A Better Way to Understand Product-Market Fit

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Everyone knows what a successful startup looks like, but few people understand what it takes to get there. I often felt frustrated while working on Humble Dot in the very early days because much of it felt like guesswork. My cofounder and I had no traction, and advice came in the form of vague mantras like "you know you have product-market fit when you have it" or "build an amazing product, and the users will come." We had no idea what product-market fit looked like much less knew how to achieve it.

Gradually, over two years and two fundraising rounds, I began to understand that product-market fit was missing a third component — that it should consist of three main parts:

  • Product — what you ultimately build and sell to customers.
  • Market — the identifiable group of people who you target.
  • Value — a market pain point that your product solves.

The goal of an early-stage startup is not only to define a clear product, market, and value, but to also find a good fit between all three. To do so requires knowledge of how each area relates to one another such that every iteration improves fit over time. The following diagram outlines the three main focus areas along with the company functions that exist between them.

Three Main Areas of Focus for StartupsCreated by Will Goto

Success in company functions correlate with good fit between focus areas. For instance, a successful match between product and market correlates with frictionless sales and marketing. Similarly, value-product fit correlates with a well-designed product, and market-value fit means that a large percentage of your market has the pain point your company aims to solve. Finding fit between all three areas, however, is a tricky game of iteration which I’ll elaborate more on in another article.

In almost all cases, gaining early traction and finding fit is easier if the company’s product, market, and value are well-defined. I cannot emphasize this enough — going niche is the key, and iteration should always aim to increase specificity at the early stage.