Product/market fit is the degree to which a product satisfies a strong market demand.
Product/market fit has been identified as a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).
Marc Andreessen defined the term as follows: “Product/market fit means being in a good market with a product that can satisfy that market.”. Many people interpret product/market fit as creating a so called minimum viable product that addresses and solves a problem or need that exists.
In Alexander Osterwalder's Business Model Canvas paradigm, product/market fit could be interpreted as a business model's value proposition, customer segment, relationship, and channel are fixed without requiring additional pivots.
The 40% ruleEdit
One metric for product/market fit is if at least 40% percent of surveyed customers indicate that they would be "very disappointed" if they no longer have access to a particular product or service. Alternatively, it could be measured by having at least 40% of surveyed customers considering the product or service as "must have". Sean Ellis is noted for popularizing this heuristic after examining many startups.
There are five metrics any online business can measure to empirically verify if they achieved Product / Market fit. They are 1. Bounce Rate, 2. Time on Site, 3. Pages per Visit, 4. Returning Visitors, 5. Customer Lifetime Value. Low bounce rates means a visitor's expectation is being met. High Time on Site and Pages per Visit indicate that the experience of the user is satisfactory. High Returning Visitor reflects the lasting impact a product has on their customers, causing them to come back, and Customer Lifetime Value measures the profitability each customer brings to the company. If these 5 metrics are above average and your 40% rule is met, you'll know you have a Product / Market Fit company.
It is important to differentiate between product/market fit and problem/solution fit when measuring a company's customer base. More specifically, when gauging a customer's desire, companies need to be sure they are measuring desire for the product or service—not just for a solution. Misinterpreting customers' desire for a solution as desire for a company's product or service will end up being a false positive for product/market fit.
Product/market fit is not binary. For a fledgling startup, a minimum degree of product/market fit will not be adequate in order to achieve market traction and success. Rather, what is actually required is a high degree of product/market fit, or extreme product/market fit.
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