Are you off to a false start?
The idea in 30 seconds. Finding your product-market fit is a difficult, yet crucial element of business and product development. Most companies fail to get it right. To set yourself up for success, go further than just your typical development phase. Before you start, review whether your backbone & operations are actually able to do it. Learn to navigate your business ecosystem in a clever way. And know when it’s time to stop.
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Imagine you have this amazing new product or business idea. The team’s excitement is palpable and it feels like it is going to change the world. Fast-forward 1 year: no success. Or, perhaps you expanded into a promising new market with your flagship product, only to discover 2 years later that sales barely hit 25% of your initial forecast.
Sounds familiar?
You are not alone. Most start-ups fail, and so do plenty of new product launches and market entries. Why? A key reason is that, in the end, the product (or service) does not actually solve a real customer pain point. In other words, there is no “product-market fit” (or “service-market fit”).
Although these stats of failure might sound discouraging, some of the pitfalls that businesses, entrepreneurs and product developers fall into are ones that can be avoided or, at least, minimized.
To help set you up for success, in this article I will share some best practices and common pitfalls, along with strategies to overcome them. To complement my research and perspective, I sat down with three business insiders to get their real-world insights.
Start with the basics: iterative development
Put simply: product-market fit is having a product that customers want and are willing to pay for. When you get this right, you are off to a good start. Sounds pretty straightforward, right?
Think again.
During my conversation with Olav Cuiper – Board Member at various companies and former Executive VP of Reinsurance Group of America – one of the first things that came up was “product-market fit sounds easy, but it is one of the most difficult things out there”. Even though it is one of the most critical aspects of business development, many companies fail to get it right.
“Product-market fit sounds easy, but it is one of the most difficult things out there”
So how can you enhance your chances?
“What really helped us was taking on a learning mindset”, shares Sylvain Fleury – co-founder of WYVE – about his development process: “We started out by simply testing our messaging without an actual product and then learnt from small batches”.
Similar to Sylvain, in my experience what works for clients is to be rigorous with the process and start by learning through “iterative development”. This means developing through short cycles of test-feedback-learn-refine, repeating the process until feedback on your product is unmistakably positive. To help you implement this effectively, here are a few practical steps:
- Create a mininum viable product. Your minimum viable product, or “MVP”, is a basic, low-cost concept of your product to test against customer feedback that you will refine over a number of testing cycles. To take it even further, you can start with an “illusion of a product” (more on that later).
- Focus first on a small group of core users or product experts. These users can provide you with detailed feedback to help you refine your MVP and will help speed up advancement of the technical aspects of your product. It might take a few iterations to even out initial problems.
- Test your product on its actual target market. You don’t know your customer until you actually start selling. Try to develop a deep understanding of your customer: actively solicit for feedback and ask open-ended questions. Really listen to what users have to say. If you can, observe them in their natural habitat. An open mind is crucial here as it allows for unexpected feedback and usage.
- Structure your process. Whether you are a start-up or a large product development team, the iterative development process is the same. Yet, larger firms with more R&D resources are often better able to structure their process: “The most successful companies are those that innovate systematically and are able to iterate & innovate fast”, suggests Mirella Kleijnen – Professor of Customer Experience Management at the School of Business and Economics, Vrije Universiteit Amsterdam.
- Customer service is important. “The testing process is not just on the product: it is on the whole customer experience. You are also building a relationship with the user, and your brand” says Sylvain. Close customer service has been key to his start-up’s growth. While close customer service can be challenging for larger firms and experimenting may raise reputational concerns, customer loyalty generally remains stable, even with occasional missteps.
As tempting as it might be to assume product-market fit stops here, I found two other important things to consider on the path to triumph.
Have a backbone to scale
The first is what I call your “business backbone”: i.e. your operations, finances, people, capacity etc. The key question here is: “as of today, can your company’s backbone actually support your new product, service or market?”. The second question is: “can this same backbone scale, and scale fast?”.
According to Olav, operation risk is often underestimated and can become a true bottle-neck. It is where he frequently sees companies take a wrong turn: “There is a successful product launch, but later on they realize that the actual operations are too complex or too expensive”.
What helps is to critically review early on in the product development process whether you can actually do it: does your current backbone have enough capacity or does something have to give? Do you have to further invest in it? Or, could resources perhaps be of better use elsewhere?
Let’s take a recent example you might be familiar with: a popular, innovative consumer product with strong brand recognition. Despite global demand, the company had been facing continuing losses. After-sales service had been poor for years and all parts were produced in-house, putting pressure on their operations that became impossible to scale. Yet, they stuck to their failing model—until they were forced into bankruptcy.
No matter how good your idea or product: if at the outset your operations or capacity do not support your product and you are not trying to solve that mismatch—you pretty much set yourself up for failure.
Continuing with the example of the popular consumer product: one solution could be to outsource part of their backbone, like their after-sales service or production, to another party who can take on the extra capacity. This leads me to the second important point: your company’s “ecosystem”.
Learn to navigate your ecosystem
An insight that I found perhaps most interesting, is relating product-market fit to the concept of business ecosystems. Mirella points out that: “In your value proposition you cannot function without partnerships”. An example is the electric car: a fantastic innovation and great concept, but its success is partially dependent on a sufficient network of charging stations.
To be a step ahead of the game, try to develop a deep understanding of your ecosystem:
In what ecosystem will my product or service operate, and at what stage of development is it?
