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How To Find Product-Market Fit And Keep It

Dharmesh Raithatha

Product Partner @ Forward Partners

Product-market fit might just be one of the most referred to concepts in the world of startups. Given that an inability to achieve this coveted state is the no.1 reason why startups fail, it’s not surprising that every investor, operator and founder is weighing in on the conversation. However, as with most concepts that find their way into popular discourse, it’s so frequently misused and wrongly defined. So much so, that I often come across founders who say they’ve found product-market fit, but don’t know what it actually means. 

With 15 years of product experience, 2 startups, and 6 years in venture capital under my belt, I’d like to set the record straight. Consider this, a no-nonsense guide to product-market fit. What it really means, why it’s critical, and how to achieve it.

What does product-market fit actually mean?

It depends on who you ask. Some discuss it as if it is a discreet endpoint. Others give a more theoretical description that suggests it’s a function of many different things. 

Andy Rachleff who first introduced the term ‘product-market fit’ describes it like this:

A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product.”

Another more succinct definition was provided by Marc Andreeson in his famous post The only thing that matters:

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

The first definition verges on conceptual and doesn’t exactly allow for instant comprehension. Whilst the second is much more practical, it ends up missing out on some important subtleties.  

I propose a more nuanced definition that acknowledges that product-market fit is not a fixed destination, but rather a state that your startup can flow in and out of.

Product-market fit is a state where you are creating value (product) for a sufficient number of customers that care about that value (market) with an effective means of getting it into their hands (distribution).

It’s a state that relies on an optimal relationship between the value your product creates, the efficacy of your distribution, and the size and dynamics of your potential market. All 3 of these elements - product, distribution, and market - are in flux, as a result of both things you can control (your internal growth efforts) and things you can’t (competition, new technology, consumer preferences, etc). 

Skype is a great example of a company that was temporarily in a state of product-market fit. They offered a cheap way to talk to friends online via their desktop. However, they failed to keep one eye on the market and once mobile data became cheap, their unique value deteriorated, and they moved out of product-market fit. 

The best way to think about product-market fit 'states' is in reference to the size of the market. The larger the number of customers that your product creates value for, then the 'larger' the state of product-market fit that your company is in.

It's harder to achieve later states product-market fit, as a larger pool of potential customers will have more diverse needs and tastes, making it more difficult to successfully create value for them all. In light of this, I'd advise focusing on your initial market before scaling up, being razor focussed on building an amazing product and finding effective distribution channels for this niche. Over time, you'll start to evolve the product to bring in a larger audience.

For example, legal marketplace Lexoo (a portfolio company), started off targeting SMEs, and only after they successfully achieved product-market fit with this subset, did they expand into targeting enterprise customers.


6 fundamentals of understanding product-market fit


  1. Think about your market in the right way

Your market is not a statistic pulled from an industry report, nor is it a general subset of the population loosely categorized by the year that they were born. It is a set of customers that have specific needs and wants. Your job, as a founder, is to understand those needs, build a product or service that meets them, and figure out a way to get it into their hands.


Sam Altman nicely frames this in the following post:

"In the first few weeks of a startup’s life, the founders really need to figure out what they’re doing and why.  Then they need to build a product some users really love. Only after that they should focus on growth above all else.


  1. Moving from advocates to mass market will be incremental

You will go through different states of product-market fit on your journey to building a big business. In the beginning, you will often stutter through these states. Your early product might be useful to a few very eager people and then as it gets more polished and delivers more value you will move into larger states of product-market fit.


  1. External forces can push you in and out product-market fit

External forces can push you into a larger market. Airbnb, for example, spent quite a while iterating on their product but it really benefited when the global recession came and suddenly lots of people were more willing to rent out their rooms to strangers. Equally, forces can move you out into smaller states of product-market fit. In this scenario, competitors may move into your market or offer a better product forcing you to either adapt or die. 


  1. High growth doesn’t always equal product-market fit

When you are in product-market fit for a large market, you’ll really begin to feel the pull of the market. You’ll be beating MoM growth targets, or seeing unusually high word of mouth referral. High growth, however, doesn’t mean sustainable growth. You may have built a product that is great at acquiring users, but terrible at keeping them. In this case, topline growth isn’t a sufficient indicator of your companies success, nor is it a sufficient sign that you’re in a product-market fit state. 

Marc Andreessen makes a great observation about when you are in a large product-market fit state:

"You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it's happening. The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can.


  1. Revenue tends to indicate that you’re in a state of product-market fit

You don’t need to have revenue to have product-market fit, but 90% of companies do. The 10% exceptions are where there is an obvious way to monetize your product in the long term. Facebook and Google had product-market fit knowing that they could monetise attention further down the line. These types of companies tend to have found a distribution channel that is cheap (like virality) or they have the ability to raise lots of money because of the strength of their growth and the type of value they are creating. For example, 'search intent' for Google easily leads to advertising. 



