Product market fit is a term that has recently gained significant traction alongside the booming industry of technology-based application startups. This term reflects one of the key indicators of success for a startup, an indicator that investors may heavily consider when making strategic investment decisions.

According to Marc Andreessen, product-market fit represents the alignment between the right market and the right product that can fulfil the needs of that market. Consequently, the mindset of a startup founder should be focused on developing solutions that are relevant to the market's demands, thereby making customers willing to purchase them.

The above description may appear straightforward in theory. However, different challenges arise during the implementation phase. Founders need to examine numerous elements in formulating the appropriate strategy, starting from accurately understanding customers, identifying their pain points, analysing market structure, competition, and regulations, measuring the acceptance of the proposed solution in the market, assessing the required adaptation period until reaching maturity, and so forth

To ensure the achievement of product market fit, founders can pose several fundamental questions, such as:

- Can customers identify the value proposition of the product, and can the product generate sustainable organic growth from a business perspective?
- Will the offered product stimulate market conversation, with buyers engaging voluntarily and with minimal incentives?
- How will the pattern of acquiring new customers exponentially increase over time? When will this growth pattern reach saturation, and what initiatives can be taken to extend this growth period?
- What is the feedback from customers regarding this product? Is the feedback predominantly positive?
- What is the customer retention rate and churn rate after using the product? What proportion does the customer acquisition cost represent in relation to the customer lifetime value?
- Has the company established a continuous communication pattern with users? Has the company effectively leveraged user feedback as an improvement strategy?

Product market fit is crucial for investors or venture capitalists when making investments. They will request various evidence that reflects the product's ability to achieve this product market fit. Some commonly requested evidence includes customer data and its growth, positive customer testimonials, business metrics such as retention/churn rates, conversion rates, metrics embedded in each customer journey pipeline, etc., market trends and growth, and the company's strategic plans.

How to achieve product market fit?

There are multiple alternative strategies that can be employed to optimize product market fit, such as adapting the core product to enter new markets, identifying markets with strong demand, repositioning old ideas to be more contextual with the current business landscape, aligning with the current desires of the target market, or creating entirely new solutions. As success in achieving product market fit varies across different industries, it is important to consider the differing business metrics that will result from marketing efforts.

One commonly used experimental approach is developing a Minimum Viable Product (MVP). An MVP can be understood as a small-scale version of the product, service, or solution that will be launched in the target market. The MVP enables companies to quickly validate hypotheses at a minimal cost. Companies can set goals for the product through the MVP while simultaneously testing the product concept.

There are several business metrics inherent in the MVP process, which can serve as fundamental indicators to evaluate the product's potential success. Some of these metrics include usage rates, user satisfaction levels, user feedback, retention, churn, user conversion rates, and growth rates during the experimentation period.

Dan Olsen, a startup expert, has outlined steps to achieve product market fit:

- Identifying the target market
Companies are required to identify their target market. Who will buy their product? What makes them willing to spend money and purchase our product? How do we communicate our solution to them? This emphasizes the importance of market research and creating customer personas, a fictional version of those who might buy our product.

- Identifying unmet customer needs
This can be quite challenging as it is difficult to offer a solution to a target market that is already satisfied with existing solutions. Instead, companies need to shift their perspective towards dissatisfied customers and identify their pain points, formulating how our product can provide a solution for them.

- Defining the product's value proposition
Once we know our target market, the next step is to communicate how our product can provide a better solution. We can identify points of difference that we can highlight, whether it's in the process, pricing, packaging, or a better combination of packaging.

- Developing the MVP feature set
The MVP should be as simple as possible, showcasing the minimum functionality of the product. The key is to create an MVP that is easily implementable.

- Creating the MVP prototype
The MVP prototype should be flexible and allow for multiple iterations and improvements during the experimentation period.

- Testing the MVP with customers
MVP testing is conducted with select groups from the target market. The goal is to gather as much feedback as possible, observe how customers use the product, and so on. Here, the company needs to have a flexible mindset towards various ideas and be able to adapt those ideas to better meet user needs.

What comes next after achieving product market fit?

Product market fit is a phase in the process of introducing a new solution. It is a temporary period and not the end goal. This means that when a company achieves product market fit, they need to refocus on their key business metrics. They still have ethical and financial responsibilities to investors or venture capitalists for their investment.

Companies can optimize the use of business analytics to monitor user behaviour, examine key performance indicators of the customer journey pipeline, and take tactical and strategic steps to address the dynamics that arise.