Thinking about Product-Team-Market Fit? (PTMF)
I dabbled with the idea of Product Market Fit(PMF) when I was building my start-up, a marketplace for home and personal care services. In this article, I discuss my understanding and interpretation of the concept using a 2x2 matrix, the pivotal role played by ‘teams’ in getting to a PMF, and finally, some indicators for PTMF.
Is it important to have Product-Market fit? Should I really care about it?
Yes, you do care about it because PMF is all about running hypothesis tests and fine-tuning them until a working model is built before running out of resources.
Software products are either like headache tablets (solves a REAL problem) or like vitamins, (can live without them but are largely addictive) Irrespective of the type of product you are building, every day you need to make progress to add sufficient ‘value’ to your target segment, grow the business, and make revenue. These things don’t happen without a PMF. Without a fit, sales/marketing tactics, ‘spray and pray’ techniques, ad spend, rewards, campaigns, and growth hacking techniques don’t work. It is essential to focus on getting and sustaining a fit.
What is a Product-Team-Market fit?
Let’s talk about Product-Market fit(PMF) before adding a 3rd dimension, Team, to it.
If you google search “what is product-market fit” — you get a short description pasted below and a wiki link
“Marc Andreessen defined the term as follows: “Product/market fit means being in a good market with a product that can satisfy that market.” Many people interpret product/market fit as creating a so-called minimum viable product that addresses and solves a problem or needs that exists”
Back in 2015 Feb, I got a chance to listen to the most compelling story of Thumbtack from the founder himself. It was intriguing to understand how they steered their way towards getting to product market fit by working on different business models, product tweaks etc. It occurred to me that this product might impact the lives of millions of customers and professionals within South East Asia(SEA). To me, this was a 10x product that removed all the manual intervention and inefficiencies from discovery, validation, trust, and pricing.
I wanted to explore building a similar product for SEA to solve the problem of finding ‘reliable and affordable’ professionals using technology. Wasn’t sure about the market demand though. I decided to stick to Paul Graham’s philosophy:
“Make something people want.”
Sounds so simple and easy but getting there takes lots of perseverance, knowledge, skill, hard work and right people.
My initial exercise involved the following:
- Design of B2C marketplace specific to SEA market: Business model, understanding the ecosystem in terms of fragmentation, frequency, payment etc
- Market need: Is there a market for solving the problem using technology?
- Study of incumbents
- Forming a team
- Coming up with plan A: running hypothesis tests on plan A to find a fit
I came up with a 2x2 matrix to map the interrelation between market needs(demand side) and the product side of things as shown below:
(P.S. I will not go into the details of my start-up experience in this post)
1 - Low market needs and a basic (rather shitty) product
The low market need could be for various reasons. Some top reasons:
- The problem being solved may not be a ‘real’ problem for consumers
- Incumbent or alternate solutions may be good enough for consumers and they may not want to switch to a new product
- Market size might be too small or niche and customers may not be willing to pay
A basic product may have disappointing usability and quality, and may not match the target segment’s needs. It just does the single most important thing that the product promises
If you are in this quadrant, then it is time to go back to the drawing room to brainstorm and determine a better market need or think about what kind of product could be better for the chosen segment. Also, it is important to do a reality check as to whether the current team skill sets can take the organization to the goal post. Product is just not software or 1000s of lines of code, it also includes price, unfair advantage, channels, revenue streams, positioning, experience, and emotional appeal.
2 - High market needs and a basic product
This quadrant reminds me of Craigslist. In spite of having a site with text format, cluttered, not easy to navigate, no fancy UI/Ux, and no tech jazz, the site serves more than 20 billion page views per month, putting it in 72nd place overall among websites worldwide. (Reference) Clearly, there is a market need.
It is also great to see how people are picking each vertical from craigslist and forming specialized verticals and solving craigslist weaknesses. Thumbtack, and Airbnb found their initial traction and success using craigslist.
If there is sufficient market need then traction could be seen for a basic product as well
3 - Low market need and awesome products
I believe awesome products are an outcome of great minds and passionate people. Great products (and teams) always stand a chance to find a pivot that could eventually become a great market and product fit.
One such example I have seen is Airbnb. Airbnb started as a business where the founders’ living room of their loft apartment was turned into a little bed-and-breakfast. Cute idea! Later evolved and was positioned as an option to network for conference attendees when hotels are booked up. This was really an attractive, niche but a seasonal business idea.
Currently, it caters to a huge market and has become a destination site for finding local homes, experiences, and adventure.
In the matrix above, it moved from being a basic product and poor market needs towards a great market need and best product quadrant.
Similar case with Uber as well. Uber started as an app to request premium black cars in a few metropolitan areas(niche segment) but now it is changing the logistical fabric of cities around the world. Whether it’s a ride, a sandwich, or a package (Reference link)
This brings us to the other dimension of PTMF, which I haven’t talked about till now, that is, TEAM! In both cases above, it was TEAM that stood strongly behind solving a greater problem for a large user base, better revenues, and growth.
Of all the 3 things — Product, Team, and Market, I believe solid teams can create magic and help businesses end up in Great market and awesome product quadrant.
Within the “Build-Measure-Iterate” model, it is important to have a committed team working on building iterations and learning constantly. These iterations could be related to MVP, business model, product, positioning, market strategy, or focused group. If you are an early stage start-up, you could use lean canvas (explained here)to get started
It is essential to have a passionate and skillful team of people working towards a shared goal. Vision, clear direction, focus, untapped opportunities, and competitive rivalry (like Uber and @Grab in SEA) could be used to bring the best out of the teams.
How do we know whether there is a product-team-market fit or not?
For an early-stage start-up working on a disruptive product, initial account signups may not necessarily indicate a PMF as demonstrated by Geoffrey Moore(Reference link). He argues that there is a chasm between Early adopters (the technology enthusiasts and visionaries) and the early majority(pragmatists)
Key message here is to ensure all the early adopter issues are solved, there is an extremely strong positive signal and early adopters are comfortable recommending the product before jumping to scale for the majority. Important to go back to the drawing-room whenever we see less than a stellar response from the customers
Some thoughts are based on my experience in building, selling, and managing Enterprise SaaS products.
Lead indicators when it comes to getting a sense of PMF for a start-up catering to the SaaS segment are — Sales cycle, LTV, CAC, recurring revenue, and line up of investors.
I believe high-end enterprise SaaS sales typically take around 3–6 months(could vary based on the industry and pricing) and saasmetrics blog has more structured info about the sales cycle(Refer here)However, strong value proposition, credibility and price could help bring down the sales cycle.
LTV will be at least 3x greater than CAC and recovering CAC would be within 6–12 months (at the most) Churn is factored into CAC and LTV.
There is no science or a single metric that clearly indicates the fit. The proof is in the pudding. There are lead indicators(both qualitative and quantitative) in terms of increased organic growth, revenue, network effect, product sentiment analysis shows a green bar, sales/marketing folks get their target incentives, referral, WoM, growth hacking techniques seem to work etc. Overall, the market responds positively to the product, and revenue numbers look good.
On the other hand, when there is no fit, no stimuli seem to work. The number of stimuli (input/investment) in terms of sales and marketing spend, paid ads, PR, growth hacking techniques, etc doesn’t move the needle much. The overall response from the market looks weak.