each of these questions to yourself or to your peer, your friend or your family, with regard to your concept and your product, you'll essentially be enacting the way that a potential investor or a potential customer will respond when they first see your product. By the way, an investor and a customer are not so different in how they view your product. This will tell you everything you need to know about the viability of your product. Let's walk through an example. So say you're starting a social media platform. The features that you decided to launch were instant messaging, photo sharing, and face filters. So let's go through some of these questions. Are you replacing something? No. There are already several social media apps with these exact features that take up most of the marketplace. Are you consolidating something? No. These three features have already been consolidated in almost every other popular social media app. And who would find your idea important enough to invest in it with time or money? And likely no one, because people have already settled on a social media platform that they actually like. And since yours is not offer any groundbreaking new features, they're unlikely to switch. So you have to understand that just by walking through this exercise, you're going to press your tester idea and there's a good chance you're going to start to understand the idea is not so novel or it's just a dumb idea. So these are the questions you have to ask yourself and you have to ask the people that could potentially be using your product or service. But at the bare minimum, even if you have no one else to ask, you have to be asking yourself these questions. But now after you've sort of identified that there maybe potentially is product market fit, you've been asking yourself these questions, how do you measure product market fit? Because we need to know that after we've established it, what's the actual KPIs to sort of reinforce our thought process and our logic? So this is a great tool to use. It's put together by Josh Porter of Rocket Insights. He has listed out three success indicators to properly identify product market fit. One, users recognize the value of your product. Two, users share their experiences with others. And three, new users try the product and when they try the product, the value that they're promised is reinforced. So Porter says in an article about this that through this process, your customers become salespeople. They start to evangelize your product in order to get to this point, however, you need to assess your product's value prior to making it available for public use. You have to do the exercise with the questions we just spoke about. Now that's where you measure product market fit with those three points after you've measured it. Now how do you build a feedback loop that constantly reinforces? So the feedback loop that I found that I liked the best was similar to the buffer model that I spoke about before. It's from origin scale, court, founder, Baskar, Ahuja, he lists the following steps to measure product market fit and to create a feedback loop. So first, you're actually writing this out. It's a combination of questions plus feedback. So list your target market. That's step number one. Step number two, identify their needs. Step number three, create a survey for your target market. Step number four, create a prototype based on your feedback. Step number five, track customer metrics and improve and iterate. So to break these down even further, step one, when you're listing your target market right down exactly who has a use for your product, how old are they? Where do they live? What is the rough size of the population? How many people have a use for your product? What is the location of your target demographic? Number two, identify their needs. Does your target audience lack the product or service you want to provide? Are you filling a need or solving a problem for these people? Number three, create a survey for your target market. This gives you a simple method of gaining feedback without actually launching your product. Alternatively, you could be running surveys and feedback loops throughout the entire life cycle of your company and your organization and your product, which you should be. Seek responses from your target demographic and see first-hand whether there is a need for your concept. Number four, create a prototype based on your feedback, then make improvements as more feedback comes in. You should continuously test each prototype within your target market and make changes as the need arises. And then lastly, number five, track customer metrics. So you should know all your metrics, everything from your acquisition costs, your conversion rates, to your lifetime values, to your average order value. It doesn't matter what the metric is. You should know your metrics. So for example, if you have a high customer turnover rate, you can be fairly confident that an aspect of your product needs to be fine-tuned. So if you have the questions before you launch, you have the KPIs or the success indicators or the metrics that you have to measure against. And then you have constant feedback loop built into the blood, the lifeblood of your company. That's when you will be successful. That's when you will achieve ongoing product market fit. Product market fit is not just a one and done. It's an ongoing thought process. It's an ongoing way to basically make sure that you are best serving the audience that you're trying to serve. Remember, 80% of companies do not achieve product market fit. This is not the 90% that failed before. So even if 90% of companies are successful, 80% of that last 10%, so 90% of companies are unsuccessful. That means 10% are obviously. And in that 10%, 80% of that 10% do not actually achieve product market fit. So don't look at companies that are surviving and say, oh, they're successful. They must have achieved product market fit. They have probably just survived by pure hustle, to be honest. There's a lot of companies that have lasted for a very long time that have grown significantly without properly understanding product market fit. Some of them have grown quite big. So what I want, and that's not really a commentary on, oh, PMF is BS and you don't really have to worry about it. It's more about how, how did you actually get there? How easy was it? How, how much did it feel like work versus did it feel like keeping up? Because if it feels like work, if it feels like every deal is you have to close that deal to keep the lights on, to pay the payroll, that's not a fun way of doing business. However, if you find true PMF, you will notice that you'll see it in that hockey stick where you'll have like like linear, linear, linear growth, then like you'll find PMF and there'll be exponential. Well, what if you find PMF from day one? What if you don't have to go through that tumultuous grinding it out phase before you go and get that exponential growth? So my point is, most companies, even in the ones that do succeed, quote unquote, do not find PMF. So put the effort in, put the, put the work in before you launch and figure out PMF so that you can't have an easier ride when you finally do go all in on whatever it is that you want to launch. At the end of the day, I would not work with an entrepreneur or suggest that you work with a company whose founder or CEO has not done the effort to figure out if they have proper PMF and hold them accountable to that when you're trying to figure out where to work and hold yourself accountable to that when you're launching something. It's essential that your concept fills a gap, solves a problem or introduces something to a market that has been completely untouched, but there is still the man there. Remember, just conduct thorough research, go through your questions, go through your success indicators, go through your feedback loop, always be asking yourself, how does my product solve a problem? Always be asking for help to work through this process. The more candid your peer group is when you start your business the better, meaning that as you go through these questions, as you go through your success indicators, as you go through your feedback loop, you can be asking, you can be involving peers, you can be involving customers, you can be involving anybody that won't just tell you what you want to hear. Go look up the book Radical Candor, Kim Scott, that's something you should inherit in your life, and if you have people that are radically candid with you when you're building your business, that's only going to be a benefit. So find people that aren't going to sugarcoat things when you start to ask them questions about whether or not you're actually bringing something that will solve a problem that will make someone's life different to market. Anyways, I hope you enjoyed some tips on PMF on product market fit. Please do your homework before you launch something just so you eliminate all the headache and all the gray hairs and all the wasted money and energy and time and effort. If you love this video, please, please, please hit the subscribe button, hit that like, smash that like button. If you smash that like button, leave a comment below any business startup, entrepreneur sales, marketing topics you want broken down. I'll do a video on them. If you leave a comment below, just let me know what you want me to talk about. That is it for today. I love you all. Thank you so much. Have a great day. We'll talk again soon. See you next week.