As a sales team leader here at Capital smart city islamabad I see a lot about marketing and sales processes and routines, from their structuring to the moment of optimization and continuous improvement.
But not every company needs to worry about this. This means that there are companies that can thrive without sales or marketing.
With customers appearing like magic? Not!
What I meant is that there are companies that don’t need to worry about this at the moment they are, more specifically, at the beginning of their lives.
Before focusing on growth, the basics you need to know are what will be sold and who will be sold to.
Simple, isn’t it?
Well, it’s not that simple, because to find the ideal combination of what + for whom you need several attempts and tweaks, as well as constant optimizations over time.
This ideal combination is what we call Product Market Fit.
Okay, I admit I oversimplify the concept. I will express myself more fully and we leave for your understanding:
Product Market Fit (PMF) is what + to whom = $$$
Understand what your solution is
The product offered is the first part of the equation and is usually the starting point for companies.
It’s no use knowing a pain in a niche market and having faith that you can solve it, but not actually doing it.
It is necessary to create a product that solves a customer’s problem in a satisfactory way. Product development and evolution must be constant, flexible and agile.
The speed of product evolution is very important because, for many companies, especially startups, time is money and it is very limited in the initial stages.
For those who have read the book The Lean Startup, by Eric Ries, you know that the focus of every startup should be to be able to launch an MVP as soon as possible, to validate its hypothesis of value with the market.
Then several versions (also called iterations) are created, always paying attention to constant feedback from customers, or early adopters.
This entire process of multiple iterations and feedback of results must be approached in a scientific manner.
At each repetition, hypotheses about what is going right or wrong should be created and tested by releasing new versions. Each new version must confirm or reject the hypotheses according to the customers’ response.
Remember, behind the product there is a very important factor: the team.
People have to be able to deliver a very high volume of results to guarantee the efficiency of this step.
Having a team capable of doing twice the work in half the time, always using agile methodologies for managing results is essential.
Understand who your solution is for
Just as there is no point in selling something that no one wants, it makes no sense to go through a complex and exhausting process to create a wonderful solution if only a few people are willing to pay for it…
Finding a good market is perhaps the most important part of Product Market Fit because, as I said at the beginning, the equation that simplifies this concept is defined by what + for whom.
Only then the result is $$$.
Your market must be remarkably large to bring in the volume needed for success, or you must be rich enough (or see enough value) to pay dearly for your solution, increasing your average ticket.
It’s no use having a product that you consider very well and a super-efficient team if you don’t have any market. This will only generate a lot of work and little or no return.
It is also no use offering a solution to a problem that the market does not consider important or urgent.
The for whom can be evaluated from two perspectives: qualitative and quantitative.
The qualitative perspective will be the key assessment for achieving Product Market Fit. I’ll talk more about it when I talk about how to know if PMF already exists.
The quantitative perspective is an analysis of the feasibility of the solution, which is also called TAM (Total Addressable Market).
There are basically two ways to calculate your TAM: top-down (top-down) or bottom-up (bottom-up).
Top-down TAM calculation is done through surveys or economic sector reports. This makes the result a bit more generic and may not fully capture the size of the market.
The advantage of this method is that there is no need to have historical data on your operation to make the calculation.
The bottom-up approach uses characteristics of sales already made in your company, generating an ideal customer profile and also what is the average ticket.
With this data you can extrapolate your customer base according to the number of similar profiles on LinkedIn or companies with similar activities (even CNAE, in the case of Brazil), for example.
The calculation of TAM through the bottom-up perspective will provide a much more reliable idea of your market, with the counterpoint of needing a minimum sales history to be used.
One cannot be too narrow in defining the market. In case of incompatibility with the service sector, for example, you should test other sectors, such as the industrial sector.
The speed of product development is just for you to test its various possibilities!
The definition of Product Market Fit
After understanding a little more of the product and market sides, how do we determine if the two match and have a good chance of generating a profitable business?
The most reliable way is to ask the market itself!
This is where the qualitative view of the market comes in, in which you can see if your customers’ pains are remedied by your solution.
Gathering feedback from your customers about your product is the most reliable way to affirm the reach of the FMP.
A good indicator that demonstrates whether or not Product Market Fit exists is the 40% Rule:
Through a survey, 40% of your customers say they would feel “very disappointed” if they could no longer use your product / service or 40% of your customers define your solution as “essential”.
If your customers are very satisfied, they use your solution consistently and there is an organic influx movement of new customers (the famous Predictable Revenue seeds).
This is a very strong sign that your company has found a good level of Product Market Fit.
It is good to make it very clear: the combination of product and ideal market is not a single point of the various factors involved! It’s like a scale where compatibility is higher or lower.
Over time it changes as there are many movements in the market. The work of product evolution and Product Market Fit adjustment never ends, it just continues to divide attention and efforts with dedication to growth.
Despite being a very dense concept, we can define Product Market Fit in a very simple way.
Remember that I showed, up there, my innovative and mega complex formula: FMP is what + to whom = $$$.
Simply put, Product Market Fit is the main indication that there are people who are willing to pay for your solution. It is the ideal result of the sum between what your product is and who is willing to pay for it.
What comes next?
You already have a solution with a satisfactory alignment to the pains of your market, and you know that this market is capable of generating revenue that will surpass your efforts.
The next step is to scale the business and effectively conquer your market!
To define the best way to expand the reach and number of customers, it is very worthwhile to understand your type of product and what will be the most profitable way to scale your operation.
There is a framework that helps with this, Leslie’s Compass, in which you assess whether your solution fits into an intensive inbound, intensive outbound or mixed process.
Once you’ve figured out the best strategy to break into the market, structure a process that’s compatible with your product and your customers.
This step is not trivial and is very important and can be what will define the success or failure of your business. Therefore, define your sales model well!
In conclusion, remember: Product Market Fit is not static and will definitely change over time. Therefore, both your solution and your sales model must adapt!
Don’t settle down and practice the culture of continuous improvement.