Launching a new tech product or venture can be difficult and require extensive time and money. It comes with a risk of failure—especially if there isn’t market demand for your offering. That's why achieving product-market fit is crucial to building an attractive business model that scales.
If you want your startup to succeed long term, here's an overview of product-market fit, why it’s important, and how to achieve it in the technology industry.
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According to Harvard Business School Senior Lecturer Jeffrey Bussgang in the online course Launching Tech Ventures, product-market fit (PMF) is the alignment of your company's product with your target customers' needs.
"PMF is creating a compelling product that properly satisfies the target market, such that the market embraces the product," Bussgang says.
Finding PMF is crucial to your startup’s success and provides numerous benefits, including:
- Satisfied customers
- Reduced churn rate
- Increased willingness-to-pay
The process begins with effective market research.
"It all starts with understanding who your customer is," Bussgang says in Launching Tech Ventures. "Experimenting and iterating on a precise definition of your target customer—and then allowing that definition and the associated value proposition to ripple through all the business model elements—is a critical part of the product-market fit journey."
Discover how to find product-market fit in the video below, and be sure to subscribe to our YouTube channel for more explainer content.
View VideoWhy Is Product-Market Fit Important?
Approximately 34 percent of startups fail because they don't find the right PMF. Many entrepreneurs fall into the trap of assuming that if an idea is creative, it'll succeed—but that isn't always the case.
For example, when Google released Google Glass, the product didn't take off, largely because it wasn't a good fit for the market. Privacy concerns and high prices meant that most consumers weren't willing to pay for it. Google Glass achieved moderate success in the manufacturing world before being discontinued in early 2023.
Avoid the mistake of assuming a technological breakthrough will equal success. You must first ensure there's demand for your product or service before investing significant time and money.
"As an entrepreneur, your goal is to test and validate all elements of your business model until you achieve product-market fit," Bussgang says in Launching Tech Ventures.
How to Find Product-Market Fit
Finding PMF requires patience and intention. In Launching Tech Ventures, Bussgang identifies a four-step process based on entrepreneur Eric Ries's lean startup method.
1. Ideate
Creating a satisfactory product begins with deeply understanding a problem and envisioning a world where it’s resolved. Through ideation, you can generate potential solutions.
While creativity is essential, remember that innovative ideas must be both novel and useful. Identify your ideal customer and how you can satisfy their needs by employing tools like design thinking. If you already have a solution in mind, ensure it's viable.
Check out the video below to learn more about how to come up with innovative business ideas, and subscribe to our YouTube channel for more explainer content!
2. Generate Hypotheses
Taking a page from the scientific method, the next step is developing and testing hypotheses. A good place to start is asking "if-then" questions: "If A happens, B will result."
According to Bussgang, your hypotheses should cover each component of your business model, including:
- Customer value proposition (CVP)
- Go-to-market (GTM) strategies
- Profit formula (PF)
Use insights gleaned from research to determine the most likely answers to your questions and prepare to test your theories.
3. Develop Tests
After generating your hypotheses, create and implement tests for your product.
"These tests are most efficiently run by developing a minimum viable product, or MVP," Bussgang says in Launching Tech Ventures. "The MVP is the smallest set of features or capabilities that take the least amount of development time to deliver the most learning as quickly as possible."
Tune in to Professor Bussgang's interview on The Parlor Room podcast for more insights into product-market fit. Listen to the full episode below, or watch it on YouTube.
Alpha and beta testing are effective methods for validating business ideas.
- Alpha testing involves employees testing a product internally in a controlled environment to identify and resolve bugs, issues, or idiosyncrasies before external users access it.
- Beta testing involves external users using a product in a production environment to uncover bugs or issues before a general release.
Both testing types can help you find your product’s PMF. They can also boost your and potential investors’ confidence that your product will succeed.
4. Prioritize Tests
While tests are critical to finding PMF, they require time and resources. You must determine which are critical and prioritize them.
"Entrepreneurs must make hard choices about which tests are the most important and, if successful, could unlock the true power behind their business idea," Bussgang says in Launching Tech Ventures. "For an entrepreneur, test prioritization is essential."
As your company grows, dedicate additional resources to conduct more extensive tests.
5. Execute and Measure
Although not a formal step in the lean startup approach, your final task is executing your tests and measuring their results.
Remember that testing should be continuous—even after you develop your product. As the market evolves, so should your product. If a competitor launches a similar offering that's a better fit, they'll likely take valuable customers away from your business.
According to Launching Tech Ventures, your test results can inform whether to:
- Adjust your hypotheses
- Shut your business down
- Scale your product-market fit
Not every industry leverages this process the same. For example, in health care, conducting tests can be more challenging because of additional ethical and privacy considerations. Regardless, it provides an excellent starting point to discover your offering’s PMF.
What Comes After Product-Market Fit?
Finding product-market fit is critical to scaling your business. Growing a tech venture comes with many challenges, such as securing funding and navigating the systemic biases of the startup ecosystem.
To improve your chances of success, preparing for obstacles is vital. One way to do so is by taking an online course, such as Launching Tech Ventures, that can teach you how to design an effective business model, find PMF, and thrive in the tech startup world.
Ready to learn more about starting and scaling a tech business? Enroll in Launching Tech Ventures—one of our entrepreneurship and innovation courses—and download our entrepreneurship e-book.