Do I need to do everything myself, or, do I outsource (part of) my backbone to other players?
What are the dynamics in my ecosystem and how are those likely to change?
What is my position within it: do I seek to be the orchestrator or do I just want to play a part?
To illustrate: a well-known electric carmaker initially started out with a large, proprietary network of charging stations incompatible with other cars. The electric car ecosystem was still in its infancy, said carmaker had a dominant position and the roll out & success of the electric car in general was slow. If you would have entered the market (and ecosystem) at that stage, you would probably have had a difficult time. When the carmaker eventually improved compatibility and opened up its network to other electric car brands, the dynamics in the ecosystem shifted—hereby providing opportunities for a variety of players within.
Your ecosystem also has an impact on how you organize your team. Which skills & capabilities do you need to keep in-house, and which can you outsource? Then, be critical with yourself: does your team & organization actually have the skills you need?
These are some questions to consider early in the product-market fit process to cleverly leverage your ecosystem. By doing so, even a small company has the potential to make a huge impact. I will provide more insights on how to leverage your ecosystem and optimize your team composition in upcoming articles.
Common pitfalls
Not doing your research
Harvard professor and researcher Tom Eisenmanni mentions an important pitfall in his book “Why startups fail”. Companies, especially those with a “lean start-up” approach, often poorly research true customer needs before developing & launching their product. If your market is relatively stable and mature, you might get away with that. But, as Mirella mentions wisely: “things go well, until they don’t”. Once that market becomes less stable or there is a disruption, the extent of your research and preparation becomes much more crucial.
In my experience, it helps to add two steps ahead of your MVP development: hold in-depth customer interviews to find strong, unmet needs & analyse what your competitors are doing. Once you have found a relevant need: create an “illusion of a product”, a hypothesis without an actual product that you can test in a simple way. This will provide you with a directional idea of what customers want (Daniels & Sherman, 2024)ii.
Failing to observe actual customers
Traditional methods to collect customer feedback, like focus groups and surveys, often fall short in capturing real purchasing intent. These approaches can be biased, as participants are aware they are part of a study, and they rely on self-reported behaviours rather than actual ones (Myers & Razack, 2022)iii. This gap between what consumers say and what they truly want can lead to products that fail to solve a real customer pain point.
A relatively easy and cost-effective way to observe customers in their own intimacy and learn about their actual behaviour is to use online advertising platforms. Moreover, small, targeted social media campaigns can be an effective way to test a product early on a small scale.
Not knowing when to “pull the plug”
We, as humans, tend to fall in love with our own ideas. Despite mounting red flags, teams often keep struggling through, wasting resources and credibility, hoping for a breakthrough. While in reality, the product or service may simply miss the mark.
This is “confirmation bias”: we are likely to overvalue our initial ideas & beliefs, hereby disregarding any shortcomings or critical feedback, and the more we invest—the more we cling on to them. This common pitfall can affect anyone, from a small-town business owner to a high-profile political leader, yet it can lead to overinvestment in ideas that were never right from the start.
The popular consumer product mentioned earlier is a great example of confirmation bias at play: despite years of negative feedback, instead of listening to their customers and taking a break to fix their issues, they kept going until insolvency forced them to stop.
To help shield yourself, come up with an “exit strategy” before you start: create a robust framework with clear boundaries and a definite timeline. And commit to it. For example, “we do not invest more than XYZ otherwise we stop or change course”. The idea is that you remain critical, honest and disciplined from the get-go. Have people in your decision-making team that have the ability and courage to be critical. Or, hire someone external to help you look at the situation with a non-biased view.
What’s next?
You have learnt valuable insights on how to navigate the product-market fit process, you understand the impact of your operations & ecosystem, and are aware of common pitfalls—hereby setting yourself up for a great start to success.
Yet you might ask yourself: “what do I do next?”. A frequent challenge in strategy work, and something I see with clients over and over again: there is a great plan, a great strategy, but eventually the outcome gets lost in the implementation (or lack thereof). I will include practical insights on implementation in future articles to help you ace your next strategic initiative.
That said, perhaps after reading this article you bravely decide it is time to stop: do not let that discourage you. Yes, pulling the plug on a product or service that you invested your everything into is hard. It is also an opportunity to redirect your resources into a next venture that will work out and a crucial part in the development process. “It’s the circle of (business) life”.
Consumer preferences change all the time and product-market fit is not a one-time achievement. Make sure to put a system in place that allows for continuous evaluation & adaption. Keep asking yourself questions. Keep challenging yourself. Keep your business customer-centric too.
This article is the first in a series of publications on corporate strategy and development. It has been created with the wonderful contribution of Olav Cuiper, Sylvain Fleury and Mirella Kleijnen—thank you for your insights & support.
About the author: Eline Jager is a corporate strategy adviser. She loves working with ambitious companies that want to grow their market potential. In her personal life she is an avid surfer and ocean-enthusiast.
i Eisenmann, T. (2021). Why startups fail: A new roadmap for entrepreneurial success. Crown Currency.
ii Daniels, C. and Sherman, J. (2024, January 30). Building a startup in a tough funding environment. Harvard Business Review. https://hbr.org/2024/01/building-a-startup-in-a-tough-funding-environment
iii Myers, H. and Razack, Z. (2022, December 22). Validating product-market fit in the real world. Harvard Business Review. https://hbr.org/2022/12/validating-product-market-fit-in-the-real-world
