It takes 10 years of hard work to become an overnight success 

Startup media outlets tend to focus on positive news like funding rounds, innovative product launches, acquisitions, or IPOs. It’s a constant stream of successful startup stories. The news rarely covers startup failures or struggles. This survivor bias is not entirely the news outlets’ fault. Founders who have gone through the agony of closing down a business are not exactly chomping at the bit to share their story publicly. However, this survivor bias can give the impression that startups are fun, easy, and a quick way to make money. You just have to have the right idea and a little bit of luck. Reality is of course a little more nuanced than that. 

The most common reason startups fail

According to a Startup Genome study, 90% of startups fail, and only 1.5% get to an exit above $50M. With these odds, you would make more money betting against startups than betting on them (if that was possible). This is why you’ll hear investors say they need to invest in 100 startups to have one big exit. That one exit tends to more than cover the losses or average returns from their other investments. Sounds good. If you’re a venture capitalist. 

But you’re just one startup. For you it’s do or “die” and you need to beat the odds. But how? Yes, you need to have a good idea. Yes, luck helps. But more than anything, you need to nail your go-to-market strategy starting with product-market fit.

The Startup Genome study identified poor product-market fit followed by premature scaling as the most common reason startups fail.  What this means is you either haven’t found product-market fit at all, or worse, you have faux product-market fit and start scaling your business, only to realize later you are heading in the wrong direction. 

A product-market fit framework for startups

So what is product-market fit? Product-market fit entails three foundational elements. 

  1. A target market with specific pains that the market is willing to pay for to have solved
  2. A product or service that offers a solution that solves the pain
  3. A compelling story that convinces the target market to adopt the product 

Most books and articles tell you you just need the right product and the right market and “voila!” you have product-market fit, but they are missing a big piece of the puzzle: The story. The story tends to be lumped in with the product element and is too often forgotten when talking product-market fit.

The target market is the pain you are focused on, the product is the solution to the pain, and the story ensures people with the pain are aware of why your product is the solution. It’s the vehicle that brings the product to the market. People are busy, and reality is that nobody cares about your startup unless you make them. Think of the story as the sum of reasons, highlights, emotional appeal, and context buyers need to understand to compel them to purchase your product. It is also known a strategic market positioning.  

How to know if you have product-market fit

Many brilliant people build amazing products but have a hard time communicating why customers should care. It results in meetings that end up going nowhere and deals not materializing. I see this a lot. If the product is solid and solves a real problem, you may be focusing on the wrong target market. It is also possible that you are simply telling a story that is not compelling anyone to take action. You can have the right product for the right target market, but if your sales pitch doesn’t land, you’re still stuck in the mud.  

Some of the symptoms indicating you might not have product-market fit include:

  • You struggle to get enough qualified sales leads 
  • Revenue growth is slowing, stagnant, or declining
  • Everyone who sells uses different slides and pitches
  • You are focused on three or more markets or personas despite limited revenue
  • Prospective customers ghost you after the first engagement
  • You have a great product but people don’t “get it”
  • When you ask your team what your companies does, you get different answers. 

If you are experiencing any of these symptoms, it’s time to dive deep and try and identify the issue. A deep dive and health check of the business is usually my first step whenever I work with companies, it’s important to identify the real cause of the problem. Is it the right market? Is it the right product? Is it the right story? The next step depends on the answer to those questions. 

A table showing the various product-market fit equations and what to do next. If you have the right market, right product, and right story, you have product market fit and it's time to scale your go-to-market motion. If you have the wrong market you need to identify and validate a new market. If you have the wrong product you need to do market resarch and deliver a product that solves a customer pain. If you have the wrong story you need to rethink your positioning story. If all three are wrong, you need to pivot or start over.

How to find product-market fit

In an ideal scenario, the first step in finding product-market fit is to identify a target market (a group of buyers) you want to focus on, and then do thorough market research. You can, in theory, pick any target market you like but you have to interview real people and identify a pain they are willing to pay to have solved. It all starts with the customer and it’s one of the most important pieces in finding product-market fit, if you don’t have a market, it doesn’t matter how good of a product or story you have.  

Not until you understand your customers deeply, do you build a solution. Like I said, that’s the ideal scenario anyway. However, building a startup can be messy and most startups don’t start by identifying a market segment and then do extensive market research. They tend to start with a hunch, an idea, and a vision, usually based on experience and deep knowledge of a space. Most founders and entrepreneurs are builders, so their instinct is to build a product and then bring it to market. Sometimes that works, often it doesn’t, at least not 100%. If you don’t understand the target market you are building for, you risk falling flat on your face once you launch it. Months or years of development can turn out to be wasted as you realize you have built a product few are willing to pay for. Your market research is how you de-risk your investment, and if you haven’t done it up front, there is no time like the present.  

What’s important to keep in mind is, there are many potential target markets, products, and stories. Each of them individually doesn’t have one right answer, but once you have anchored on one element, you need to find the best possible combination for the remaining two and ensure all three fit neatly together. Once there is cohesion between all three elements and it’s been validated by increased adoption of your offering, you have true product-market fit. It can feel elusive, but you “just know” when you have found it (but also, your metrics will reflect it)

As markets and needs change, so should your offering and your story. You may have product-market fit today, but it doesn’t mean you will tomorrow. Every growth stage presents new challenges that require tweaks to your product-market fit equation, which is why I recommend doing an assessment at least every 12 months and determine if you still have the right market, right product, and the right story. Particularly the story tends to need reframing as your company and ambitions grow. 

Need help finding true product-market fit?

If your product-market fit equation doesn’t result in increased revenue and adoption, I'd be happy to help you identify if your market, product, or story is off. Request a meeting to talk more about your challenges.

Written by: Anders Maul

Photo by: Kaysha


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