Product Market Fit (Startup That Failed)

Product/market fit means being in a good market with a product that can satisfy that market                                                                                 

Mark Andreessen

No market need(42%), Poor product(17%) and product mistiming(13%) are the main reasons behind a startup failure. So, at least 72% of startups face one of the product market-related issues directly. Making it the biggest of all challenges.

The Top Reasons Startups Fail [Infographic]

Product market fit in essence is figuring out what to build and for whom. This is the stage when the startup has figured the key to the door. This is the stage, right before you press on the gas.

How to get the market right? 

The presence of some competition or existing players in your business is a good sign. On the other hand, the absence of any competitors needs to be studied as to why the opportunity being perceived by you is not being exploited yet.

There are multiple ways to experiment with a market/problem statement through surveys, forums. All the places where the target audience hangs out and interacts is also a good place to start as well.

A good thing to do before building the product is to organise an audience and generate leads, thereby allowing us to test the product-solution hypothesis.

You might wanna read How to get first 1000 customers? It talks more about the marketing and distribution aspect of building.

How to get the timing right? 

You want to see some competition or players in a similar space, though the presence of a large number of similar competitors with no differentiation is a sign of a mature market.

A lack of any competition is almost always a sign of no market or some challenges in execution which is not obvious. A good idea is to probably go after a mature market with a more refined product or similar solution but a cheaper alternative. B2B SAAS is the perfect space for such solutions.

How to get the product right? 

Product development is an iterative process beginning with the customer. Enough time is give for in the plan to ensure that tweaking etc need for fit is made available for.

  • The core concept or the prime feature needs to find sufficient traction before further updates and enhancements.
  • Core idea needs to be simple(KISS) and useful. Eventually, with time and customer behaviour understanding, enhancements and updates can be released.
  • Feature release should be agile in making, with constant updates. We can avoid the Waterfall approach here, in other words trying to build the final product or solution, right at the beginning and not releasing in incremental steps.
  • Stay in constant touch with the customer base. In other words, start with the simplest solution and slowly iterate over the solution by communicating with the customer base.

In a specific B2C business case where users didn’t have to pay to use, the stickiness of a product can be measured using their ability to commit time. The blue line indicates new users and the orange line represents returning user’s count.

Had product-market fit been achieved, the orange line would have risen along with blue-line. The business below is still a pre-product market fit. Returning users percentage is the metric being used to judge for product fitness.

Screen Shot 2018-05-03 at 5.16.52 PM startsups that failed

Retention Curve

Our basic product-market fit test is returning users. The next step post-arrival of returning users is to get the retention curve of active users as a percentage of those who signed up during a period (cohort analysis)

This metric will help quantify product-market fit in the long term. This number would change depending on the type of product, market, business model (consumer vs SAAS) and so on.

The above product loses most of the users by 120 days and is a pretty bad sign in terms of product fitness. The first major step to fix would be to figure out the reason for users to come back and then work backwards from.

Apparently FB used to have a 65% annual retention rate. This meant, 65% of users continued to use the product post 1 year of their signup. This meant, working on growth or getting more users made sense, since plenty stuck around.

Not solving for this problem would result in a leaky bucket issue, where all users will eventually churn and not use the product. Any marketing efforts thereby would be useless to continue.

Analytics Journey @Startups