How to Apply Lean Startup Ideas to Achieve Product-Market Fit

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 Published 8/22/2015

Chances are you’ve heard of the Lean Startup movement, which aims to improve how companies develop new products and services. Lean Startup has such wide appeal because many people know how difficult it is to build a successful product. Everyone is familiar with the sobering statistics about the high percentage of new products that fail. 

Product-Market Fit

Product-market fit is one of the most important Lean Startup concepts, yet it is also one of the least well defined.

Marc Andreesen coined the term product-market fit in a blog post where he said, “Product-market fit means being in a good market with a product that can satisfy that market.” This explanation helps you understand what product-market fit is at a high level, but isn’t really actionable. You can find many articles that mention product-market fit, but they don’t provide detailed guidance on how to achieve it.

The Lean Product Playbook by Dan Olsen provides detailed guidance on how to achieve product-market fit. The book describes the Product-Market Fit Pyramid: an actionable model that defines product-market fit using five key components. In this hierarchical model, each of the components is a layer of the pyramid and is dependent on the levels below it. From bottom to top, the five layers of the Product-Market Fit Pyramid are: your target customer, your customer’s underserved needs, your value proposition, your feature set, and your user experience.

In the process of trying to define and build a successful product, you will be forming and revising hypotheses in all five of these areas.

The Lean Product Process

The Lean Product Process—also described in The Lean Product Playbook—is an iterative, easy-to-follow process based on the Product-Market Fit Pyramid.

This process guides you sequentially through each layer of the pyramid from the bottom to the top. It helps you articulate and test your key hypotheses for each of the five components of product-market fit.

The Lean Product Process consists of six steps:

1. Determine your target customer

2. Identify underserved customer needs

3. Define your value proposition

4. Specify your Minimum Viable Product (MVP) feature set

5. Create your MVP prototype

6. Test your MVP with customers

Step 1: Determine your target customer

It all begins with target customers who will ultimately decide how well your product meets their needs. You should use market segmentation to get specific about who your target customer is. Personas are a great way to describe your target customer so that everyone on the product team understands for whom they should be designing and building the product.

You may not have a precise definition of your target customer at the outset: that’s okay. You just need to start with a high-level hypothesis and then revise it as you learn and iterate.

Step 2: Identify underserved customer needs

After forming your hypothesis about your target customers, the next step is to understand their needs. As you try to create value for customers, you want to identify the specific needs that correspond to a good market opportunity. For example, you probably don’t want to enter a market where customers are extremely happy with how well the existing solutions meet their needs. When you develop a new product or improve an existing product, you want to address customer needs that aren’t adequately met: their “underserved” needs. Customers are going to judge your product in relation to the alternatives, so the relative degree to which your product meets their needs depends on the competitive landscape.

Step 3: Define your value proposition

Your value proposition is your plan for how your product will meet customer needs better than the alternatives. Out of all the potential customer needs your product could address, which ones will you focus on with your product? Steve Jobs said, “People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things.”

You need to figure out how your product will be differentiated from competitive products. How will your product outperform the others? What unique features of your product will delight customers? This is the essence of product strategy.

Step 4: Specify your MVP feature set

Once you are clear on your value proposition, you need to specify what functionality your minimum viable product will include. You don’t want to spend too much time and effort toiling away only to find out later that customers don’t like the product you’ve built. The MVP approach is aimed at building only what you need to create enough value in the eyes of your target customer to help validate that you are heading in the right direction. Customers may end up telling you that your MVP lacks an important piece of functionality. Or they may tell you that they wouldn’t use a particular feature that you decided to include in your MVP. The goal is to iterate until you have an MVP that customers agree is viable.

Step 5: Create your MVP prototype

In order to test your MVP hypotheses with customers, you need to show them a version of your product so they can give you feedback on it. You will need to apply user experience (UX) design to bring your feature set to life for your customers. While you could build a live, working version of your MVP, it’s usually faster and more prudent to create an MVP prototype. A prototype is a representation of your product that you create without having to build your actual product.

