This article is based on a presentation from the Future of SaaS Festival 2022. Catch the full talk on OnDemand right here.

In this exclusive article, Senior Product Marketers Shishir Agrawal and Abhishek Bathla tackle the delicate art of product market fit: From how to define it, to recognizing its importance, and utilizing it to give your product a solid, value-based foundation.

Know your value, deliver your value. Master product market fit.

Key talking points include:

  • Introducing the experts
  • Defining product-market fit
  • The importance of product market fit
  • Measuring product-market fit
  • Product market fit in action

Introducing the experts

Shishir Agrawal: I'm Shishir Agrawal, and I'm a Product Management Lead at Google. I’m responsible for payment compliance and payment security on Google's payments platform. Before this, I was in Google Cloud for almost three years, where I worked on cloud security and network security products. Prior to that, I was at Oracle and Juniper.

I've spent quite a bit of time in cybersecurity product management roles, building security analytics, and network and cloud security products.

That's an area of passion for me, so I’m looking forward to talking to you about the work I’ve done building zero-to-one products in the security space and most recently in the fintech space.

Abhishek Bathla: I'm Abhishek, and I'm a Senior Product Manager at Amazon. I started at Amazon almost six years ago in AWS. I was building some very cool products for Amazon S3 at re:invent, and that’s when I knew that product management was my calling.

From there, I moved to retail. My team and I worked on the technology behind Amazon’s refunds and replacements, so whenever you call Amazon customer service and they give you a gift card or a replacement item, you can blame or thank me and my team for that.

Next, I moved to Amazon's Whole Foods, where I worked on grocery and supply chain technology, so I’ve had a lot of experience working on products that save money for the company. Finally, I moved into the advertising space, where I'm learning how ads work and getting to grips with the technology behind them.

Defining product market fit

Shishir Agrawal: I'll start with a quote I love from Marc Andreessen. According to him, product-market fit means “being in a good market with a product that can satisfy that market.” I feel that captures the essence of product-market fit really well.

As product managers or as founding members of a business, you’ve got to make sure you understand the market you’re playing in. It could be the cloud, or it could be fintech, but within that market, you're trying to understand a very compelling set of customer problems and figure out how to solve those problems.

The product or features are capabilities that you alone can build to address the needs of the customers in that particular market.

That, to me, is product market fit. Typically, you’ll have to go through many iterations to find it, assuming that you are eventually able to find it.

Abhishek Bathla: The way I tend to look at product-market fit depends on the stage the product is in. I have a very special acronym: CBS, which stands for create, build, and scale. In the creation stage, product-market fit is vital.

Imagine yourself putting your hand into a big box containing different sizes of gloves and you're trying to find the glove that fits your fingers perfectly. That, to me, is the product-market fit you need in the creation stage.

jigsaw puzzle

To give a better example, in 1995, when Amazon launched, they found product-market fit by selling books online. They had orders from all 50 states within 30 days of launching, so they knew they had something there.

The next stage is the build stage. In this stage, you should know that you have product-market fit. At the same time, you need to know how to distinguish yourself from the competition and increase the gap between what you are offering and what your competitors can offer.

As an example, once Amazon knew that they had product-market fit for books, they expanded into music. Then they expanded into toys and just kept adding categories.

The third stage, which I think most of us work in, is the scale stage. You have product-market fit, you’ve already distinguished yourself from your competitors, and now you’re trying to scale from 100,000 users to 10 million users.

In this stage, product-market fit is about focusing on delighting customers by controlling your input metrics.

The importance of product market fit

Shishir Agrawal: Depending on the product and the stage of the company you are in, the importance of PMF could vary. If we use your create, build, and scale framework, when you’re in that initial create stage, you want to quickly figure out whether what you're building is going to resonate with customers.

Have you identified a compelling customer pain point? Does the solution you're building to address that pain point meet the customers’ needs?

If you don’t think about these questions, you might get a sense of product-market fit and start revving the marketing engine or sales engine, before realizing that it's not scaling because you didn’t have a good enough product-market fit in the first place.

To my mind, the reason PMF is important is that it allows you to quickly iterate on getting to a state where your product resonates with customers. That then allows you to scale much faster, rather than prematurely spending resources on marketing or sales.

To give a concrete example, in one of my previous companies, I was working on a cloud security product and we had very good technology to solve a common network security problem.

People looking at graphs and charts

The problem was that we were trying to go after three different customer segments – cloud businesses, telcos, and traditional data centers. We were putting a lot of effort into trying to meet the needs of all three markets, but our efforts weren’t scaling.

Eventually, we stepped back, looked at the feedback we were getting from customers, and realized we weren’t a good fit for all three segments. Once we were able to zoom in on the cloud segment, we started getting more traction.

The moral of the story is that you could spend a lot of effort going after different markets and customer segments, when you might not have a good product-market fit with all of them.

It’s vital to step back and ask yourself whether your solution is addressing the needs of a particular segment in a compelling and differentiated way. That's where you want to double down before branching out to different customer segments or products.

Abhishek Bathla: I 100% agree. Zooming in on the right fit and doubling down on it is so important. To complement your answer, I’d like to add more about what happens when you don't have product-market fit.

