How to Turn an Idea Into a Successful Company?
“I have an amazing idea, I’ve found a solution to a problem, I’ll open a startup company”! — So, this is not that easy in reality.
Finding a problem-solution fit is necessary, but it is not enough. The fact that we can solve a problem for some users doesn’t mean that it is possible to develop a product on this basis and establish a company. Evidently, we meet many issues every day and all the time, and no one has solved them to this day. The problem may not be ‘painful’ enough or essential for users, and maybe the solution may not be usable.
This article introduces the Product-Market fit topic, explains why it is difficult, lists the indications to know whether (or not) we are at the Product-Market fit level, and how to achieve it.
The Market Suitability Is Divided Into Three Types:
- Problem-solution fit
- Product-market fit
- Business-market fit
At the first stage, the company characterizes the solution to the problem. Then the company develops the Minimum Viable Product (You can read more about this at this link) that provides the solution to the problem and answers the company’s values and vision. As founders or product managers, when we are in a situation where there are existing products and customers, it is still challenging to know if there is a product-market fit. For example, the sale is not repetitive with the customers, the product is difficult to cross the chasm, and it is difficult to reach a mass market. The shift to product-market fit is subjective, qualitative, and not quantitative, and as a result, we must gather information and look for indications that validate it.
How to Gather Information:
- Conduct customer satisfaction surveys of the product (For more information, you can read here).
- Measure how many repeat customers the product has.
- Estimate the sales funnel of the product.
What Are the Indications That We Don’t Have the Product-Market Fit:
- We don’t have customers at all.
- There are customers, but they are not willing to pay.
- When new customers are not interested in the offered product.
When suggesting to new customers, who are supposed to be similar to the existing customers (who are paying and satisfied customers), and they are not interested in the offered product, this can be defined as an indication of not reaching the product-market fit. Customer similarity is customers who are in the same vertical, the same segment, and the same size. So the expectation is that they should have the same problem. In reality, however, these customers don’t get a value proposition from the offered product. This situation can be explained by not product-market fit. Another explanation is that the relevant market is smaller concerning the company’s basic assumptions and goals.
What Are the Indications That We Have the Product-Market Fit:
- There is an existing product that addresses a defined problem of the company’s target audience.
- When there are paying customers from the company’s target audience. Quantitatively, we need to examine the scope of the market regarding the industry and type. For example, five customers in a B2B company is not equivalent to 5 customers in a B2C company. It is essential to validate sales to customers from within the market that the company targets and not similar marketers.
- When a new customer is interested in the product, his requirements are similar to existing customers’ needs.
- The product meets the goals, objectives, and vision of the company.
After there are positive indications and validation that we have reached the product-market fit, then as product managers, we should understand that the research and data gathering process, as presented at the beginning of the article, must continue. The product manager’s mindset or the founder should always handle questions of the unique value that the product provides to customers. When there are several paying customers from the target audience, and the target of MRR (monthly recurring revenue) is providing the company according to the industry, then we can think about the next step: Growth and Business- Market Fit. At this point, the sales of the product should be on a sizeable repeatable scale. A separate article can be written about this.
In conclusion, two people can examine the same situation, the same product, the same customers, and the same sales amount. Yet, they will give a different interpretation of whether they are in the product-market fit stage. The guiding principle is to continually examine whether the current product and its development align with its values, the company’s vision, and its goals.
Written by Maayan Galperin