What is product-market fit (and how to find it)

Product-market fit can make or break your business. The best product ideas can flop without a demanding market, and a hungry market can starve without the right innovative startup solutions.

No amount of investor funding or marketing budget can save a business lacking product-market fit. Even the most creative advertising (and celebrity endorsements) can’t make up the gap.

Remember the Google Glass or Microsoft’s Zune? What about the Segway? Know what they all have in common? Big companies, big products, big expectations—and big flops.

Your job as a successful business is to satisfy customer pain points and demand with products and services that outdo alternatives.

However, that’s often easier said than done.

Nailing product-market fit might not be easy, but it’s better to figure it out from the get-go rather than after dumping equity and loans into it. Below, we’ll walk you through everything you need to know about product-market fit, including:

• What is product-market fit?
• Examples of product-market fit
• Why product-market fit is important
• How to find product-market fit
• How to measure product-market fit

What is product-market fit? (definition)

Product-market fit is when you introduce a quality product to the right market, and they’re willing to buy it over alternatives and substitutes. When you find a customer pain point, release a product to solve it, and customers put their wallet where their mouth is, that’s product-market fit.

It’s not enough for customers to be interested. It’s not even enough for customers to make verbal commitments. Product-market fit is when customers actually purchase your product, despite other available solutions.

Marc Andreessen, American entrepreneur and venture capitalist, coined the term product-market fit—though he referred to it initially as product/market fit. Here’s how he defined it:

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

Andreessen goes on to list a few identifiers that product-market fit is happening:

• Customer demand meets (or exceeds) supply
• Usage grows as fast as servers can accommodate
• A healthy rate of cash flow
• Your business must hire additional sales and customer support staff
• Reporters and news outlets want to talk to your business

And when it’s not happening, you might experience this:

• Poor adoption rates
• Usage that’s slowing down
• Lack of word of mouth awareness
• Lackluster press reviews
• Long sales cycles

Best examples of product-market fit

Some revolutionary products and services knock it out of the park straight from the start. They did their market research, found pain points, and introduced cost-effective solutions that customers would purchase.

And we did.

Remember going to your local Blockbuster to pick up (and return) new movies? That’ll never happen again.

And remember when you ordered pizza (more than you’d like to admit) just because they were the only business in town to deliver?

Those days are long gone because startups came out with the perfect product-market fit solutions. Here are a few well-known examples of modern-day product-market fit.

Netflix streams

Once upon a time, customers had to manage their entertainment collection much like a trip to the library. Check out a movie, watch it quickly, and return it before your late fees start piling up.

Netflix introduced a different approach. What if your movies just came in the mail? Customers hopped on board.

And as the internet evolved and streaming capabilities improved, Netflix made a business pivot to allow customers to watch videos straight from their homes—no mail, stores, or DVDs necessary.

It was a product-market fit that launched a whole new suite of products, services, and streaming platforms.

DoorDash delivers

Restaurants run on fine margins, and it’s not always possible to hire a full-time delivery person. DoorDash (and other delivery apps) opened up a new market that provided flexible jobs for drivers and delivery options for restaurants.

It was a match made in entrees.

People could get the food they wanted without even leaving the house, and the economy saw a rise in flexible jobs.

Walmart pickup and delivery

Grocery stores have been around for centuries, but it took a pandemic for us to realize—yes, I’d like someone else to bag and deliver my groceries rather than dragging my children down endless aisles during naptime.

Now, customers can order online and have their groceries delivered or ready for pickup at a time of their choosing.

It’s brilliant. It’s revolutionary. It’s just what people wanted and needed.

And it’s the perfect product-market fit.

Worst examples of product-market fit

Now, you’ve seen what a good product-market fit looks like. Before you jump back into finding product-market fit for your business, it’s healthy to look at some not-so-good examples of product-market fit:

Snap Glasses

Snapchat wanted to monetize on real-world products rather than its applications, so it released a physical pair of Spectacles that users could wear to record pictures and videos. Months later, just 0.08% of Snapchat’s existing users owned the sunglasses. Turns out customers didn’t really want creep glasses when they already had a phone.