If you lack product market fit in the create stage, you’ll end up having to non-organically pay for all your growth.

You’ll acquire customers, but they will leave because you didn’t have the product market fit in the first place. You’ll see those numbers falling very quickly.

In the build stage, if you don't have product market fit, you’ll get what is called in the subscription world “a leaky bucket”. Customers will come, but once their one-time promo to use your services expires, they’ll leak back out again because they don't see the value in your product.

Basically, if there's a lack of product-market fit, you can never reach your full scaling potential, and that’s how I think a lack of product market fit can define your position.

Measuring product-market fit

Abhishek Bathla: One of the articles I keep referring to is by Superhuman CEO Rahul Vohra. He says that in the early stage of your company you’ll know you have product-market fit if 40% of the small number of customers who are using your product would be very disappointed if your product ceased to exist tomorrow.

If it’s less than 40%, the claim is that you don't have product-market fit. That’s a very clear way to determine whether you have a product-market fit or not in the create stage.

In the build stage, because you already have product-market fit, the focus should be on input metrics. In Amazon’s early days, the focus wasn’t on whether revenue increased; it was on speeding up the turnaround on orders – time was the input metric there.

People looking at graphs and charts

They also wanted to offer customers a greater selection of products; selection was another input metric. They wanted to get customers those products out at the lowest price, too – another input metric.

If you focus on controlling your input metrics in the build and scale stages, that will give you the desired output. That's how I tend to think about measuring product-market fit across the three dimensions. How do you see it?

Shishir Agrawal: You touched on a lot of good points, but I’ll just add that there’s no single set of metrics that can tell any business when it achieves product-market fit.

I would encourage everyone to just look at metrics to gauge product-market fit in the context of your business. Typically, you’ll need to track a combination of quantitative and qualitative metrics.

The quantitative metrics that people tend to track include net promoter score (NPS) because if your product is resonating with customers, those customers will probably recommend you to other customers.

You can also look at churn rate, which is what I mentioned earlier around that leaky bucket. Maybe you’re getting customers, but are you able to retain those customers? Are they expanding with you?

They might start with smaller deployment, but are they growing their business with you? That's another indication of product market fit.

Growth rate is another useful indicator of product-market fit. For example, we were projecting a certain level of revenue for one of the cloud products I worked on, and when we launched that product, the revenue turned out to be five times what we were projecting.

That was in some sense a good indication that, yes, we were achieving product-market fit.

In terms of qualitative indicators, you need to listen to what your customers are saying. Look at your sales feedback. Look at your support tickets. What is the media saying about you?

What are industry analysts saying about you? Essentially, you have to triangulate across a range of metrics and signals to figure out whether you‘re approaching product-market fit.

One last point here is that product-market fit is not a singular point in time. You need dashboards that will continually track your product-market fit indicators and evolve accordingly to maintain that fit, especially in the tech industry, where things move so fast.

Product-market fit in action

Shishir Agrawal: I’d like to start with a rough framework for ensuring product-market fit, then go through some examples.

Typically, you start with some sort of a hypothesis, based on a customer problem in the market. You want to prove that hypothesis and then quickly iterate on it. The key to achieving PMF is being able to test and iterate fast because you want to reduce the time to get to product market fit.

Step one is to determine who your target customer is. Who are you going after? Step two is to identify the customer needs that you want to serve – these could be unmet or underserved needs. Next, you need to figure out your value prop.

How are you differentiated compared to the competition? How are you uniquely solving that problem? Then you need to quickly come up with a minimum viable product (MVP) to test your hypothesis with the customers you’ve identified.

You have your MVP feature set, you build that MVP, and then you test it with your customers and iterate on it. That’s the mental model I tend to use with the products I work on, especially the zero-to-one products.

I'll give you three examples from three different buckets. The first example comes from a network intrusion detection product I worked on for Google Cloud.

"Go for it"

We had an early hypothesis that customers needed a cloud-native security product for intrusion detection and they also wanted best-of-breed security. We had a bunch of calls with customers to validate that hypothesis.

I worked with my team to build a product prototype in nine months and partnered with an industry-leading player to get that product out into the market. The results show that it has a pretty good market fit.

The key learning for me was that you don’t need to try to boil the ocean. We kept it simple and defined our MVP to make sure that this would resonate with our target customers in Google Cloud.

The second example comes from one of my other companies, where we had a very interesting security analytics product, but we were trying to go after a set of customers who were in multiple clouds. Another problem was go-to-market – there was no good way for us to reach out to these multi-cloud customers.

It turned out that although we had very interesting technology, we did not have a good product market fit. In the end, we scaled back and decided to focus on one cloud, as opposed to going after multi-cloud customers.

The third example I can share is a product I worked on at Juniper Networks, where, again, we had a very compelling technology to do security in the cloud, but we were, in all fairness, early to the market.

The market was still looking at appliances as the primary way to deploy cloud security, and it took us a while to figure out if we should be going after telcos, the public cloud, or data centers.

It took a bit of iteration, and the product didn’t have much success early on, but today it's a pretty successful product because we eventually achieved a good product-market fit.