Going from an idea to product-market fit

They normally say that every startup starts with an idea. It would be better to say that every startup starts off with a market. Once you have found a market then you can then get to work finding the idea that the market needs. Below you will find a step by step guide for thinking about the market, building a product and getting into a good initial state of product-market fit.

Your market can make or break your startup.


  1. Think market before product

The best way for a founder to start is to identify the market need and size, before building any product. A large market where you can see a need will make it easier to identify the product you need to build. Go the other way and you are guessing on the market side and introducing a lot of additional risk.

Look at it this way. If you build a great product that no-one wants then your startup dies. If you build an average product in a market where everyone is desperately looking for a solution then you may still create a great business or give yourself time to really build a great product.


  1. Look for large markets with incumbents

Going after a large existing market is recommended if you want to raise venture capital. VC’s business model works on getting big exits and big exits only happen in big markets. Large markets are also better for you as they are often full of older incumbents ripe to be disrupted, and it’s easier to pick off a niche and start building some momentum. Let’s take Monzo as an example. Banking is already a huge market and there are billions of people with smartphones and lots of older incumbents with old technology. 

The same is true for Google. There were already search engines on the market before Google came along. They just came along with a better product that gave better search results and a radically different search experience. 

From a desk-based research perspective, you should do a top-down and bottom-up analysis of market size.


  1. If you go for a new market then manage your runway carefully

Of course, there are some startups that try to create new markets. While there are examples of successful companies doing this you are open to much more risk of your startup failing. Firstly, there is a timing issue. If you built the best VR game for instance, you have a limited pool of people to target and your success will rely on deeper penetration of the technology. The market may be too small and may stay too small before you can be self-sustaining. 

In addition, in a new market, you have to define a product from scratch without any other similar products that you can benchmark against. This means more product iterations and time spent until you reach product-market fit. 

Andrew Chen talks about this and the concept of Time To Product-Market Fit. This is how he defines it.

"So let’s define a new term: TTPMF – the “Time to Product/Market Fit.” You want to get TTPMF down to the point where you can achieve it, scale up the business enough on traction to either reach profitability or to raise your next round. If your plan for TTPMF exceeds your funding runway, you’re already dead.

All of this means you need to manage your money more carefully and/or make a very compelling case to VCs that the future is not that far away.


Find your core user. Obsess over them.


  1. Learn as much as you can about current user behaviours to understand current frustrations and needs.

Once you have a market size you now need to understand what the experience of people or customers today. The easiest way to do this is to observe and interview potential customers. In a previous article on interviewing customers I talk about how just 20-30 interviews are sufficient for you to get a real feel for how strong the pull of the market is and how you can learn what your product needs to do fit that market better than current offerings. 

The more pain or friction you can see in the current process, the stronger the pull of the market is for a product. 

TOP TIP: Try to solve the problem yourself using all the competitors and alternatives. Deliveroo’s competitors are not only Just Eat, but also cooking at home.


  1. Define your early adopters and make a product they will love

When you first start out working on your product your goal should be to get a subset of your overall market to be highly disappointed if your product didn’t exist. You want some people to love what you have created rather than a lot of people to like your product. 

Making something that people find indispensable is hard and if you can do this with a tightly defined set of users, then you know you have built something that has a good chance of finding product-market fit in a wider market. This is a far better route than having a product that a lot of people feel is ok and then trying to improve things. Why? Because the needs of the larger group will be more diverse, and your product will end up doing lots of different things to a mediocre level, as opposed to creating significant value in a core area. As a result, users will be indifferent and you’ll be unable to out-compete other offerings. 

As Paul Graham says in this famous post

"Ideally you want to make large numbers of users love you, but you can't expect to hit that right away. Initially, you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It's easier to expand user-wise than satisfaction-wise. And perhaps more importantly, it's harder to lie to yourself. If you think you're 85% of the way to a great product, how do you know it's not 70%? Or 10%? Whereas it's easy to know how many users you have.


Stay focused and learn whilst building.


