Achieving product market fit is one of the first goals an early-stage startup needs to accomplish. For the company to survive, it needs to prove its product will appeal to enough people and begin to bring in money. The agile startup methodology will get you to that point. By running your core business assumptions through a series of experiments, you can better design your product for your target audience.

However, traveling down the right path means nothing if you can't measure how far you've progressed. So the big question is: When do you know that you've finally achieved product market fit? What metrics do you use to determine you've reached your goal?

Knowing that will allow you to move on to the next phase of your startup. But first, let's break down what product market fit actually is:

What constitutes product market fit?

The term was created in 2007 by Marc Andeerssen. He defines product market fit as "being in a good market with a product that can satisfy that market." Basically, you need a market that's large enough and a product that fulfills a need of that market.

By sticking to the agile process, you should be able to develop the second factor. At my company Coplex, a startup development studio, it's clear we've adequately addressed the market's needs once we've validated core assumptions of the startups we work with. After testing aspects of the product and seeing what sticks and resonates with the target audience, we're left with the fundamental features we need to satisfy the market. That alone may or may not be enough to make the company profitable, but at least there's a proven need and interest in the product.

The second aspect of product market need -- having a good market -- means different things for different companies. At its core, it means that a large enough market exists to sustain the business. However, the defining characteristics of each market is different. Again, you learn what makes your market unique by testing assumptions. By doing that, you learn key details like the age of your market, their economic standing, how big it is, etc. All of those factors affect product market fit.

Once those two factors are in place, however, you can use what you've learned to craft a business strategy to strengthen your product market fit. You do that by finding a way to bring the market and product together. And you measure your progress in that venture with the following tests:

1. Survey customers

Word of mouth can have a huge impact on the success -- or failure -- of a new company. What your customers or users tell others about your product matters. And that's why you need to track and follow the feelings and conversation surrounding the company.

Ask your customers to fill out a survey that will give you insight into their thoughts on your product. Get their feedback on the user experience and satisfaction and track their responses over time. This will show you trends in how your market is relating to your company. You'll be able to see what is making them loyal customers or what is pushing them toward a competitor.

Josh Pigford of Baremetrics suggests asking customers one key question: How would you feel if you could no longer use this product? If most respondents say they'd be very disappointed if the product disappeared, you've reached product market fit. However, if no one would miss it, you have more work to do.

2. Track customer behavior

How customers or users use or interact with your product or website can reveal a lot. It's especially valuable insight for companies that rely on a well-functioning UX. If people are spending short or inconsistent amounts of time using your product, there's something wrong.

Look for patterns in how long users stick with your product. If you see that people are dropping off as customers after a certain period of time, focus on what could be triggering that. Find out what's causing the market to disconnect from the product. Remember to use the same process you did to develop your minimal viable product: iteration. Look at customer behavior and adjust your assumptions accordingly. That way, you can figure out the missing pieces.

3. Consider your customer acquisition cost

The less money you need to spend to convince people to become a customer, the better your product market fit is. On the other hand, if your customer acquisition costs are extremely high, it's not quite as obvious why your product should matter to people.

At the beginning, these costs will be higher since you need to invest more money into educating people about the company and product. Once that ball is rolling, you should see acquisition costs drop. That will show you've refined your product market fit.

Nothing is ever perfect. There are always improvements to be made. But that takes time and resources that most startups don't have. So instead of shooting for perfection, aim for product market fit. And once these metrics have proven you've achieved that, it's time to take your company to the next level.

What are some other ways to prove your company has product market fit? Share in the comments below!

Published on: Sep 28, 2016