Just like your business can’t run without cash, your product won’t succeed unless it genuinely fits your target market. Product-market fit is particularly essential for enterprise-software companies transitioning from an idea to a minimum viable product (MVP) and beyond.
Who determines product-market fit?
Customers. Enterprise software customers usually feel overworked and under-resourced. They’re jerry-rigging solutions to urgent problems right and left. A product that truly fits this market will remove the need for so many workarounds. As head of business development for Battery, I help our earlier-stage portfolio companies find, and then refine, their product-market fit.
It’s one thing to recognize how crucial product-market fit is. Knowing that you’ve achieved it is quite another. We compared notes with Brian Crofts, chief product officer of Pendo*, a cloud-based platform that provides software organizations the insight and tools they need to launch and improve digital products. We also considered the many smart articles written about this topic and reflected on our own experience at Battery. This quiz will help you determine where your startup is on the product-market fit spectrum.
How do you know if you have product-market fit? Take the quiz.
1. Do you have multiple customers buying your product for similar use-cases
a. Yes, every customer tells us the same story.
This is the goal you’re shooting for. Hearing the same story from multiple customers proves that you’re meeting a real need that a lot of customers have.
b. No, our customers all seem to value different aspects of our product.
This is a common problem our team finds during diligence of early-stage companies. It’s a red flag worth paying close attention to. Are any themes emerging? Which aspects of your product are really valuable to customers, and which are incidental points?
While different customer-value stories can be instructive in the early stages, ultimately you need a consistent storyline to emerge – one that proves you’re addressing a big pain-point for your customers.
c. I don’t know.
You should know! Founders should be asking customers why they’re buying the product at the point of sale, and then following up consistently. Their answers about why the product is valuable may have changed after they’ve had a chance to use it. Stay open to surprises in their answers—the actual value they’re finding may differ from what you’re trying to sell. Those differences can spell opportunity for product, sales and marketing or both.
Take accounting software QuickBooks. In the early days of building that product, the team was surprised to find that small business owners were using it. “This happens all the time – you’re looking at the data, you’re OK with being surprised. You might notice some outliers and think: maybe there’s another customer segment here we can serve,” says Crofts, who worked on QuickBooks in those early days before taking his current role at Pendo*. Heeding that feedback enabled QuickBooks to serve the many SMB customers they have today.
2. Do you have customers in different industries?
a. Yes, our customers represent all sorts of organizations.
This shows you’ve got great potential for scale. But see Question 1: You still want to make sure that you’re solving the same kind of problem for all these different types of customers.
b. No, we’re pretty industry specific.
This is not necessarily a problem. But if you’re indeed building a vertical company and not a horizontal company, you need to know that —and you need to be solving a big, urgent problem within your target industry. Within a narrower market, your product should be an absolute must-have.
Our portfolio company MX* offers a great example. Their software enables financial institutions and fintechs to put their users’ data on center stage, leveraging this data to expand and transform their customer relationships. MX is building a product that banks, credit unions and fintechs can adopt, as it’s difficult to build/sustain such technology internally.
3. Once you’ve got your foot in the door, are you expanding to multiple teams or departments within a company?
a. Yes, our users become evangelists and talk us up to their colleagues.
Great! This is not only good news from a sales perspective, it’s a sign that you’re solving an urgent problem for customers. For product-led companies, it is the most efficient way to hit enterprise scale and efficiency is critical to this company-building approach. People don’t recommend ‘just-OK products’ to each other. They talk about transformative, life-saving products.
Important caveat: Don’t get too hooked on referrals as your only method of lead-gen. Your sales team should keep advancing a robust, multi-channel strategy.
b. No, we tend to have just one or a handful of customers within a big organization.
This is a warning sign that your product-market fit could be better. You’re not getting the traction you should be with customers if they’re not becoming brand advocates for you. This scenario also leaves the door open for a senior exec (think CIO) to come in and say: “We are standardizing on X tool, because it does 90% of Y… and we get it from a big player for free.” Don’t get standardized out of existence.
Crofts thinks product-market fit is almost like love at first sight. At least one customer or persona should absolutely love your product. “At Pendo,” he says, “people have said, ‘It’s like you read my mind about what the next step is and you’re already there, anticipating my needs. It’s kind of like, ‘You had me at hello.’ I think every product I’ve worked on that’s been successful at least has evoked that kind of love.”
4. Can your buyer articulate why your product makes their life easier?
a. Yes, our buyers know exactly why they need us.
This is another sign that you’re nailing that use case with customers. If they know why it’s making their life easier, they’re likely to be loyal, long-term users.
b. No, our customers like our product, but they’re not chatty about it.
A sale is a sale, of course. But if users aren’t articulating what they love about your product, that could be a sign they’re lukewarm on it, and the product-market fit could be better. Worse, they could churn off the product.
It could also be a sign that there’s a hidden or secondary use-case for your product that you’re unaware of. Drill down in your user surveys to try to figure out what’s going on. Understanding your customer, Crofts says, requires both quantitative and qualitative analysis. You need to analyze the data—time on site, number of visits, net-promoter score, and all those other metrics (you are collecting this data, right?)—and you also need to tap into how customers feel about the product.
A product that achieved true market fit should meet the 40% rule: “When you talk to customers, you want at least 40% or above saying that they would be very disappointed if you took the product away from them,” Croft says.
Mostly A’s: You’re doing great! You’ve really nailed a key pain point for your core customer. Now it’s all about scaling—making sure your customers keep recommending you and digging deeper to find out how you can make their experience even better. Remember to keep an eye out for surprises in your data or your customer surveys, so you’re open to opportunities to serve new customer personas or solve new problems for your core customers. “When we go out and visit customers and we debrief, I always ask the team two simple questions,” Crofts says. “What surprises did you see, and what pain did you see?”
Mostly B’s/C’s: You haven’t nailed it yet. Maybe your product isn’t solving an urgent enough problem, or maybe you haven’t zeroed in on your ideal customer. Focus on finding that one customer or one customer persona who absolutely loves your product and can’t live without it, and then build from there. Many companies have “a mediocre product but they have people using it, and they just go, go, go, and they never stop to ask: Does anybody love it?” says Crofts. Finding that one perfect customer can not only help guide your product development, it can also motivate your startup team to new heights.
“That one person, that one story can fuel a team for weeks,” Crofts says.
Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential financing capabilities for prospective portfolio companies, please refer to our website.
Company examples are for illustrative purposes only. No assumptions should be made that any investments identified above were or will be profitable. It should not be assumed that recommendations in the future will be profitable or equal the performance of the companies identified above. *Denotes a Battery portfolio company. For a full list of all Battery investments, please click here.