Achieving Product-Market Fit: How the Startups Did It

As a Product Manager, you have great ideas! Ideas that could change the way people do things, ideas that could solve the world’s most pressing problems. And all you need to do now, is go ahead and build it! Let’s build an MVP (minimum viable product), sell the hell out of it (because the idea is super-disruptive in your mind) and then iterate. Soon to realize 6–8 months down the line that your product no longer has that level of adoption that you had expected, or that you now have to pivot to cater to the needs of your ‘revised’ audience because the initial market definition was too narrow.

Product Managers are nothing but entrepreneurs, trying to launch their startup, pitching a business plan to internal stakeholders (your investors), gathering resources (creating a startup team), launching and selling to customers (marketing and launching your product). Thus, as we all know the fact that more than 80% of startups fail, the path to building a successful product should mimic the approach to launching a successful company.

The Lean-product approach

The Lean Startup approach discoursed by Eric Ries, has popularized the ‘fail fast, iterate often’ notion. This involves evaluating the problem the customer has with a prototype and then iterating with measured data from the feedback loop, using minimum resources. A core component of lean-startup methodology is the build-measure-learn feedback loop.

I take this methodology and apply it to defining, validating and iterating to achieve the right product-market fit and create a rock-solid product strategy.

Problem definition

Innovative ideas lead to great solutions, however, without a deep understanding of the problem space, you are at a risk of getting ahead of yourself and building capabilities which do not receive customer traction. Defining your problem statement involves understanding of the problem space, the sense of urgency to solve the problem, the existing solutions in the market that have attempted to solve the problem all in the context of your target audience.

“If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it,” Albert Einstein said.

One example of the many ways of framing a problem statement is by defining:

• What is the problem?
• Who is facing this problem?
• How often?
• Why do you need to solve it?

In your initial level surveys or focus group interviews, these are a few statements that could be derived:

“I am a salesperson, constantly on the road and am always struggling with managing and submitting tiny paper receipts for reimbursement as I keep losing them.”

Using our above framework we have our problem statement e.g. “Business travelers or salespersons (who) need a way to capture and manage their travel expenses (what) because they are always on the road (how often). We need a solution to make this process less-time consuming and less-cumbersome (why).”

This, by the way, is the problem as identified by DePasquale, founder of Outtask that made an online tool, Cliqbook, that allowed workers to book and manage their online travel and which in 2006, was acquired by Concur.

Target Audience

In the problem definition we have identified who is facing the problem you are trying to solve. This is where you identify the core audience who will be using your product. Your user as well as buyer personas. It is important to be honest about sizing your market here. This is not your $2B TAM pitch to investors. Be realistic and as specific as possible.

Core Value Proposition

A value-proposition is not simply a list of your benefits. It explains what benefit you provide for who and how you do it uniquely well. It should be a single statement articulating what is the value promised to the customer? There are tons of frameworks to define and state your value prop in a concise way.

The simplest, perhaps is the template from Steve Blank, “We help [X] to [Y] by [Z]”

Some great examples are:

• Dollar Shave Club*: “A Great Shave for a Few Bucks a Month”*
• Stripe*: “Scale faster by building your business on Stripe’s payment processing platform.”*
• Uber*: “Everyone’s private Driver”*

Once you have your value prop defined, it is extremely important to continuously evaluate and test it with potential customers, even before you start building your MVP.

Why is your product offering unique?

This is probably the most important question you need to ask while determining the customer’s ‘willingness to pay’ for your product. Why should the customer go for your product vs the competitors? This becomes even more important when you are trying to displace a largely incumbent or crowded space such as enterprise productivity tools or online food delivery. Also, remember, you do not need to differentiate on a fancy feature or capability. Sometimes the simplest of things such as a clean design and user experience is what customers may need the most. Figuring out what matters to your customers the most and then choosing to differentiate on that aspect should be the approach.

There is a reason why Zoom has completely disrupted the video conferencing market with their focus on creating virtual experiences when it comes to digitizing the workspace. The current space consisted of a stack of products, some wider and some narrower and some part of a larger ecosystem (Skype and Cisco Webex). Zoom clearly understood the need to converge video, web and mobile. Zoom’s offering that integrated audio, web conferencing and mobile integration was a simple, straightforward solution to what customers needed. Also, their willingness to work with most platforms and devices coupled with their all-inclusive fremium model was different from how all the other players went to market.

Product quality, technology, user experience, price, go-to-market model and customer-service are just a handful of factors that you can think of and choose to base your differentiation upon.

Metrics

Ries’s lean framework follows a build, measure, learn loop. However, defining what to measure and how to evaluate the success for your product needs to be done as early as possible. You should be able to answer the question “How is the product doing?” at any point in time. And defining the response in clear KPIs (Key Performance Indicators) helps you evaluate the progress in a very objective way. The AARM method defined by Lewis Lin is a good framework to pick your metrics in each of the areas of acquisition, activation, retention and monetization. However, you need to go beyond frameworks, pick the appropriate metrics and customize them for your product and growth stage. Metrics creation and measurement is a highly iterative process and hence you constantly need to set KPI goals, evaluate and track these goals, and create new ones as your product grows. Apart from coming up with metrics for areas of acquisition, engagement and monetization, what needs to be agreed upon from an early stage is the ‘North-Star Metric’ that is going to drive most product decisions. This topic needs a separate article so watch out for another blog from me, deep diving into defining and evaluating metrics.

Example

Uber is a classic example where there was instant product market fit. Uber quickly realized their problem statement was “Limited, inconvenient access to taxis and transportation options in urban areas”.

To solve this problem, Uber used GPS-enabled mobile apps to match drivers with riders, providing a reliable, real-time way to find and book a ride. Uber built their technical architecture focused on real-time data processing and location-based services, which supported their rapid request-response model.

• Geolocation Services: Built using Google Maps API and Mapbox for precise location tracking and route optimization.
• Dispatch System: Microservices handling real-time dispatching of drivers based on location and demand, with APIs for matching, pricing, and tracking.
• Data Layer: Uses Cassandra for high-availability, fault-tolerant storage and MySQL for relational data.
• Queueing: RabbitMQ or Kafka for asynchronous communication between services, handling surge pricing, availability, and ride requests.

Uber’s use of microservices and a modular data architecture helps ensure that their systems remain responsive and scalable in real-time.

Conclusion

In conclusion, a successful product identifies and tests the product-market fit hypothesis from the get go and throughout the process of building the MVP.

The Lean Startup message sums it up well.

“What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly”.