Prototypes can vary in fidelity—the level of detail to which they resemble the final product—and interactivity—the degree to which the user can interact with the prototype compared to the final product. A hand sketch of your product (on paper or a whiteboard) would be low fidelity and low interactivity. For web and mobile products, medium-fidelity wireframes and high-fidelity mockups are frequently used.

You can use a set of high-fidelity mockups of your product’s pages/screens to create a clickable/tappable prototype. Prototyping tools (such as InVision) make it easy to specify clickable/tappable hot spots and link them to other pages/screens. Such prototypes can usually simulate the user experience of the final product with enough fidelity and interactivity to obtain valuable feedback from customers. Prototypes are a powerful way to look before you leap.

Step 6: Test your MVP with customers

Once you have your MVP prototype ready, it’s time to test it with customers. It’s important in this step to ensure the people from whom you are soliciting feedback are in your target market. If you don’t, you risk receiving customer feedback that can send you iterating in the wrong direction. A screener—a short survey to ensure research participants have the attributes of your target customer—helps achieve this goal. You then schedule time to speak with each customer one-on-one.

During the user test you want to carefully observe what the customer says and does as they use the prototype. You should also ask clarifying questions when appropriate to gain deeper learning. Asking questions is an important skill to gain the most value from user tests. A good moderator will avoid asking leading questions such as, “That was easy, wasn’t it?” Compared to a non-leading question, a leading question biases the response from the customer. A good interviewer will also avoid asking closed questions such as, “Do you like that feature?” Such questions mandate a yes or no response from the user, which doesn’t provide much learning. Instead, you should ask open-ended questions such as “Could you please tell me what you thought of that feature?” Non-leading, open-ended questions give customers latitude in their answers and also encourage them to tell you more.

It’s beneficial to conduct user tests in batches or waves. A wave of five to eight users strikes a good balance between too few (where you risk not detecting some issues) and too many (where there is repetition and low incremental value of additional tests). At the end of the wave, you want to look across all the feedback you’ve received, both positive and negative. You want to identify patterns of similar feedback from multiple customers and prioritize any customer concerns that you’ve uncovered so you can address them.

Iterate to Product-Market Fit

The Lean Product Process is an iterative process. After analyzing the customer feedback in step 6, you want to revise your hypotheses based on what you learned and loop back to an earlier step in the process. The feedback will determine which step you should return to next. If you only need to improve your UX design, then you can just go back to step 5. But if your hypotheses about feature set, value proposition, underserved customer needs, or target customer need to change, then you would return to the earliest step that requires revision and proceed from there.

In each iteration through the process, you will end up revising your MVP prototype, which you test again with a new wave of target customers. From one iteration to the next, you hope to see an increase in positive feedback from customers and a decrease in negative feedback. You may find that you just can’t seem to make much progress despite trying several iterations. If that happens, you should take a step back and revisit your hypotheses. You may conclude that in order to achieve higher levels of product-market fit you need to pivot (change one or more of your major hypotheses).

Ideally, after repeating the Lean Product Process for additional waves, you iterate to an MVP prototype that customers have no negative feedback on, consider easy to use, and find very valuable. At that point, you have validated your key hypotheses and have designed a product with product market fit. You should then proceed with investing the resources required to build the product. Following this process should give you a high degree of confidence that when you launch your product, customers will use it and find it valuable.

The Lean Product Playbook by Dan Olsen provides additional in-depth advice on how to apply Lean Startup ideas and achieve product-market fit. Dan Olsen is a Lean Startup and product management consultant, speaker, and author. At Olsen Solutions, Dan works with CEOs and product leaders to help them build great products and strong product teams, often as interim VP of Product. He has worked with companies large and small on a wide variety of web and mobile products. Dan’s clients include Facebook, Box, Microsoft, Medallia, and One Medical Group.

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