As of 2023, there are 30,000 SaaS companies launched worldwide. Needless to say, the SaaS market is a crowded one. However, this doesn’t mean eager entrepreneurs aren’t developing new products.
Building SaaS apps is hard work, so achieving success means investing time, money, and effort. But there comes a time when all those sleepless nights and tough calls will make it all worthwhile. That’s the effect of a newfound sense of confidence, triggered by accomplishing the ultimate goal, nailing the art of product-market fit.
But, don’t go thinking that the post-PMF era is all play and no work. Far from it. Even after you’ve managed to achieve product-market fit, you will still need to remain focused on product development and sales process improvement. The difference is that your diligent work will now yield results, which is a huge gain.
But how do you find your way in the dark? Well, you could try turning on the lights.
In this article, we’ll dive deep into understanding and finding product market fit for SaaS businesses by looking at:
Regarded by countless SaaS founders as rare as unicorns, the near-mythical notion of product-market fit has solidified its status as a crucial SaaS KPI.
Many things have been said about it, so to ensure a good starting point, we’d best go back to the roots and check out the original definition:
Product-Market Fit means being in a good market with a product that can satisfy that market. -
Marc Andreessen
So what does this mean exactly? Well, it’s finding the ability to calculate value by looking at how your product fits into the market. Simply put, a SaaS company that has reached product-market fit is one that meets the needs of its target market.
Now, let’s expand on that because the concept is probably still a bit blurry. Andy Rachleff’s observations come in handy here.
Achieving PMF means having a good understanding of whose needs you are responding to (your potential customers), what you’re selling ( your product), and ultimately, how you are offering your service (your business model).
It’s worth noting that to achieve product-market fit, SaaS companies need to also respond to needs specific to their market sector and not the industry. For instance, if your SaaS solution is a CRM, then your primary product market isn’t technology. You need to narrow it down if you want to win the PMF game.
In the early days of your SaaS startup, the focus is entirely on product development. As it should be. You create your solution fueled by nothing else than making your shoppers happy. You are building a product you think your target audience wants and not what you know they need.
As you’re getting closer and closer to achieving product market fit, you need to be flexible in order to reshape your software according to your findings. PMF gives you the direction you need to steer your SaaS business. It allows you to customize your product and turn it into a solution that responds to the needs of your customer base.
One of the reasons most startups fail is that they try to scale too early. Anyone might think that scaling is good because it puts you face-to-face with more customers. However, it also means investing heavily in marketing, sales, and customer support. And without a stable position in the right market, it could prove to be business suicide.
What comes with product market fit is the assurance that there is a market for your product and a real customer acquisition possibility. This proves that it’s safe to expand and invest in product-led growth techniques or other success strategies.
Many startups get excited about having achieved product market fit. While this is, of course, a success that deserves celebration, it’s important to keep this metric within close reach.
The technology market is incredibly fast-paced, well-defined, and driven by innovation. Even though your solution may have aligned to your target audience's needs at one point, it doesn’t mean that it will forever do so. You must constantly measure product-market fit to better understand market changes, make product enhancements, and ultimately deliver the perfect competitive solution.
One of the great things about reaching PMF is that once you have it, a strong bond between your product and its users is born. That bond is the fuel behind user retention.
Product market fit means that you have found a strong market and developed a product that aligns with the existing needs in that market. Users won’t give up on a product that lives up to their expectations so perfectly.
If they receive value from using your product, you will achieve great results in winning new customers, and your retention rate and monthly recurring revenue will significantly increase. Value equals loyalty.
When it comes to obtaining product market fit, the most popular road to take is the Lean Product Process. This approach has six steps, and once you complete it, you should be closer to developing a product that solves an existing market need.
In order to be regarded as sociable, you first need to find some friends. In a business context, this translates to finding your ideal customers or target audiences. Notice that we’ve used the plural form of the word customers and here is why.
Your target audience is very much like a bucket filled with different profiles that have your product in common. Your solution answers more than one major market need, which means it has multiple features. Each of these features can draw in a different type of paying customers.