New Coke

Coca-Cola made arguably the biggest marketing blunder in history when it made a surprise announcement it was changing its tried-and-true Coke formula. Obviously, things turned around for the company, but the firestorm of consumer protests could’ve destroyed the business.

Barnes and Noble Nook

Barnes and Noble tried to get in on the tablet-reading scene with the Nook, but the product wasn’t as feature-rich or affordable as Amazon’s Kindle. Unsurprisingly, it never caught on.

Why is product-market fit important?

Product-market fit is a non-negotiable part of building a business. No amount of cash, talent, branding, or marketing campaigns can compensate for a product that target customers just don’t want.

Here are some pointers to back it up:

• Avoid startup failure: Lack of product-market fit is the second biggest reason (35%) startups fail, beaten only by running out of cash (38%).
• Grow your customers fast: Product-market fits catch on fast. You don’t have to wait for marketing campaigns to spread or for your product to get attention on Shark Tank—it spreads quickly and organically.
• Decrease cost per acquisition: More brand awareness and word-of-mouth marketing means you can spend less on advertising, which lowers your cost per acquisition.
• Boost your profits: When customers want it, they’ll pay for it. Take Strava, for example. They raised their monthly subscription for all users (by as much as double in some countries), but that doesn’t seem to hurt their user base of over 100 million users.

How to find product-market fit

Achieving product-market fit is an art and science. Sometimes, your big product idea will just naturally resonate with the market. Other times, it’ll need testing, optimizing, and maybe even a complete rehaul to land with your target customer base.

Whether you’re building an idea from scratch or looking to validate a product in development, here’s the step-by-step process to determine product-market fit:

1. Understand your target customer
2. Find customer pain points
3. Offer a differentiated solution
4. Describe your value proposition
5. Outline your MVP
6. Build your MVP
7. Test your MVP
8. Upgrade and improve
9. Test your MVP again

1. Understand your target customer

You can’t achieve product-market fit until you understand your customers. If you haven’t already, do market research and create buyer personas for your typical or ideal customer. These should help you better know the ins and outs of your market with details such as:

• Demographics
• Psychographics
• Wants
• Needs
• Behaviors
• Budget
• Current solutions

Don’t know these details yet? Stop product advancements and make this a priority. Products are pointless without a market and a need. Learn those first before you invest anything else into building your solution. You might identify underserved customers or even existing customers of your other products.

You also need to make sure there’s enough strong market demand to validate your business. A limited customer base might prevent your product from taking off.

2. Find customer pain points

Once you understand a bit about your customers, it’s time to dig deep and discover their pain points. Some pain points will be obvious—it’s hard to shop in-store and be a primary caregiver. Others will take a bit more investigating—an electric scooter is cheaper than an Uber ride and keeps you safer from infectious viruses.

Your product will be the solution to your customer’s pain points. If you can’t identify a need, your product might not have a place in that market. That doesn’t necessarily mean your product is useless—it just means you might need to transition to another target audience.

Look at Twitter’s history. It originally launched as Odeo, and it was a platform for improving accessibility to podcasts. When it didn’t gain a lot of traction, the social network pivoted to Twitter and became a microblogging platform for sharing ideas, news, and entertainment—and look where it is today.

3. Offer a differentiated solution

You’re probably not the first one to find your customer’s pain points, but you can be the first to provide an advanced solution. Think back to that good ol’ Henry Ford (whether he actually said it word for word or not):

"If I had asked people what they wanted, they would have said faster horses.”

Your competitors hear your customer’s complaints, and they’ve provided solutions. It’s your job to provide something that goes above-and-beyond alternatives—something your target audience can’t resist.

4. Describe your value proposition

Your customers live busy lives. They’re constantly bombarded by emails, social media notifications, text messages, and advertisements.

You can’t expect them to look at your product and immediately recognize its value—sometimes, you have to spoon feed it to them (in the most polite way possible, of course).

This is where your value proposition comes in handy.

