What are the challenges faced in Product-Market Fit?
Identifying Product-Market Fit problems
In the previous Skilleton, we covered customer satisfaction scores, retention & engagement, and unit economics as measures of Product-Market Fit.
However, the following are NOT necessarily indicative of product-market fit problems:
☞ low return-on-investment on a channel,
☞ falling revenue growth rate, or
☞ stagnant market share in a category
especially if customer satisfaction scores or retention rates are stable or above the category average.
Isolating Product-Market Fit problem dimension:
Once it has been established that it is a product-market fit problem and not a later growth stage problem, the next step is to isolate the correct dimension that the problem falls in.
Simply put, product-market fit has just 2 dimensions: the product & the market (market signifying the Ideal Customer Profile). Therefore, problem isolation has to happen along one of these two dimensions.
That is: either the product doesn't meet the market's need. Or, in a case where the product need is established, the % of prospective customers who belong to the ideal customer profile is low.
Common solutions:
If a startup is in an early stage, and the ideal customer profile has been clearly identified, and yet the customer satisfaction scores for the product/service, or the engagement & retention metrics are poor, this points to product side problems. Essentially, it is yet to meet a clear need for the user.
The solution in such a case is to keep the market constant, the problem that the startup is solving constant, and try to change the solution.
If different solutions to the problem statement don't work, the startup can then keep the market constant, and identify a different (more pressing and pertinent) problem for the user to solve.
The last step would be to pivot to a different market altogether.
The other situation is when a startup is in later growth stages i.e. it had gone past product-market fit stage earlier, but it is now showing signs of lack of product-market fit. That is, its customer satisfaction score and engagement/retention score is falling.
In such cases, the common solution is to dice the satisfaction & engagement data by customer cohorts (i.e. are the scores low only for customers acquired of late) and by customer segment (i.e. are the new customer acquisition matching the ideal customer profile).