Why is a product market fit so important for startups?

Here’s a short breakdown why a product market fit is inevitable for startups and what 4 signs of a market fit are.

product market fit

Definition

First, let’s start with the question: what is PMF?

Product-market fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability.

Product-market fit is key for numerous reasons

It proves that you’ve created a product people want. And — all the struggles involved with user acquisition become easier once validation is established.

Hitting the sweet spot in a market vs. creating a new one are two entirely different scenarios when building your business.

If you can find a way to gracefully “fit” into an existing market, your chances of success are greater than if you try to create a new one. Creating all the awareness and education needed to generate demand for something that doesn’t already exist is expensive — and failure carries more risks.

However, as a startup, you should aim to achieve PMF.

Why? Because it will tell you whether or not what you are building solves a real problem that a large enough market hast. Without clarity on this, you could continue investing in building something that is not commercially viable.

Signs of a PMF

  • Positive User Feedback: If users are providing positive feedback, it indicates that they find your product to be useful and helpful. Also very important in this case – Disappointment among users or customers if you would turn down your product or remove it from the market.
  • Growing User Base: When your user base is steadily expanding (especially organically), it’s a good sign that your product is satisfying a need in the market.
  • High Retention Rates: If users are consistently returning to your product, it means that they find it valuable enough to keep coming back.
  • Increasing Revenues: If your revenue is increasing, it is a sign that your product is meeting a need in the market and is gaining traction. Lifetime value ideally is 3x greater than customer acquisition costs.

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