  1. Use Design Thinking and Lean Startup principles to develop your startup idea

Design thinking places a lot of emphasis on user research and learning as much about your customers as possible and then using rapid prototyping to test out lots of product ideas quickly before you start building something. Lean startup methodology focuses on launching something quickly and thinking of your startup as running lots of experiments where your goal is to search for a product-market fit state. In my previous article on how to evaluate your startup idea I talk a lot about how you put this into practice. But the takeaways are:

  1. Use the Lean Canvas to identify your assumptions

  2. Test your assumptions around the problem, customers, and existing solutions through user interviews and observations

  3. Testing your unique value proposition and solution while trying to create as little product as possible

  4. Use prototypes or concierge service to start seeing whether your product ideas resonate with your target customers

  5. Start building your product once you have some early signs of positive customer feedback

  6. Keep learning from your users through both in-person interviews and capturing analytics data on your product.

  7. Test distribution channels early alongside product development


  1. Stay focussed on your core value proposition

In the early stages, it’s important that you stay focussed on refining your product's core value proposition rather than just throwing out lots and lots of features and hoping that more features will make people like your product. Adding more features will only add an additional layer of complexity that obscures your ability to meet the core need, and confuses users about the purpose of the product.

In general, people will either love or leave your product within the first or second use of your product. So adding lots of new features is not going to help. Rather spend time polishing and simplifying their first experience so they really understand the value the product offers. 

TOP TIP: Think about whether your product is naturally a painkiller, vitamin or candy.


What gets measured, gets managed.


  1. Use the PMFit survey to know how you are doing and what you can improve

Sean Ellis created the product-market fit survey. The key question in this survey is:

How would you feel if you could no longer use [product]?

  1. Very disappointed

  2. Somewhat disappointed

  3. Not disappointed (it isn’t really that useful)

  4. N/A – I no longer use [product]

What Sean discovered was that if over 40% respond as ‘Very disappointed’ then you are in a state of product-market fit for those types of users. In another article Rahul Vohra, the CEO of Superhuman, wrote about how he used the PM Fit survey to help drive product improvements and change his percentage of “very disappointed" from 22% to over 51%. I.e. how he managed to move into a state of product-market fit. 

Ideally, you get 30-100 responses to this survey to be confident of the score. 

TOP TIP: Make sure you include the open-ended questions. This is often where you get the insight to really help prioritize your roadmap.


  1. Continue to speak to customers in person and observe them using your product

While I love surveys for giving a quantitative number, I would strongly suggest you also reach out to customers and speak to them in person. It’s a mantra of other articles I have written. Why? Firstly, the people that don’t use your product at all are less likely to respond to the survey. Secondly, you can uncover a much richer set of needs of the market by digging deeper into the reasons why they love your product or don’t. These deeper needs are often emotional needs which people will rarely offer in a survey. 


Iterate, iterate, iterate.


  1. Don’t be afraid to change everything about your product

When you are in this phase of searching for product-market fit you need to be confident in making big changes to your product if you are not seeing the response you are hoping for. I meet many founders who stay stuck on their initial product idea and won’t make the changes that are necessary based on what they are learning from their customers. 

Those changes might be in the core value proposition, the onboarding experience and the market you are going after. It should all be on the table.

TOP TIP: Continually refer back to your Lean Canvas and identify the assumptions that you have now proved or disproved


  1. Double down on things people love about your product as well as new features they may need.

If you do have customers that would be highly or somewhat disappointed in your product then pay attention to what they love about your product and double down on it. If they love how quick the product is compared to competitors, then make things even faster. This is how you'll build up a base of customers that rave about your product to others and accelerate growth. 

TOP TIP: A lot of founders I see fail to do this. They always want to add a new feature or move on to the next shiny thing. Your customers came to you because you helped them do something better than before. You should try to get this to a place where they are raving about this to their friends.


  1. Continually test your distribution channels while you are iterating on your product

Ideally, in parallel with product development, you should be thinking about how your product will be distributed. The fastest-growing startups have found distribution channels that are baked into the product and are not reliant on paid marketing. 


Key Takeaways

To conclude, it is fundamental that you get into a state of product-market fit in a large market where you can really start to scale the business. Remember that it’s not a destination and remember the following points:

  • Product-market fit is a state you are in and not a final destination 

  • To achieve a venture-scale business you need to go after a large market

  • However, the path to get there may mean achieving product-market fit in smaller states and then enlarging the market

  • Always start with market size and understanding the pull of the market through a deep understanding of user needs

  • Use the PMFit survey regularly to understand where you are.

  • Be prepared to iterate everything as you can also fall out of product-market fit.

Further reading on Product Market Fit

Product-Market fit what it means and how to measure it.

When has a consumer startup hit product-market fit 

Product market fit and SAAS businesses

12 things about product-market fit

Using product-market fit to drive sustainable growth

I would like to thank Shope and Kostas for their help in writing this article.

Dharmesh Raithatha

Product Partner @ Forward Partners

Dharmesh is Product Partner at Forward Partners and helps founders the've backed go from ideas to a great products and businesses. He has a passion for User Research, Lean UX and using data to inform decision making. Dharmesh has a background in artificial intelligence and has been doing product for over 12 years in his own or other high profile startups.

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