Market Fit or how to find a G point at a startup

Business founders seek to acquire as many users as possible, but is there really a problem with their lack of customers? The founders often rely on their own guesses, ignore the feedback, and can easily “slurp” the point of no return, followed by the death of the project.
However, the real problem is not in the size of the database, but in the Product / Market Fit (PMF). If you are putting all your efforts into increasing users and not getting returns, this article is for you.

As a basis, we took the publication of startup development expert Pierre Leshel and adapted it with our examples and comments. So what is hidden behind the mysterious concept of Market Fit?

What is PMF?

When you have a product that meets the needs of a particular market, and without which your audience will lose a lot, this is called Product / Market Fit (PMF).

So says Mark Endressen - a well-known investor and entrepreneur, co-founder of the largest IT venture fund Andreessen Horowitz. It was he who coined the term to determine the viability of a startup. We did not find an adequate translation in RuNet, so we leave it in the original. In the free interpretation - “a happy union of product and target market”.

Hypotheses are based on three parameters:

Client: you clearly know your customers who need it.

Problem: they have a “pain” —a need or situation that you can solve.

Solution: they use your product, are willing to pay for it.



In other words, enough people are willing to pay for your decision. What quantity and how to measure it?

At the center of the marketing strategy is the product. Testing the business model revolves around the question: “Does the market need a specific product or service and can it be profitable?” Once there is a positive response, you can sit down to develop a marketing plan.



Here's how to portray a startup’s path relative to PMF:



This is a schematic cycle from creating a value proposition to competitors, and then from the beginning. Competition implies a periodic “upgrade” of a value proposition, when it is necessary to “twist” the capabilities of the product itself or the service associated with it.

Myths about PMF

Mark Endressen warns against several dangerous misconceptions:

No. 1 Product market fit can be achieved with the help of "chips" and spot corrections like the color change of the CTA button. This does not happen quickly.

No. 2 PMF is easy to measure by a single rule. It all depends on the size of a particular market: somewhere around 10 customers will be a sign of PMF, and somewhere around 500,000 will mean failure.

No. 3 PMF cannot be lost. In fact, in business, especially in large markets, things can change dramatically. And you need to keep your ears open so as not to lose not only PMF, but the entire business. Moreover, this is not a raider capture a la the 90s, but a change in solution technology. So it was with manufacturers of audio cassettes and film cameras. People did not stop listening to music and taking pictures. It’s just a different way. And those who did not catch the coming changes in time disappeared from the face of the Earth. More details are in the stories of ups and downs at the end of the article.

No. 4 PMF insures against competition. It wasn’t there) Competitors can easily copy a product, add new features to it and pick up your audience.
Look at the callback market (callback services). Three years ago, CallBackHunter appeared and since then another 20 clones. In fairness, almost every competitor "finished off" something of their own. And where would CallBackHunter be today if they stood still and did not turn from a simple “dialer” into a powerful analytical tool?

Focusing on the right things The

“father” of growth-hacking strategy Sean Ellis describes PMF as the first step to building a company.



First of all, this is the creation of a value proposition. There is no point in long-term plans until there is a clear message - what and for whom you are doing, and why consumers should choose you. If there is this understanding, we launch the product and develop a plan for attracting users (acquisition):



Mark Endressen advises making a landing page and testing 1-2 channels. Only then, if there is a steady increase, expand the sources of lead generation. For starters, PPC (contextual advertising) and Social media (targeting on social networks) are suitable. They will give an understanding of the response from the audience (conversion of the advertising campaign and landing page). Other methods consistently, as the product "grows up."

How to measure PMF

Sean Ellis takes a stressful approach: ask current users how they would react if they lost access to the product. If at least 40% are very disappointed, the product has reached the level of product / market fit. This is the easiest way, you just have to provide a sufficient sample of users for the survey. Specialized services to help (Simpoll, SurveyMonkey, etc.)

KISSmetrics example: An



empirical way

You can always feel when a product / market fit is missing. Customers say “it’s too expensive”, word of mouth does not work, the sales cycle is too long, most negotiations with leads are not closed for sale, the landing page bounce rate is too high (low conversion). These are all clear signals - something is going wrong.
And, on the contrary, when the market fit is on top, you do not have time to hire new sales managers and technical support operators, media editors call you for an interview, you are interested in cool investment funds.

And one more indicator. Net Promoter Score (NPS) is a referral index of your product. In other words, how users are willing to recommend it.



And finally, financial indicators:



K9 Ventures Investment Fund uses the following scheme:



However, there is a dependence on other metrics (ARPU, LTV), as well as on the size of the market.

Further you will see some examples of business ups and downs regarding Market Fit.

