A lot of software companies–about 35%—fail to achieve product-market fit. The failure figures aren’t quite as dire as some punditry claims–the only thing that matters is product-market fit! Most startups contend with other equally important execution-related issues. The majority fail for those reasons.
Unless you are unusually fortunate, you’ve felt this lack of product-market fit. Anecdotal evidence reveals that the underlying causes feel out of product managers’ control. The market isn’t ready for your product. Customers prioritized other products higher in their budgets. There’s a global pandemic.
For most, achieving product-market fit is a mystery, difficult to recognize, and even harder to quantify. It is often described as a feeling, not a fact. You “know” when it’s happening because you “feel” the tug and pull of customer demand, product utilization, and a frenetic need for more.
Similarly, the lack of product-market fit often appears as a sales execution issue. Deals take longer to close. Customers stop short of a purchase decision, opting for the status quo. Others succumb to a DIY approach, believing they don’t need your product to solve their problem.
Only finely honed instincts help you differentiate between the two and recognize whether or not you have product-market fit. But if you’ve never felt it before, then what?
Sometimes, you have product market fit, but it feels like you don’t. A likely culprit is a competitor out-executing you. Their product might be better, or they better understand the buyer–you are selling security features to customers worried about risk management and compliance. Your competitor understands the difference and positions you out of sales.
Is the market everything?
Almost twenty years ago now, our industry developed an unprovable thesis that between market, product, and team, the only thing that matters is the market. Even bad teams and subpar products succeed in sufficiently spectacular markets. I don’t think this is true, but hey, I’m a product guy.
Founders and operators, naturally, focused on the market bits of product-market fit. Funders, too, overemphasize a company’s go-to-market when evaluating an investment. The game is about finding a path to market, discovering repeatability, and scaling that motion. The team, their ideas, and their product sit secondary to the go-to-market.
People judge product-market fit almost exclusively on revenue metrics. Unfortunately, revenue metrics often fool founders into believing they have product-market fit when they don’t. Sales-driven operators hate saying no to deals even though achieving actual product-market fit requires saying no to customers and entire market segments.
When you have early sales momentum without true product-market fit, you are running at a wall that looks from a distance like an escalator. You approach the wall, ignoring your slowing sales, watching deals shrink and opportunities slip from quarter to quarter. If the market does indeed suck, you likely aren’t feeling pressure from competitors. You take comfort from those early sales figures, chalk up the last couple of missed quarters to hiccups, headwinds, or other external factors, and keep running. And your company dies.
Fortunately, your product data contains signals to help you recognize and quantify the presence or lack of product-market fit. The three things to produce the best data to quantify your product’s progress toward product-market fit:
Market-driven, not customer-driven, product strategies
Matching your backlog data to your sales pipeline
Understanding product usage
Be market-driven, not customer-driven!
A product leader should never be customer-driven. That is the sales leader’s job. Instead, product leaders should be market-driven. What’s the distinction?
Customers will ask for all kinds of things from your product. A good product leader tests whether that customer’s need represents a condition present in the market or a one-off requirement. If the market doesn’t need it–if you cannot find five or ten other customers who covet the newly requested feature–then reject it and risk losing the deal. Executive leadership teams hate that risk, and you will need some data to justify your product decisions.
That data is lurking in your product backlog. You shouldn’t ignore it.
Analyze your backlog. When you lack product-market fit, you’ll see these signals.
Your features spread across too many themes, and your product has more breadth than depth. Your time to value is long because you haven’t nailed the one thing your product needs to be great at. The product is ok at doing many things for diverse customers but excels at none of them.
Your product planning is reactive. New feature and enhancement requests are primarily sales-led, and your product strategy has slowly drifted into incoherence. You have difficulty making sequencing decisions and knowing when to focus on one initiative over another. The team spreads thinly across loosely connected features. Product managers and developers become disconnected from one another, increasingly siloed. Soon, only a handful of developers can work on any one product area. Also, you have product areas.
Leadership teams easily misinterpret signals that result from your market-driven discipline. You often cannot keep up with demand. The product’s missing features block deals. Or the product development organization isn’t operating efficiently.
But that isn’t what is going on here. Deciding not to build customer-driven features is deliberate. Being market-driven means your product must excel at the “one thing” all your customers need. Great products expand over time.
A sure signal you haven’t found product-market fit is your backlog isn’t focused on building and constantly improving on the “one thing”.
Backlog, meet sales pipeline.
That product backlog data doesn’t live in isolation. Have it make friends with sales and pipeline data to build the complete picture.
If you are a lucky product manager, and your company does a decent job of win-loss analysis, you’ll see when you are losing to a competitor and when you are losing to customer apathy. The latter is terrible: you probably don’t have product market fit and have some tough decisions to make. Is it time to pivot to a new product or different market?
Clues to product-market fit are evident in the relationship between your product’s backlog and your sales pipeline. When you examine your backlog and see a glaring disparity in your requirements, you probably don’t (yet) have product-market fit. Similarly, when you look at the sales pipeline and see a wide diversity of customers–a small retailer, a large multi-national oil and gas company, a regional bank, a telecommunications company, and two high-tech companies but one is a startup, and the other is a mammoth in the industry–you have sales traction without product-market fit.
All those different customers have unique product requirements because they aren’t participating in a single market. That oil and gas company has problems created by how they structure their joint-venture partnerships. Superficial commonality with the small retailer might make it appear they both need the same product for the same reasons, but they don’t. What they share in common is a budget the sales leader would like a piece of.
Group your potential customers by industry segment and size. Then, evaluate your backlog and group the requirements by theme and purpose. You are onto something if the patterns match and the themes apply across your customer segments. If each group of requirements maps to only one or two segments, you aren’t.
Now, craft the story explaining to yourself and your team how each customer’s requirement supports your mission statement and product strategy. If you can’t easily convince yourself how the two different requirements fit into a coherent product strategy, you’ve got experimenting to do. Test the hypothesis that the two requirements are divergent, validate or disprove it, and move on.
Finally, a special note about product architecture. If you have to change product architecture to meet a customer’s need, don’t. You’ll never get to product-market fit when you break your core like that.
What’s your product up to?
Collecting product usage analytics seems painfully obvious. Shocking numbers of product teams don’t collect them.
Most product-market fit guidance is built around consumer products, enterprise apps, or products that span both. Slack is a good example. Specific behavior and usage patterns predict faster, broader adoption and rely on things like word of mouth. Enterprise products–infrastructure, security, platforms–behave a little differently. They often present a fixed set of tasks to a limited set of user personas. While Slack cares a lot about daily active users, that metric probably doesn’t matter to your enterprise product.
For enterprise products, usage analytics should focus on task completion and efficiency. And integrations and customizations are vital indicators of strong product performance when building a platform. If users from your customer segments show similar usage characteristics when completing tasks, you are moving toward product-market fit.
Knowing the fit
Instinct and intuition are a huge part of assessing product-market fit. Misreading product-market fit signals is easy, but you have the data readily to hand to demystify those signals. Consult your product backlog, sales data, and usage analytics, find the data relationships that work to test your hypothesis, and use the results of your experiments to do better than guess whether you are on the path to product-market fit.