The early 2000s was an era of exciting fashion tastes and eclectic music selections. Pop acts were abundant, and the world of cinema was flourishing. But despite Hollywood’s entertainment boom, piracy was a growing problem that plagued record labels and film outfits of all kinds. For one, peer to peer file-sharing platforms were infamous piracy hotbeds that affected record sales. And even when Napster—one of the more popular pirated content agencies—was shut down, the piracy problem persisted.
This is what led to Daniel Ek’s aha moment. The Scandinavian business leader thought long and hard about whether or not there was a market for people willing to pay for music they could temporarily save on their wireless devices. He acknowledged that, while laws help regulate what’s acceptable, certain practices will continue to exist simply because the advent of digital has allowed this reality.
A few pitches and several years later, Ek has blessed the globe with Spotify. Now with nearly 130 million paying subscribers, the growth of his streaming empire poses a formative lesson for all types of entrepreneurs and product leaders—If there is nothing to fix, there is nothing to build.
This is why the product-market fit is critical.
Coined by business philosopher Marc Andreesen, product-market fit talks about finding and defining a market need and then supplying a solution. In his own words, he says that “Product-market fit means being in a good market with a product that can satisfy that market.”
The glorious product-market fit
Consider the product-market fit the why and wherefore of tech startups. Every founder dreams of finding their product-market fit sweet spot, but not everyone finds it. One of the fundamental reasons for this is because too many tech leaders are obsessed with building products they personally deem worthy of publication despite a stunning lack of market demand. Clearly, business experts argue that the what and how of a solution should only come secondary to the who and why.
The who and why calls for defining a market and figuring out their pain points, while the what and how tackles the strategies available to enterprises and why one solution outperforms others. Ideally, once all of these are covered, only then should product architecture be thought about.
Still, the road to product-market fit isn’t linear. One can even debate how the product-market fit is more political than scientific. Contrary to how products were built back in the day, it is far better to regularly iterate and fail the majority of the time than to create a flawless product for months on end and still fail in the future. As articulated perfectly by Eric Ries, the Lean Startup philosophy helps businesses identify which iteration clicks with the market and which ones miss them.
Measuring the politics of product-market fit
Obviously, measuring the clamor and validation among customers is one of the leading factors in achieving the product-market fit. Over the years, moguls and founders have established various metrics to determine go signals and rooms for improvement. But even when a project or product garners numerous registers, tons of downloads, and overwhelming page views, product acceptance doesn’t always translate to revenue.
If anything, business leaders should understand that the first indicator of product-market fit should be product adoption. How many people believe in your product so much that they’re willing to pay for it, if not invite others as well? For tech founders, one’s active users should be a metric in itself. For instance, three to five thousand active users is a decent number for B2C, while thirty to fifty active users is a promising benchmark for B2B SaaS.
Ironically, a few business experts will argue that revenue isn’t always the best indicator for product-market fit. Although it may seem that having captured a paying market is an immaculate metric, this may turn out to be a false positive. Several B2B founders give in to the service scheme. Referred also as a trap by many entrepreneurs, this scenario is when founders try to please their early adopters and customize their products to fit the specifications of another market.
As a result, these initial B2B enterprises lose their focus and take their final form as service companies. In such a context, these companies will neither have the rapid scale of a product company nor the enviable revenue of a services enterprise. This is why figuring out what metrics to use is critical in determining your product-market fit. Whatever forms of measurement you use, the objective is to gauge the promise of two components—the product potential and the market potential, which, by themselves, is an entire process you need to master.
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