So, to make sure you are acquiring customers in large numbers, segment your market and start developing different buyer personas. Your efforts will provide insights into potential user challenges and help you shape strategies that resonate with them on a deeper level.
There are no virgin markets. Whatever market you are joining is most likely competitive, and you will need to fight for user recognition. The best way to do that is by creating a direct communication channel with your clients to determine neglected needs.
Identify survey respondents that fit your buyer profiles and run different questionnaires to get to the good stuff. Read your competitors’ negative reviews to see what people are complaining about. One man’s mistake is another’s ticket to success.
Dedicate your time to understanding your audience by looking at how they interact with other similar products.
Creating your value proposition is one of the biggest challenges you will face during this process. This is a difficult step for a good reason. Your value proposition describes your business, and it needs to do so in a compelling manner, powerful enough to make them choose you and only you.
While there may be many approaches to accomplishing this task, there are certain aspects worth remembering:
Your value proposition is the solution to your user’s problem.
Study the competition to determine the keywords.
Keep it short, clear, and easy to remember.
Just like your value proposition is the simple introduction to your software, your MVP ( Minimum Viable Product) is a minimum set of features. This is specifically designed in the early stages of building your company to gather feedback and test market viability.
Consider the information you’ve managed to identify about your clients and their requirements and transform them into your minimum set of features.
So, you’ve done your homework and developed your basic feature set. time to bring them to life through a prototype put together through a basic set of features. And then find out how well you did. the easiest way to do it is by developing a prototype. This is a less elaborate representation of your business and your product.
A number of mockup screens should do the trick. The point is to have something to show your customers and test it.
To make sure that your product will generate revenue growth when launched, you need to see if the features you’ve imagined could answer market challenges.. You can only do that by testing your prototype with your target customers.
Sometimes, product-market fit feels like a big bang event, so if the feature set you’ve come up with is correct, you’ll know.
But, just like in the case of other metrics, once you begin measuring product market fit, if your numbers don’t add up, go back to step 2 and make the necessary changes. The more you follow this rinse-and-repeat process, the more satisfying the result will be.
The concept of product-market fit fueled an extraordinary revolution in terms of solid software development. It gave life to countless product-led growth strategies designed to ensure rapid business scaling. And while that sounds amazing, there’s an unfortunate chink in the armor.
PMF places product first in the hierarchy, and while that seems to make sense for a lot of the existing industries out there, in the world of SaaS, innovation is setting the rhythm. Instead of coming up with a solution first and then trying to figure out which needs it can answer, the best route is to analyze the market and figure out a strong product that can perfectly fit into that market.
More than a semantic change, this shift in perspective will ease things up considerably. Identifying relevant features will no longer feel like finding your way out of a labyrinth, this time with a map.
While incredibly useful and highly rewarding, product-market fit tends to activate tunnel vision amongst entrepreneurs. When invested in this endeavor, it completely takes hold of you, making it appear that only the need-solution paradigm works. This is a major consideration when trying to win customers. But so are your distribution channels.
How well these perform will vary depending on the nature of the product. If the product tends to deliver value fast, then its potential for going viral is high, making it a nice fit for social media distribution or influencer marketing. If not, you must rethink your strategy and consider other existing channels like SEO or paid advertising. The idea is to identify one main acquisition method for your product that yields the best results.
Value is a most-crucial part, both for you and your customers. In your case, however, the bearer of results isn’t necessarily the product but rather the business model you choose to practice. In theory, if your product is appreciated by your target customers, and if they find value in using it, they will be more than happy to pay for it. So, from this perspective, any business model you use could bring some financial gains.
In reality, choosing the wrong business model for your software will not allow you to seize market opportunities and scale your revenue, making it impossible for you to sustain product improvements. In a market that is forever changing, you cannot afford to forget to constantly invest in product development.
The good thing about the business model is that you can only find the right one by testing. See which option brings the most advantages (highest CLV, MRR, ARR, ARPU). Also, keep in mind that pricing structures have an impact on the churn rate, so you might want to include this metric in your iterative process.
