Finding product market fit: A concise guide to agile & lean methodologies
Watch any Hollywood interview, award ceremony, or acceptance speech, and you’ll probably hear artists, writers, or directors talk about the process. The magic stems from the right creative process, they posit.
Product development - especially digital product development - isn’t so different. Developing a product that fits the marketplace and sustains profitable growth, indeed, is all about process.
In this tutorial, we’ll explore the concept of the agile process, articulate what it means to digital product development, and offer you what you need to know on relevant topics, including:
- Product market fit
- Organizing principles
- Customer feedback
- Testing and experimentation
- Technology stack and resources
This tutorial will most likely be of maximum benefit to startups focused on digital product development. And while several of the concepts we’ll discuss certainly can apply to physical product development, the principles we’ll focus on are most effective in a digital context.
1 PRODUCT MARKET FIT
Startups begin with an idea. They build out that idea, try to attract investor interest, and release a product to the market. Sadly, many find the idea simply doesn’t garner market interest. Funding dries up, they close their doors, and their big idea dies.
The term “product market fit” refers to the degree to which a product satisfies the demands of a good market. That means, enough customers are buying, using, and telling others about a product to sustain that product’s growth and profitability.
We’ve observed time and again that a highly-functioning process can foster stronger product market fit. Conversely, a muddled product-dev process -- that is, a process that doesn’t account for market change, customer input, or team communication -- often results in a product with poor market fit. At worst, poor processes lead to startup failure.
The key to product market fit is process - specifically, an agile methodology.
Why? Because an agile approach incorporates marketplace changes, customer feedback, and team communication, thus reducing common startup failures points.
Check out this Superhuman story about their journey to introduce the agile methodology and improve their product.
2 DEFINING TERMS
Most conversations about product development will quickly take a turn toward process. To make sure we’re speaking the same language, let’s first define the most common terms you’ll hear batted around when discussing processes.
A process is a defined set of steps, activities, or events followed to complete a task or produce a result. It focuses on consistency, repeatability, and efficiency. Because it’s repeatable, it can be improved, optimized, and automated.
A methodology is a well-defined set of rules, methods, test activities, deliverables, and processes for doing or making something. Higher-level than a single process, a methodology represents a repeatable approach to solving a specific problem.
A framework provides context, support structures, or guidelines for an operation, way of doing something, or, in our case, developing a product. It’s flexible and can be customized or adapted to changing conditions. A framework is the context, or series of principles, by which methodologies and processes function.
3 COMMON METHODOLOGIES
While there are several product development methodologies businesses use, the two most common - and most contrasting - are Waterfall and Agile.
The Waterfall Methodology breaks down project activities into linear, sequential phases, in which each phase depends on the deliverables of the previous phase and corresponds to a certain specialization. For example, graphic designers, interface designers, copy writers, and other creatives typically do their work within the design phase, whereas engineers and developers complete their deliverables in the development phase - just after designers have completed all their deliverables.
Originating in manufacturing, this approach was typical in engineering design and software development when versions were fixed in advance and released in physical format, like CDs. It’s less iterative and flexible, as progress towards the ultimate deliverable flows unilaterally down. It moves sequentially - like a waterfall - through the various phases of conception, analysis, design, development, testing, deployment, and maintenance.
The problem many modern businesses face with waterfall is that its sequential nature simply doesn’t allow for iterative improvement, the kind of improvement that nudges a product closer to market fit. Following the waterfall methodology encourages businesses to define the product completely, hand off their requirements for analysis; design, build, test; and then deploy. At launch, they hope the product fits the market.
The challenge with waterfall for most businesses is they simply can’t know at the beginning of the project what product market fit will ultimately look like. Why? Because understanding fit is really an iterative process of listening to the market and refining the product.
Enter the concept of agility.
Agile Methodology, sometimes considered a framework, is an iterative product development approach in which demands and solutions evolve through the collaborative effort of self-organizing and cross-functional teams with their customers.
First coined in the Agile Manifesto, agile methodology was created in response to the inadequacies and frustrations of traditional development methods like waterfall. The linear, sequential approach of waterfall simply didn’t provide an environment for the kind of constant improvement, collaboration, and innovation needed for software to remain competitive.
Agile introduced new and highly relevant concepts to software development:
- Face-to-face collaboration of specialists rather than working in specialized silos
- Iterative product improvement instead of pursuing a fully-baked product
- Constant customer contact throughout the process instead of seeking feedback when the product is ready
- Accommodating change rather than following a rigid plan
Agile is most suited for today’s competitive, ever-disrupted, and ever-changing landscape.
Are you agile? Often startups think they’re using agile methodology when they’re just using a staggered waterfall approach. The difference? Customer feedback and iterative improvement.
4 LEANING INTO AGILE
The most common confusion point I run into when talking process with digital startups is understanding the difference between agile and the lean development process. They’re basically the same, right? Yes and no.