Your value proposition explains how your product solves the customer’s problems and improves their lives _better _than anything else on the market. That could mean many different things:

• Higher quality
• Faster delivery
• Lower prices
• Better customization
• Improved reliability
• Enhanced customer support
• Revolutionary technology

5. Outline your MVP

Determine the basic features your minimum viable product (MVP) needs to launch. You don’t need a full-fledged core product when you introduce it to the market—you just need a simple solution that solves a customer pain point.

Look at Facebook.

Facebook launched with basic functionality to connect with friends and post on your feeds. It’s since expanded to include a Marketplace, videos, gaming, fundraisers, Messenger, Stories, Reels, and more. Facebook didn’t need all those things at launch, and neither does your product.

Focus on the barebone essentials. You can add the extra pizzazz later.

6. Build your MVP

Time to start building. This is a fun and exciting stage, but it’s also one wrought with distractions and temptations.

Avoid the urge to start adding additional features to your MVP. Follow your product roadmap Shiny new objects will emerge, but you don’t need them at launch. Keep it simple.

7. Test your MVP

Once you have an MVP, it’s time to test it with your target market. Select a small group of interested individuals to get their hands on the product. Ask questions and listen.

• What do they like?
• What do they dislike?
• Did they struggle with getting started?
• Did they have any excited “aha!” moments?
• What would they like to change?
• Would they purchase this product?
• Would they recommend it to a friend or family member?

8. Upgrade and improve

Take your customer feedback and implement it to MVP version twp. Iterate on these ideas and continue to polish your product. Remember, it doesn’t need to be perfect. Nor do you need to add everything your customers mentioned.

9. Test your MVP again

Test your MVP again and see what your potential customers think. If you receive a positive response, you can proceed with go-to-market for your final product with confidence. If you’re not convinced, go back to the drawing board or consider a more extensive product pivot.

Additional strategies to achieve product-market fit

During the MVP-building process, you might have run into some hiccups. Customers might have struggled to understand how the product helps them, or they may feel like it’s a better fit for another target market.

If you don’t feel confident launching your product, that doesn’t mean you need to scrap it altogether. You may just need to make some pivots to your business model or position it better. Your product might not be the problem—it might just need some tweaking.

Here are some additional ideas you can explore to help achieve product-market fit:

Change up your team

You might have all the right individuals in all the wrong places. Switch things up. Invite your developers to decision-making meetings, and let your marketers share product recommendations.

Revise your positioning

Your product descriptions or marketing efforts might be going over the heads of your customers. Refine your writing and experiment with different copy on your landing page and paid advertising messages to see what resonates best with your audience.

Transition to a different market

You might have a brilliant product in the wrong market. PayPal started as a simple payment encryption service before becoming a web-based payment processor targeting a global audience.

Give your customers what they want

Listen to your customers and compromise on your ideas to satisfy customer needs. You might not get the product you envisioned from the get-go, but you could deliver exactly what your customers want.

Be willing to tell customers “no”

The customer isn’t always right. Sometimes, you have to be willing to say “no” and focus on your product priorities.

Raise additional capital

Money makes the world go 'round. If you don’t have money to develop an adequate MVP or research your target customer, you might need to raise additional capital.

How to measure product-market fit

How do you know if you’ve achieved product-market fit? Good question. Measuring product-market fit is more than just a gut check. You can evaluate product-market fit with a mix of qualitative and quantitative metrics.

Here are some quantitative metrics to consider:

• Growth rate
• Sign-up rate
• Early adopters
• Customer retention rate
• Churn rate
• Brand awareness
• Market share
• Net Promoter Score (NPS)
• Customer satisfaction score
• Product reviews
• Number of referrals
• Customer lifetime value

And here are a handful of qualitative metrics you can use:

• Press coverage
• Influencer reviews
• Word-of-mouth marketing
• Interests groups
• Product review feedback
• Comments
• Customer surveys

Launch your product at scale with DigitalOcean

You know how to achieve product-market fit—now it’s time to make it happen. DigitalOcean gives you the affordable cloud infrastructure you need to build everything from an MVP to an enterprise-level global product.

Not to toot our own horn, but we’ve found our product-market fit. We empower our customers to build applications, websites, eCommerce stores, and more seamlessly in the cloud—and we do it better than anyone else.

See for yourself.