Achieving PMF is not straightforward, no matter how simple it might seem. It’s a complex process that takes time and hard work. While it’s a popular concept, the product market fit can still be confusing.
And because of this, it’s really no surprise that their myths are out there, making things even worse. It’s time to destroy some of them and make room for actual facts.
Some companies strike gold and find the perfect product-market fit right off the bat, but for most, it's a journey of trial and error.
They go through a long process, experimenting with various concepts, testing if there is any truth in them, and most importantly, learning from their failures as much as from their successes, if not more.
Only having gained new knowledge do these companies start adjusting to develop an even stronger product.
So, in essence, achieving PMF is a process that involves dedication, patience, perseverance, and in a very Darwinian fashion, the willingness to adapt.
Unfortunately, it’s not true. Achieving PMF isn’t a yes-or-no type of situation. And this makes it particularly challenging for founders and co-founders to be certain about when they push the scale button.
Now, finding the perfect fit in your main market is one thing, but the problem is the submarkets. PMF in submarkets is in no rush to reveal itself. You might think that as long as you have the big market in your bag, nothing else matters, only it’s not like that. The intense, ruthless competition in the SaaS market requires that you search for PMF in sub-markets as well to ensure multiple steady revenue streams.
So, avoid having tunnel vision and embrace a nuanced understanding of diverse needs combined with other business essential KPIs.
Most companies falsely assume that product market fit is a one-time checkbox you tick and forget about. But it’s not. Probably because of the complexity of the process, it’s difficult to imagine going through all that work ever again.
PMF depends on the one thing you have absolutely no control over your customers. They make up the market, which is an ever-changing, dynamic landscape. With needs in a repetitive cycle of change and the pressure added by your competitors, it’s impossible to assume that PMF cannot be lost.
What you don’t lose, however, is the willingness to continuously improve your product, an ability gained in the process of achieving market fit. Adapt to survive. This is the entire essence of PMF.
Some might go as far as to say that a high level of competitiveness clearly indicates a market’s strength. So, in a way, having competition is a good thing, even though it is stressful and keeps you on your toes.
Achieving product-market fit won’t kill your competition. If anything, it might put a target on your back. As you develop a value proposition that is strong enough to attract clients, help you gain traction, and bring in increasing revenue, your competition will notice you. They will do everything in their power to overthrow you. Some might go as far as to imitate your each and every move.
But, once you are invested in the product-market fit game, you will constantly adjust your product or growth strategies, so your competition might find it tiresome and expensive to try to keep up.
Plus, let’s not forget that your customers hold the key. The important thing here is not to be relevant for your competition but essential to your customer base. Achieve that, and you will be able to establish a strong foothold and win against your competition.
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Product-market fit is about harvesting the power to adapt, to test as many times as necessary, and ensure that your product can respond to market challenges. But in most situations, this process occurs after the product is launched.
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With so many different interpretations and approaches, we cannot help but state the obvious. The product market fit concept is more popular than ever. Why? Partially because it is difficult to really assess its effectiveness and say for a fact when this approach was used to gain success.
While we do not doubt that PMF can turn your business into the right solution in the right market, without a how-to-do process set in stone, it’s almost impossible ( and incorrect) to give PMF all the credit. It could be luck, it could be work, or it could be a genius interpretation of existing data.
We can’t say for sure. What we are, however, 100% certain of is that this concept activates the willingness to seek feedback and act upon it. This is the driving force in successfully adapting to ever-changing market conditions.
Product market fit is not easy to achieve and maintain. You must understand that you cannot sit on the sidelines once you are part of this game. By doing so, you are putting your entire work at risk. PMF is a work in progress, keeping you on your toes at all times. But, if you are wondering if it’s worth it, we can confidently say it is.
Market research, feedback interpretation, and adaptation, product improvements are operations that help you create a desired, user-friendly, and appreciated solution capable of building an army of loyal customers. And in revenue terms, that’s low acquisition costs, a high retention rate, and rapid market growth.