Product-Market Fit: What Is It and How to Find It For Your SaaS Startup

As a SaaS entrepreneur, you have likely heard the ‘product-market fit’ phrase thrown around by VCs, angels, and advisors. Product-market fit (PMF) is that key ingredient to take your SaaS startup from existing to thriving. So today, let’s examine it and explain its relevance to your SaaS startup’s success.

Here is how some of the leading minds in the startup-space have described product-market fit:

  • Legendary VC Andy Rachleff, who coined the term product-market fit, explains it as the degree to which a product satisfies a demand in the market.

 

  • Marc Andreessen, super angel investor and co-founder of Silicon Valley venture capital firm Andreessen Horowitz explains how you can get a sense of whether product market fit isn’t happening: “The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t 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 it’s 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.”

 

  • Matt Roberts, Co-founder at ZOKRI says, “Product-market Fit occurs for a defined market segment when new sales are scaling in a fast, predictable and sustainable way, churn is low, and affinity is strong and measurable via metrics like expansion sales, referred business, reviews and NPS.”

Put simply, Product-market fit happens when your product adequately solves your target customers’ problem, and there are a lot more customers where your first few came from.

Product-market fit is a key indicator that investors look at to judge if your company is ready to scale. It’s when your ‘pudding’ is appreciated, and that is all the proof that you need.

 

How to Achieve Product-Market Fit

There’s isn’t a reliable and predictable route to achieving PMF, but there are many ways to get there. Here are the top approaches:

1. Focus on Market, Product, or Business Model

Achieving product-market fit can feel like the chicken and egg conundrum. Should you build the product first and then find the market? Or should you identify a market segment with a problem and then build the product? Or perhaps hone in on the business model to be pursued before creating the product or identifying the market?

SaaS business gurus seem to agree that the market is the most important of these three elements to focus on in the initial phase of product development. If your target market genuinely needs your product, and is growing in an upward trend, you are safely on your way to product-market fit. You can then tweak your business model to plan for revenue growth. However, if you spend too long perfecting your product, you risk the chance of your competition beating you to the punch. The time spent perfecting your product will also eat up precious investor dollars that build up the pressure to scale.

But ‘finding’ the market can be a funny thing. Sometimes the demand isn’t fully articulated, and you just need to hit them over the head with your solution till they see its benefits. Case in point is Smartsheet. The founders were dismissed in their early days that their solution would never make it because they were trying to sell a spreadsheet as a service. But with dogged determination, product simplification, and market focus, Smartsheet went from a startup destined to fail, to a publicly traded company with a market cap of over $5.5 billion at the time of this writing.

 

2. Finding Your Niche

Given the SaaS product you are developing, identify a hyper-specific niche that it will solve the problem for, and adapt it to fit that market.

According to Nicholas Hopper, Founder of Crozdesk, “Getting to product-market fit with a SaaS product is getting increasingly difficult these days. Most major horizontals (CRM, accounting, SCM, project management, etc.) are saturated with a handful of category leaders cornering the market and big marketing budgets to beat the competition. The rest of the market is made up of a plethora of small players that make it hard to stand out and refine your product value proposition. Where there are still a lot of untapped opportunities for new players with product-market fit is in the vertical SaaS space. Focusing on solving a problem for a specific industry segment makes it a lot easier to find ‘your fit’ and spread like wildfire through your niche.”

He goes on to point out that Veeva Systems is a great example for this since they tailored their CRM and business management solution stack to the pharma and life science space and became a “unicorn” in no time.

 

3. A Three Step Path to PMF

MeisterTask started out creating a task management tool in an overcrowded market. They combed through the features of their competitors but ended up finding inspiration from products outside of their market. Slack became their gold standard for a user-centric and professional app.

The three step process they shared for finding their product-market fit was:

a. Familiarizing yourself with competitor products to find the gaps

b. Question status quo of the feature set and reduce it, and

c. Use your SaaS product every day to find ways to improve it.

 

4. Validate Through Marketing

Venture-backed SaaS companies are under pressure to grow quickly. They tend to hire sales teams to pound the phones to find customers. Their sales force can drive closes, but it could be a brute force approach with little strategy behind it. But there is another way that can get you on the path to scale and to product-market fit, and that is through inbound marketing.

Inbound marketing can be a great way to validate product, market, and business model assumptions. A sound inbound strategy requires you to identify verticals to target, problems to solve, and personas to attract. It will force you to answer difficult questions, and commit to certain paths. If you are successful at driving awareness, interest, and eventually closes through inbound, then you will have arrived at product-market fit.

Suresh Sambandam, the Founder of OrangeScape & CEO of KiSSFLOW, a disruptive SaaS-based enterprise-level workflow and business process automation platform, thinks “one of the biggest tests for Product Market Fit in the SMB SaaS segment is if strangers who come through inbound marketing buy your product.”

This is because it ticks off a number of boxes for the assessment of product-market fit, he says. First, it means that you are able to reach a bunch of prospective customers, through SEO or other means; second, they found your product to be a solution to their problem; third, they tried your product and found that it lived up to the promises made; and finally, they signed up for a trial and evaluated your pricing page. If all these boxes are checked during the validation phase, then you have a good product-market fit.

The process of reaching product-market fit can seem daunting and you will have to fight the urge to scale before you have validated and measured your PMF, but successful SaaS founders repeat the same mantra… “Don’t rush to grow until you are sure you have gotten there”. Be methodical. Be patient. Remember, product-market fit isn’t the destination. Rather, it is the constant quest for finding a fit and growing your SaaS business model to greater heights.