How to validate product/market fit in consumer internet
Product/market fit means being in a good market with a product that can satisfy that market.
You can always feel when product/market fit isnt happening. The customers arent quite getting value out of the product, word of mouth isnt spreading, usage isnt growing that fast, press reviews are kind of blah, the sales cycle takes too long, and lots of deals never close.
And you can always feel product/market fit when its happening. The customers are buying the product just as fast as you can make it or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. Youre hiring sales and customer support staff as fast as you can. Reporters are calling because theyve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Bucks.
His partner, Ben Horowitz, follows it up with a bunch of other observations about the fact the event isnt a big bang kind of event instead, theres lots of gray area as your product starts working for the market: Id encourage everyone to read his subsequent post here.
So the short answer is, theres no easy test.
Now given that caveat, Im going look at this through the lens of consumer internet to add some additional thoughts.
What is a market anyway? And how do you validate its real?
How do you even define a market for consumer internet? Ultimately, I concluded that the most useful definition of market is 100% consumer-centric. Heres an attempt at a simple definition, focused on consumer internet:
A market consists of all the consumers who can search for and compare products for a use case they already have in mind.
This definition is very focused on the notion of pre-existing demand for products in your market, and is scoped narrowly to avoid confusion.
The most concrete test of pre-existing demand is using the Google Keyword Tool, which tells you how many people are searching on Google for a particular keyword. To try this out, youd execute the following steps:
What keyword do people search to get to your site?
Put those keywords into Google Keyword Tool
How many people are searching for this keyword?
If the answer to #3 is large (millions or more), then you have a large market. This test is very concrete, and also very finicky. By design, terms like vacation package score high on this test, whereas travel experiences do not, even though an educated entrepreneur or investor might abstractly group them together. Similarly, by design, a person whos building a social network for musicians might be inclined to list the # of musicians in the US as part of their market sizing, but under this test, youd quickly see that theres not too many people are specifically looking for that. Also interestingly enough, youd never say there was a Photoshop market but a quick search will show that in fact almost 40 million searches per month on photoshop, and it might be a great strategy to position yourself relative to that keyword.
Validating that you are part of a pre-existing market comes with all sorts of benefits, which Ill address in later posts. But for now, the most important benefit is that you know the # of potential customers is large.
(In general, Ive been constantly confused about how to even define a market in consumer internet, given that theres so much similar featureset between otherwise very different products. For example, early on, people talked about social as if it were a type of site, whereas now its seen as an aspect for all new products coming to the web. Similarly, people sometimes talk about Facebook apps as if its a market when, again, itll probably just end up an aspect of every new online service.)
Whats a great market?
What are other attributes that make a market attractive? For consumer internet, a great market is commonly defined by:
Not competition, in my opinion, because for consumer internet there is often literally billions of potential users, and youre mostly competing against obscurity. So even if theres a ton of competition, if its easy to acquire consumers to your product, thats great! Then get a good enough product, and youre ready to go.
Not monetization, in my opinion, because making money is pretty straightforward. You can throw on some ads and get $0.1-$1 CPMs, or you can charge subscription rates and get 1% to convert, or you can do the virtual goods thing. The biggest risk in all of these monetization models is really about whether or not you can get millions of users or not.
Picking a great market leads to better products
Leading with a great market helps you execute your product design in a simpler and cleaner way. The reason is that once youve picked a big market, you can take the time to figure out some user-centric attributes upon which to compete. This leads to a strong intention for your product design, which drives a clean and cohesive UX. In a market of all black Model Ts, you can sell otherwise identical cars of different color and thatll work. Picking the right attribute is its own topic though!
The important part here is that you can usually pick some key things in which your product is different, but then default the rest of the product decisions. This means that your products design can be more cohesive because youre trying to do less, but better.
Once youve executed your product, then there are various ways to validate that its good enough and your product fits the market:
When user testing, do people group your product in with the right competitive products?
Do they understand the differentiation of your product versus your competitors?
Will some segment of users in the overall market switch to your product?
Are some users whove rejected the products in the market willing to try your product?
How do your underlying metrics (DAU/MAU, +1 week retention, etc.) compare to your competitors?
All of the above are signals towards product/market fit. Thee above tests are interesting in that they fundamentally anchored on pre-existing competitive products in the category. In a new market, you dont have the luxury of comparing yourself to other things.
In future posts, Ill try to give some more concrete metrics based on my research for what are good numbers in each of these cases, but for now, the important idea is just that in a large existing market you have more datapoints to at least say, my product is at least as good as the other guys.
New markets are a danger to good product design
In fact, one of the scariest things to me about new markets is that doing great product design for them is extremely hard. Its so unconstrained that its hard to do anything other than add features, see what sticks, and iterate. This is fun except that keeping a cohesive product experience is quite hard, and removing features is usually harder than adding them. So at the end, you incur tons of product design debt that never gets paid off. (Its not a surprise to me that Apple has a history of simplifying already successful product categories, rather than inventing brand new ones from scratch)
Conclusion
To summarize my main points in this essay, Ive come to some simplifying definitions on how to validate product/market fit in consumer internet. For market, if you constrain the definition to people who know how to search for products in your category, you can develop a pretty concrete test evaluating pre-existing demand. And by leading with a market, you can develop a central design intention that leads to better product design. This in turn can then be validated by comparing your product metrics to competitor numbers, as well as user tests that focus on grouping and differentiation.
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