A product is said to have achieved product-market fit when enough of the target demographic is buying, using, and recommending the product to others to continue growing and making money for the company.
Product-market fit, popularized by investor and entrepreneur Marc Andreesen, matches a product's features and benefits with those of a market's need.
Alex Schultz, Facebook's VP of Growth, has stated that the most common issue he encounters when advising startups is that they incorrectly assume they have product-market fit.
Then, what makes success in this area so crucial? Why do many VCs require proof of product-market fit before investing? As a matter of fact, why does Andreesen believe that every startup's life cycle should be divided into two essential periods, namely, before product-market fit (BPMF) and after product-market fit (APMF)?
The solution is straightforward: your team can only afford to prioritize expanding or upselling existing users after they've developed a product they've confirmed enough people are prepared to pay for. If you need to establish a substantial enough demand for your product to warrant the investment and yield a return, those efforts can really backfire.
You can only control your success once you monitor your progress and make adjustments based on the data you collect. Figure out which metrics are most important for monitoring progress. To begin, calculate your total addressable market (TAM), or the total potential number of customers for your product or service (i.e. if everyone who could use your product or service really did use it).
Your Total Addressable Market (TAM) is the sum of your average revenue per user (ARPU) multiplied by the total number of possible clients in the market. After you have your TAM, you can calculate how many of those people are already paying clients.
(Total # of Customers) X (Annual Contract Value) = TAM
When the TAM has been established, the next step in product fit is validation. The product must be functional, useful, and appealing to the intended audience. As part of the product validation process, you should ask your target market if they want or need this product, distribute surveys, and conduct interviews.