Lean production, also known as lean manufacturing, is a more conceptual, business framework that targets an outcome based on efficiency, customer value, and feedback. Concepted in manufacturing, lean follows five principles:
- Customer Value: Determine the value of the product to the customer.
- Product Value Stream: Identify the steps necessary to produce a product, removing all waste.
- Continuous Product Flow: Keep the product flowing continuously through the value stream.
- Pull: Pull product through all necessary steps, reducing anything that slows its progress down or causes friction.
- Product Perfection: Always manage toward product perfection.
Compared to lean, agile is really an execution strategy with evolving targets based on short development cycles, called sprints, and test-and-learn improvement. Although it doesn’t address the concept of waste minimization directly, it does aim for a product market fit based on constant release and testing/feedback. Four characteristics define the agile methodology:
- Iteration: Constantly improve the product, aiming for product/market fit
- Communication: Ensure open, direct communication within the project team and with the customer.
- Short Cycles: Work in short cycles to enable iterative build and improvement.
- Quality: Stay focused on quality, reducing failure points.
As you can see, agile and lean have quite a few similarities. Think of lean as the higher-level, more conceptual framework - the theory - and agile as more tactical and practice-based.
Kanban is an agile or just-in-time methodology that functions within the lean methodology and focuses on executing small projects that fit together to form a whole. In manufacturing, it focuses on just-in-time inventory, that is, keeping just the inventory you need to complete a project or cycle. For digital product development it often refers to executing a list of projects one by one (usually moving post-its from “backlog” to “in-progress” to “completed”).
Scrum is a process within the agile framework that emphasizes short sprints or sprint cycles, bringing together a team of SMEs working collaboratively towards a shared sprint goal. Maybe it’s a product feature, an interface improvement, or even vetting out an idea. The key here is a team of specialists working collaboratively with each other and the customer on a shared goal.
We recommend startups apply a lean framework while using an agile execution, all while targeting product market fit. That is, use lean thinking while executing an agile process to minimize waste and reach a minimal viable product (MVP). That approach should bring you closer to product market fit with every agile sprint.
5 TESTING THE MARKET
When startup leaders hear “testing”, they may think of quality testing, usability testing, or even user acceptance testing. While each of these tests is quite important, we’re focused on another kind of testing that’s, frankly, as important to product market fit as any of those testing strategies are to a functional product.
We’re talking about product testing.
Product testing in the broadest sense measures a product's performance, safety, quality, and compliance with established standards. For our purposes, we’ll focus on testing the product’s performance in the market or with the target users of that product.
In fact, an integral feature of agile methodology is testing and experimentation.
With every sprint, the project team validates not just the quality and function of the product or feature they’re developing, but they should be validating the product against the customer’s or user’s needs and desires.
What that means in practical terms is continuous testing and learning. Every sprint is an opportunity to test or experiment on a concept, feature, or function and learn what’s working, what’s not, and what ideas could be infused into the project roadmap, a high-level summary of the product vision.
Sprints offer projects a chance to test concepts, technologies, or practices. But they also serve as an opportunity to benchmark the product against market demand - the customer. So customer feedback, even informal, is crucial.
For example, let’s say a team is working on a digital interface. Part of or an entire sprint may be dedicated to crafting an interface and vetting it out with customers.
6 CUSTOMER FEEDBACK
Customer feedback is a critical component of product market fit. And knowing when and how to collect it is the trick.
Although the customer should play a role in the initial product concept, there are three important checkpoints of just about every digital project that create an opportunity to collect meaningful and measured customer feedback.
1 The pre-launch phase presents the first opportunity to collect measurable customer feedback through the use of focus groups or simple targeted customer feedback loops. Product market fit is, in fact, a data measure itself that becomes more predictable - and even obvious - as customers are engaged. More on this below.
2 The private beta phase gives you an opportunity for a second round of customer feedback measurement. By necessity, private betas usually involve a limited audience, which makes it difficult to source detailed feedback that’s also statistically significant. Here’s a good hack: Simply ask your beta users how they would feel if this product didn’t exist on a scale of 0 to 5, with 0 meaning “neutral to positive” and 5 meaning “devastated”. If over 40% of users give it a 5 for “devastated”, that validates a strong level of product market fit.
3 The public launch provides a third opportunity for a true feedback measurement. At this point, the product is actively in the market, so you can get a true measurement of product market fit. Prominent investor Marc Andresson describes product market fit like this: “The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.” In other words, true product market fit is obvious.
As you’re evaluating public-launch user feedback, look specifically at these metrics:
- Engagement of existing users. The usage patterns of existing users demonstrates that they rely on this product and use it regularly to meet a particular need.
- Evangelism of existing users to new users. This is referral behavior of your active audience, measured via the organic growth in product sales through customer referrals and word-of-mouth.
