Finding product-market fit before you run out of cash, patience or passion for the problem you are trying to solve is the race you are running when you launch your startup.
But what is it? How do you set SMART Goals against this concept, and how do you know when you’ve found it?
My favorite framework for defining product-market fit is the intersection between Desirable, Feasible and Viable.
Setting Up SMART Goals to Find Product-Market Fit
In using the Desirable, Feasible, Viable framework to identify product-market fit, we can choose the right KPIs for our SMART Goals to measure our progress and keep us on track.
The KPIs that we can use to measure product-market fit may evolve over the life of a startup. For now, let’s focus on some of the KPIs we can use at the earliest stages of a startup. When you are trying to find product-market fit for the first time to prove that you have an idea that can be successful.
Is there a sufficiently large market for the problem you are trying to solve? Do potential users of your product or service love it? Is there an organic flywheel of growth, as early evangelists develop to spread the word? Do users keep coming back, or do they dip their toes in once only never to return?
As you think about the problem you are trying to solve, it’s critical that from the earliest days you are testing your assumptions about customer interest in your ideas. Far too often entrepreneurs invest time and money fully developing an idea, only to launch it to indifference.
KPIs you can use to measure the desirability of the product or service you’re developing include:
- Customer Survey Results
- Organic Growth (Social Amplification, Word of Mouth, Evangelists)
- Number of Visitors / Users
- Repeat Visits / Returning Customers
- Depth of Engagement (Time Spent, Items per Transaction, Services Used)
- NPS Score
Can you create the product or service to solve the problem that you have identified? Do you and your founding team have the technical skills and experience to build the solution you have in mind? Do your past experiences provide you with the knowledge of the customer and the industry to truly understand the problem and identify the best solution? Do you have the resources, and time, necessary to actually develop your solution and bring it to market?
In your earliest days, you should be focused on defining your MVP, or minimum viable product, to ensure you are getting customer feedback on the kernel of your idea before you invest too much time or money.
KPIs you can use to measure the feasibility of the product or service you’re developing include:
- Budget to develop your MVP (minimum viable product)
- Timelines and milestones to develop and launch your MVP
- Launch dates for the MVP and follow-on launches of additional services or functionality
- Timeline for review of early customer feedback and implementation of changes to improve engagement and customer retention
Is there a business model that can sustain a profitable company that generates positive cash flow? Can you create sufficient demand for your product or service at a sales price that can support a profitable, sustainable, cash flow positive company? Is there a path to ROI-positive customer acquisition? Is your business built upon robust repeat buyer behavior that increases customer lifetime value (LTV) to drive growth and profitability?
KPIs you can use to measure the viability of the product or service you’re developing include:
- Total Net Sales
- Average Order Value / Average Deal Size
- Total Number of Active Customers
- Refund / Return Rate
- Retention / Churn (Repeat Customers)
- LTV:CAC Ratio (Customer Lifetime Value vs Customer Acquisition Costs)
Two important points about finding, and keeping, product-market fit:
- Finding product-market fit requires a deliberate, focused effort. You need to set up initial goals that represent your definition of product-market fit, and start testing your way toward that goal. It will not be a straight path to achieving this goal. Your initial assumptions are likely to be wrong. You’ll learn by testing. You’ll adjust your KPIs, targets and goals. It’s generally a zigzag path to finding product-market fit.
- Product-market fit is not a static goal. Products change. Markets change. The search for product-market fit, and the ability to maintain it, is a constant process throughout the life of a company.