In the early stages of company-building, product-market fit, the most critical question you have to answer is: Are there enough customers who want your product?
That's not always an easy question to answer. Because the market for your product is always evolving, product-market fit isn't a box to check off. It's a constant conversation to be had whenever the economy ebbs and flows, or when customers' wants and needs change. Take, for example, restaurants who had to pivot from in-person dining experiences to take-home meal kits during Covid-19. To keep you ahead of the curve, I want to share some of the best tactics for thinking about product-market fit from proven entrepreneurs we've uncovered on The Founders Project podcast.
Always Talk to Customers First.
According to Steve Fredette, co-founder of restaurant technology platform Toast, talking to customers is more important than actually having an MVP (minimum viable product): "I'm a big believer that you don't really have to build anything to understand product-market fit. You just have to talk to customers."
As Steve puts it, customers vote with their time. If they're willing to spend time with you talking about a pain point, they'll be more likely to take your sales call once you've built a solution. Even if you think you have a brilliant concept, invest your time in validating the idea before you invest resources in execution.
Remember, this lesson isn't just one for brand-new startups. If you're one of the many businesses making a Covid-related pivot right now, resources and time matter more than ever. Speak with customers as your first step before inking your gameplan. For a business like Toast, that might mean spending time asking restaurant-owners what technology would help them facilitate pick-up orders or contactless ordering.
Take a Grassroots Approach.
If you are just starting out or trying to break into a new market, try a grassroots approach. Olivier Pomel of Datadog, which IPOed in 2019, started out by going to community conferences. Once he got himself in front of an audience, he used the opportunity to demo the early product, which helped him get live feedback and build a pipeline of potential customers.
In-person conferences are off the table right now, so think of this time as an opportunity to engage with an even broader community of future users online. Sign up for virtual meetups or industry webinars, or try cold emails to target customers. More often than not, they may be willing to hop on a 15-minute Zoom call with you (and if they are, take that as a positive sign you're onto something).
There are many metrics used to assess product-market-fit, including Net Promoter Score (a customer's likelihood to recommend your product) and engagement metrics like DAU and MAU (daily active users/monthly active users).
But one of the best metrics for assessing fit comes in the form of a simple question, according to Superhuman founder Rahul Vohra. (And his platform has a waiting list of 300,000 customers.)
Vohra regularly asks customers: "How disappointed would you be if you could no longer use this product?" After benchmarking dozens of startups, experts found that if more than 40 percent of users would be "very disappointed" without your product, you have a solid initial product-market fit.
The simplicity of the question makes it something you can ask your users on a regular basis, enabling you to identify initial product-market fit and spot trends over time.
...and Measure Qualitatively.
As important as it is to be metrics-driven, qualitative feedback plays a big role, too. That's why as an investor, whenever I'm looking at a company to invest in, I take calls with customers to hear firsthand how they feel about a product.
When Steven Galanis was launching celebrity marketplace Cameo, the first days were full of struggles. After launching, it turned out that the payment processor on the website didn't work. A would-be user messaged the company to try to sort out the problem, because he was so eager to use the platform.
For Galanis, that was his own aha! moment that he had struck product-market fit. As he put it, "I've never wanted a product so badly that I would reach out when it didn't work."
Whether your business is just an idea or you've already seen successful traction, these best practices are critical in 2020 for reevaluating who your customers are, what they want, and how well you're delivering for them.