Keep these things in mind, though, as you collect and review customer feedback:
- Themes: Note recurring themes in feedback and/or user misconceptions you can correct.
- Finding your audience: A key component of product fit is finding/creating the test group to provide the feedback you want. Who has the problem? Who’s the person who would benefit from the problem? Understand who the customer is and where they are?
- Understanding Early Adopters: Although early adopters ARE a strong indicator for determining product market fit, remember that their unique behavior may not be fully representative of the engagement you might see in the wider market. Use them to build the best product but not as to define engagement expectations in your model as you expand to a wider audience.
The Early Adopter Trap. Remember that early adopters don’t necessarily reflect the behaviors of the mass market. Your adoption rates might fall significantly when your product launches more broadly.
The lesson? Don’t base product market fit - or your business model - solely on stats coming from early adopters. Instead account for, and manage to, an evolving audience.
7 FIVE FINAL OBSERVATIONS
In thinking about product development and methodologies like agile, let me offer five observations common to successful startups.
1 Know the problem. Make sure you’re actually solving the right problem or producing the right product. Too often small companies assume they know the problem they’re solving. Maybe they received some customer complaints, noted an issue during QA testing, or received feedback internally. So they go about solving what they think the problem is only to find they still have problems. Avoid solving the wrong problem by listening to your customers. Go find the root cause of that customer issue. Then, work on solving that problem with laser focus.
2 Fake it til you make it. You don’t have to build a completely functioning product to identify a product that will actually work. A simple product framework, or even just a manual process, can go a long way towards helping you learn what really resonates with your target customers. Prove out your concept before you invest real money.
3 Recognize proper product market fit. Measure the right things; look at the right data set. Always keep the question, “Do we have the right product market fit?” top of mind. Focus on what the data tell you, not on vanity (ie. not on what people anecdotally tell you about your product).
4 MVP and Continuous Improvement. Once you’ve validated the solution, then you get into continuous improvement to get closer to full solution with full customer feedback to get to product market fit. Build your MVP first, then iterate. You start investing money once you know you have a viable concept on your hands.
5 Batten down the hatches. Focus on the core product, specifically on finding and then perfecting product market fit. Once you’ve hit on the right fit, define it precisely and then double down on refining what you’ve got. Avoid product creep at all costs. It’s tempting to iterate more and more, adding more features, et cetera, in the pursuit of even more perfection. But there’s a very real chance you can over-complicate the product. You can find product market fit and then lose it!
A number of years ago, I advised a company that built an MVP that was wildly successful among customers. The company invested in it heavily. Thinking they could broaden the product appeal to an even greater swath of customers, they began adding features they thought customers wanted. However, in doing so, they complicated the product to the point that they lost their product market fit - and, with it, their second round of funding. They had pivoted too far away from what made them special, the product ultimately failed, and the company could not survive.
The problem? They didn’t effectively communicate with users to understand what really excited them. All those bells and whistles obscured the product’s core appeal to users.
The lesson: Avoid product creep. Keep a laser-sharp focus on product market fit as defined by your customers.
8 TECHNOLOGY STACK
Many resources and tools are readily available - and economical - to help you and your team manage an agile product development process. For starters, take a look at this listing of recommended reads and technologies.
- The Lean Startup by Eric Reis. This book introduced the modern, and now best-practice, approach to product development based on non-stop iteration and customer feedback. Basically it put agile and lean on the map for startups.
- This 2011 Inc Magazine article, written following the release of Eric’s industry-changing book, is still highly relevant today.
- The Dozuki Guide provides a 5-point summary of decision criteria and processes that optimize product development process.
- The Superhuman story highlights their agile process journey. The theories behind metrics they collected and what those meant are detailed and well-defined in this article. This piece demonstrates a repeatable practice for firms in the early stages of product development.
Process Management Tools
- Clubhouse.io is the issue-tracking tool M13 recommends first for smaller teams and startups. Like its competitor tool JIRA, it accommodates defect tracking and agile project management. As your team ramps up in size, JIRA may provide a more robust solution for your evolving needs. SamePage, WorkOtter, and ProjectManager are also good issue-tracking tools for early-stage startups.
- Basecamp is a web-based project management tool that offers to-do lists, milestone management, forum-like messaging, file sharing, and time tracking. It’s perfect for deliverable management and archiving - especially creative deliverables. Interested in a couple of alternatives? Check out Trello, Asana, or Monday.
Moving towards product market fit takes an agile methodology, a commitment to customers, and a willingness to test and learn nonstop.
Just like my M13 colleagues, I’m a former operator and founder who’s dedicated to helping founders like you and their startups reach product market fit. You’re invited to schedule time with me or any of my colleagues during our office hours. We’re thrilled to help you work through product questions, process issues, or vet out ideas.