A couple of weeks ago, my CEO Mastermind triggered a good discussion on Product Market Fit again – and it has kept me thinking since.
It reminded me of my interview with Shikhar Shrestha, CEO of Ambient, who said this about it.
‘Over time, the success or failure of a SaaS company really depends on the strength of the product-market fit.’
What fascinates me is this:
What defines that strength? How can we ensure we start off with the strongest possible product-market fit and maintain it over time? Cause at the end, it’s a moving target, right?
To answer that question, I thought about the key questions to raise. But before I zoom into that – let’s define product/market fit?
What’s a good product market fit definition?
Building momentum too often fails not because of drive but because lack of product/market fit.
How often do we launch new SaaS products to see a flat line that just won’t go up?
We were super excited – but the market wasn’t. People don’t see why they should spend money on our product.
I often see a misconception about what product/market fit is all about.
To dig into that, let’s clarify what product/market fit means. Here’s my definition:
You achieve Product-market fit when your product solves a specific problem so that a large enough market segment is happy to pay a premium for it.
That last part is essential: willingness to pay a premium. So it must go beyond what everyone expected to be the bare minimum (table stakes).
It doesn’t mean a minimum viable product (MVP) cannot be the start of a solid product market fit. Instead, it’s how you go about defining it. More on that later in this blog.
Back to the key questions:
What are the three steps to determine product/market fit?
This is what I’ve seen working magically over time in my career:
- What’s the specific problem we optimize for, and what’s the desired outcome it needs to exceed expectations on?
- For a given customer, do they use our product every time the problem occurs, and does it solve their product every time?
- Would our customers care if we took the product away from them today?
Why these questions?
- Focus: We must answer the first question to avoid going off in all directions – too wide, no depth. That’s not sustainable.
- Value: A ‘no’ on the second question means our customers will not perceive it as highly valuable.
- Critical: A ‘no’ on question three means it’s not a high priority for them – it’s nice to have at best. Dangerous territory.
A positive answer provides the core ingredients to create something remarkable (this sparks word of mouth), something the right customers will be prepared to pay a premium for.
Question for you to reflect upon:
How would you score the product market fit strength of your SaaS product in relation to these three questions?
Product-market fit is something you feel, not plan.
Let me share a quote with you that inspired me. It’s from Nathan Resnick, CEO of Sourcify.
Most second-time founders would agree: Don’t raise until you feel product-market fit.
The sad part is why he decided to mention it…
The most stressful two years of my life were right after we raised a $2.5m seed round at Sourcify in 2018. We had some early traction but, deep down, knew we weren’t at product market fit.
What followed was something you want to avoid at all costs:
- They spent $750k hiring…
- Launched a completely new product ten months later…and flopped
- Then burned $100k for months with no real software product…
- Were forced to cut the whole tech team…
- and re-start with a clean slate… (and a big headache)
The problem: A product-market fit illusion.
If the product-market fit is not there, it impacts everything…. negatively. Too long sales cycles. Low win-rates. Dreading implementation cycles. Customer success dramas. Slow adoption. Poor net promoter score (NPS). High churn. Low customer lifetime value (LTV).
No company can survive in this mode. Not bootstrapped, let alone with external funding, with raised external expectations.
That’s why most second-time founders only raise once they firmly feel Product-market fit.
So how to avoid this from happening as a first-time SaaS founder?
Constantly ask the fundamental question: What’s the one thing customers want from our software?
That’s about three things:
- Something valuable
- Something critical on their agenda
- Something 10x better than the status quo
If any of the three factors above is unclear, ditch it from your roadmap. It’s either nice to have something they don’t need or don’t want to risk moving for. In other words: It drags predictable traction.
Question for you to reflect upon
What feelings strongly confirm your SaaS solution has product-market fit?
What is MVP in Product/Market fit?
Back to Minimum Viable Product. Can you develop product-market fit with a minimum viable product (MVP)?
Let me share a quote from Chris Dial, CEO of Salutare. I asked him about what he believes is critical to get right in your MVP:
MVP doesn’t mean you have a full product and you’re just doing 20% of all the features. That’s a misconception most of us fall into. MVP to me is this: We have five areas of the product. We do these two very well today; the rest are just getting by or absent. But market value is driven by those two things. We want a decent experience for those two things, and then everything else can be light (for now). (Quote starts at 32,35 mark)
Here’s the thing
Building for Product/Market fit (even if it’s your MVP) is about taking the standpoint of your ideal target customer – what are the essential things they need to solve a problem that’s valuable and critical to them in a way that exceeds their expectation compared to their alternative(s)?
