Over the past few months I’ve had discussions with various investors, entrepreneurs and others active in startup ecosystems about startup stages, terminology and definitions frequently used in our industry — terms like MVP, product/market fit, and more. After spending nearly two years in Silicon Valley investing and mentoring tech startups and developing tech ecosystems and startup communities, my experience suggests that people active in that space are frequently using these terms because they need some way to explain what stage they are at, but they are actually still getting it wrong.
Just this morning I came across an article by Lean Startup consultant Dan Olsen titled “A Playbook for Achieving Product.Market Fit.” This article made me curious because it claims to offer a guideline to achieve product/market fit, which is a big deal these days. However, as it turns out the article is actually an aggregation of wrongly applied terms leading up to advice which mixes up things to really get to product/market fit.
So let’s start at the beginning by explaining some terms:
The first iteration of your product or service may be a prototype, which is developed in order to test hypotheses and gain invaluable feedback, but represents a non-viable product from a customer’s perspective. Startups and entrepreneurs may use the prototype to test for the existence of a problem, people often also call it a ‘Vanity MVP’.
A Minimum Viable Product (MVP) is not a product startups can decide to launch; rather, the market tells you when you’ve reached your MVP. This is the most common problem when it comes to terminology, because entrepreneurs as well as investors are often talking about ‘launching or creating a MVP’, which is simply wrong. MVP is the stage of product development entrepreneurs could get to through the build-measure-learn cycle of the Lean Startup Methodology. In contrast to a prototype, a MVP needs to be a viable product or service to customers, so must include enough to get people using it and extracting value from it.
Product/Market Fit is achieved if the startup has found a repeatable, scalable model that drives demand. It is the stage after you’ve hit the MVP, and can be described as tuning the engine of your business by developing, selling and marketing your product, as well as building out the team and operations. The goal of the MVP is to create customers, the difference with product/market fit is that it involves measurement, learning and fine tuning, including actionable metrics which are not available before a MVP has been reached.
Some people also distinguish between before product/market fit and after, thus having a product focus which then turns into a distribution focus. Ash Maurya describes the various stages as following:
Prototype -> the type of product or service used for customer discovery
MVP -> the type of product or service used for customer validation
P/M fit -> the type of product or service used for customer creation
Growth/Scaling -> the time to actually build your business
Finally, what does it feel like to achieve product/market fit, or how can you notice it?
In general, achieving product/market fit can be noticed by the time the buying behaviour of your customers is switching from push to pull. Instead of startups pushing every potential customer through the door in order to use and buy their product or service, startups will receive inbound requests through various channels like paid ads, developed viral loops, improved SEO, etc.
Andrew Chen also provides some hints based on his experience investing and working with tech startups:
Product/Market fit is the time when
customers are buying the product or service as fast as the startup can make it ;
usage is growing as fast as you can scale up your technical infrastructure ;
money through sales is piling up in your bank account;
lots of sales and customer support staff are being hired;
reporters and news publications are writing about your value proposition and growth;
investors are interested to follow up or get in touch;
the competition starts popping up all over the place (different regions, verticals).
In order to achieve product/market fit, the time when founders go crazy because “Many people use it, and they pay!”, you need to have hit the MVP first. How to get to the MVP was best explained by Ash Maurya at his talk at SXSW. To get to product/market fit though, startups need to scale customer adoption, test marketing campaigns and customer acquisition channels, discover their revenue/unit economics to find profitable customer segments and streamline their business model. From a business perspective, startups need to assess the market size, focus on hiring key team members, set up operational processes like sales operations, and improve your product while testing additional features.
From MVP to product/market fit, definitions matter. Without understanding where your startup is going it’s going to be very difficult to get there.