AirBNB

International Reservation Service is one of the pioneers of Growth hacking. At one time, they came up with an ingenious move when they “integrated” into the Craigslist ad portal and got hundreds of thousands of users for free. And here we tell how they “hacked” word of mouth.

According to the rules of the AirBNB referral program, anyone who recommends a service receives $ 25. The same amount gets the one who was invited to pay for the reservation. However, the program worked very poorly (only 5% of invites from the total number of users and conversion of 15% of invites to order).
We set the task to increase the number of customers who recommend the service. To do this, restarted the program on the site, in iOS and Android applications (with the ability to activate the referral code from a mobile device). To understand the effectiveness, we set up conversion tracking at every stage, from sending an invitation to renting a house, in total more than 20 events.

The main feature is a personal invitation with a code. It looks especially cool on a smartphone. At the beginning, the user receives this message:



And then, when following the link and downloading the application, here is a screen:



Well, and, of course, behavioral tracking and segmentation played an important role. The client sees the advertising of the referral program at the moment when he is most likely ready to invite friends. In addition, there are two different approaches in invitational emails. In one case, it is proposed to earn, and in the other, give $ 25 to your friend (altruistic letters worked better).

Results: increase in the number of invitations (invites) sent by 264%; an increase in the conversion of invitations to a subsequent order by 497%. Thus, the AirBNB team worked out a scheme that leads to Market Fit: identifying a problem - setting a goal - defining metrics - creating a product - testing - rolling out a product - scaling up experience.

Slack

This application for organizing teamwork is used by 750,000 users daily. Among others, it stands out as a hyper-growth and crowds such monsters as Trello and Basecamp. Here we will not describe the merits of Slack, but draw your attention to the results of one independent study conducted by renowned marketer Hiten Shah. In social networks, he called on the audience (731 respondents) to answer a few simple questions. The key one is: “What would you feel if they cut off your ability to use Slack?”

Results:



51% - very upset;
39% are a little disappointed;
10% - are not upset (do not use the application).

Remember, we talked about 40% of fans using Sean Ellis? So, Slack has 51% (!). They consider the application as the main source of internal communications in the company, and communication is the heart of any business. This is an extra level Market Fit!

Hiten Shah also identified the following user segments:

1) Use the application on a daily basis, know about all the features, monitor updates;
2) Work in conjunction with other products, note the shortcomings of the functional;
3) Do not see significant differences from competitors, use Slack only as a messenger (instead of Skype, for example) most often for personal purposes.

Such segmentation helps to understand who is using the product, what should be “screwed up” in the functionality and where to go further. And in relation to the marketing strategy - create personalized advertising campaigns. Each audience has its own message. For example, for fans - new opportunities, and for the third group - chips and benefits of the application in comparison with competitors.

We will not dwell on unsuccessful examples, for sure you have already heard these stories - Polaroid, Kodak, Nokia and so on. At one time, each of these companies considered itself an unshakable market leader, had billions in turnover, a network of branches in dozens of countries. And then everything collapsed ...

Comment of the head of Yagla.ru Alexander Alimov

In conclusion, a little about my own experience. A few years ago, we came across a “ceiling” in return on Yandex Direct campaigns, both our own and our clients. “Shaman” with announcements, placed auto-bidders to manage bets, developed their own campaign system for more than 10,000 key requests of Giga Direct, but all this did not give the effect we were counting on. How to get conversion growth not 30-40%, but several times?

As a result, we came to the conclusion that you need to work with landing pages, since there, as in the Bermuda triangle, the whole effect of Direct optimization was lost. What is the use of lowering bids when the conversion is 1%. We assembled a user feedback with the question "why do not you leave a request on the landing page?" In the first place is the negative from the discrepancy between the request and the proposal. Yes, the company provides a specific service or sells a specific product, but the user does not see this, you have to delve into where and where.

We wrote a script that replaces the headings and part of the text with requests from the context, in the very first tests we got a conversion increase of 44%. Cons - complicated tuning and management of results, manual recalculation of statistics in Google Analytics - on projects with more than 1,000 key queries, it takes several days.
The next step was the Optimizely A / B testing system - it’s already more convenient, but again, a lot of time to configure substitutions for groups of requests. Plus, the current campaign in Yandex.Direct had to be “drafted” in a special way (each group of requests in a separate campaign).

And only after that, having filled the bumps on their own experience, did the Yagla dynamic content system . You can read more about how it allows you to increase the return on contextual advertising by 200% on specific examples in this article . Thus, we have come from solving our own “pain” to scaling to the market. At the same time, the Market Fit project is yet to come)

Share your experiences in the comments and what you think about all this.