No one says you have to deliver the end-to-end suite. Just solve that one problem in a remarkable way. Then focus on solving the next.
If we take that standpoint, more product or module launches will create predictable traction from the start.
Question for you to reflect upon
If you critically look at the next feature on your roadmap that you’re planning to launch soon: what’s the likelihood that customers will pay a premium for that?
How do you achieve the strongest possible Product Market Fit?
Why do I state it like this? Isn’t product/market fit product/market fit? No – strength is important. Here’s why:
Why is strong product market fit important?
Here’s what Shikhar Shresha, CEO of Ambient AI, said about it:
Because there’s so much less risk for a prospect to buy technology from their incumbent software supplier or just wait it out until the incumbents get to this particular technology trend in the market over the next years.
You want to get to a state where you know, this is what I build, it’s very unique, I can solve these specific problems for the customers, and I know they’re desperate for it.
Once the customer realizes what’s the before and after (i.e. the delta) of the change and the impact on their operation – then you have something that – if considered ‘strong’ – gets pulled by the market instead of you having to push it.
So it’s not enough to just have ‘fit.’ Fit only gets you into the door. To create a pull effect, you need to deliver Fit + an Edge.
Let’s dig into this by answering the following question:
What are the critical product/market fit ingredients many B2B SaaS products fail to deliver upon?
Let me share a quote from Shikhar Shrestha, CEO of Ambient AI.
“You want to be able to answer this question: What do you uniquely offer that someone desperately wants? And unique and desperate are really important words there because if it’s not unique, other people will copy you, and the company is not going to be valuable. And if the customers or prospects are not desperate to solve the problem, it will be tough for a startup to convince anybody to buy the product.”
So how do we achieve this state? Here are the steps that I typically follow:
- Step 1: Be crystal clear about your ideal customer profile (ICP).
- Step 2: Understanding about the problems that keep them up at night.
- Step 3: What do they secretly want when it relates to each problem?
- Step 4: Determine for each problem/wants combo where you can exceed expectations.
- Step 5: Define the minimum viable product (MVP) feature set and create a prototype.
- Step 6: Get customer feedback, and iterate until you get the desired reactions
- Step 7: Only then: build (or pivot)
Let me zoom into a critical but often forgotten step in this list: #3 – Understand what your customers secretly want when it relates to each problem.
Creating a product that solves a valuable/critical problem for a customer is not enough. It needs to do it in a way that exceeds expectations. As Shikhar states above: “Your prospect or customer needs to want it desperately.”
Why? First, for people to move from their current solution (even if that’s manual) – there’s risk, effort, and money involved. But that’s only the monetary side. The emotional side is equally (or possibly even more) important.
Remember – we sell to people. People think with their heads but buy with their hearts. They value status. They love marketability, reputational assurance, stability, reduced anxiety, etc.
Question for you to reflect upon:
How does your SaaS product deliver the things your ideal customer secretly wants?
How do you keep the strongest possible Product-Market Fit?
The first battle SaaS businesses must overcome: getting to product/market fit.
The next one: keeping it.
There’s nothing more frustrating than growing strong momentum to realize growth and adoption flattens, and then decline starts to kick in.
The fact is: product-market fit is a moving target. Then you have it; suddenly, you don’t. Why? Dynamics change. Dynamics you don’t have control over.
- Market conditions change – just look at today’s economic downturn
- Political conditions and regulatory rules change
- Technology evolves at a mindblowing speed
- New competitors enter the market
- and so on
All of that impact what your customers expect from you. It changes their priorities, their requirements, and what they expect from you. As simple as that.
So the critical question is: How do you keep the strongest possible Product-Market fit?
Here are five factors that I’ve started to value most:
- Be ultra-clear about the business you’re really in.
F.ex. one of my customers, SALESManago is not in the Marketing Automation business; they’re in the business of helping B2C brands maximize eCommerce revenue,… the lean way. - Be even more clear about who you are FOR – and NOT FOR
The more clarity you have on your niche, the easier it will be to nail product market fit and always be one step ahead to keep fit. - Stop trying to be better – Aim to be different.
Trying to be better is impossible – you’re competing with every dog and cat out there. No one has that capacity or budget. And even if you had – it’s not sustainable. - Create new value possibilities.
Keep the outcome front and center: focus on creating new solution areas that people would miss if they were gone. It is how you set the benchmark. That causes your competitors to lose product-market fit. - Prioritize the highs
Users will always find more gaps in your solution – it’s easy. But that’s not what moves the needle. What moves the needle is the peaks in experience – the moments you’re there to help them when it matters most.
As you can see, doing this well ties everything in your SaaS business: Your foundation: the optimal segmentation and positioning – the rest flows from there. Starting on a solid foundation aligns everything and everyone. It makes you more resourceful. And precisely that will allow you to get to product-product market fit faster and keep it, especially in tough times.
Question for you to reflect upon:
On a scale of 1-10: What’s your ability to keep the strongest possible product-market fit in your SaaS business?
How can you accelerate the process toward Product-Market fit?
Since Product-Market Fit is so crucial to the success of a SaaS business, one question I get is: How can we accelerate the process?
Let’s be clear: Product-Market fit is not something you can plan in sprints or a budget. It’s not something you define. It’s what the market determines. As said earlier: Product-market fit is something you feel, not plan.
The big question then becomes: Are there ways to accelerate it? And the answer is yes.
Here are three simple steps that are highly beneficial to speed up the process.
- The who: Be ultra-specific about who’s it for / who’s it not for. I.e., develop it for someone, not everyone. Note – picture a person and aim to understand what drives that person beyond demographics. Dig into his/her worldview: What he/she cares about. What he/she stands for. What he/she aspires.
- The what: Be ultra-specific about the one thing your ideal persona wants from your solution. Beware, this is not about output but the outcome, i.e., a tangible result that’s both valuable and critical to him/her.
- The how: Obviously, you need to deliver the basics, i.e., the table stakes, first. But don’t stop there. It’s not about what you build but how your ideal user experiences it. Note: this is not about a slick UX – it’s about the one thing your ideal persona would miss if it were gone. Tip: Think about what your ideal user should say when you ask them: What’s the moment our solution makes the most significant difference for you in your day? It is where everything comes together.
Key takeaway: Acceleration is about trimming, not adding scope. The quality of the experience drives fit rather than the quantity of the features.
Question for you to reflect upon:
What can you do differently in your next sprint to accelerate product-market fit?
In Summary: What Product-market fit means
I’ve written this long-form blog post to answer some critical questions about Product Market Fit. Here’s the summary:
I started the blog to answer a question I often get: ‘How to achieve and maintain the strongest Product-Market Fit in B2B SaaS?’
I started by zooming into the three steps to determine product-market fit:
- Clarity
- Continuity
- Criticality
Then I zoomed in on the fact product market is something you feel but can’t plan.
In too many SaaS businesses, it’s an illusion that negatively impacts everything:
- High customer acquisition cost (CAC): Long sales cycle. Lots of deals are lost.
- High customer retention cost: Dreading implementation cycles. Customer success dramas. Slow adoption. High churn.
I then zoomed in on product-market fit strength and why that is important. Product-market fit only gets you into the door. It’s not enough to create a pull effect. You want to be able to answer this question: “What do you uniquely offer that someone desperately wants? I.e., it would be best if you delivered Fit + and Edge.
Then we arrived at the big question: What’s required to achieve the strongest possible product market fit and keep it?
- Be ultra-clear about the business you’re really in.
- Be even more clear about who you are FOR – and NOT FOR
- Stop trying to be better – Aim to be different.
- Create new value possibilities.
Lastly, the kicker: How can you accelerate the process?
- The who: Be ultra-specific about who’s it for / who’s it not for.
- The what: Be ultra-specific about the one thing your ideal persona wants from your solution.
- The how: Obviously, you need to deliver the basics, i.e., the table stakes, first. But don’t stop there. It’s not about what you build but how your ideal user experiences it.
Remember: Product-market fit fully depends on expectations from your ideal customers: You vs. their alternatives. It’s about their perspective and how this will change their life compared to what they have in relation to what they want /aspire to have. People are willing to give up more, the stronger / bigger that gap is. The opportunity is to create that gap. Set the norm.
Good luck
Additional resources to start fix product market fit?
The easiest way. Simply book a free call to explore if there’s a fit to do this together.
Otherwise – here are five other options that all matter in this process:
- A long-form blog to tune you’re who you are for / not for
- A long-form blog: 5 strategies to optimally position your B2B SaaS business
- A long-form blog to crystalize the value you deliver i.e. compelling value proposition
- and obviously, read my book The Remarkable Effect
- Alternatively, simply subscribe to receive a daily reflection on how to become a SaaS business no one can ignore