How To Iterate Your MVP To Achieve Product-Market Fit

Last updated on April 22, 2021 by Hong Zhuang Reading Time:6 min

Hopefully, I have sold you how to evaluate your idea without coding and money. You are ready to create a minimum viable product (MVP).

What does an intelligent entrepreneur like you do to fast-track success?

Enrich your knowledge with the tested and proven experience of other entrepreneurs to save yourself valuable time and avoid deadly mistakes that have killed 90% of startups.

What is the next step of your startup journey?

A product-market fit: the first life or death milestone for your startup.

What is the purpose at this stage?

Develop a product/service your customer wants to use and pay.

What is the deadly mistake at this stage?

Run out of money that will kill your startup in infancy.

How do you prevent that?

Harvard Business School Professor Clayton Christensen analyzed startups over the last 100 years. It concluded that “Successful startups are the ones who have enough money left over to try their second idea.”

Why do you need to save money for the second idea?

Unfortunately, having idea validation will not guarantee your customers will buy your product/service because many factors influence purchasing decisions. Facebook and mySpace resolved the same problem, but the customers didn’t like mySpace’s solution; the rest is just history.

This blog will present a proven process that uses the lean startup methodology and combines customer validation with lean software development(LSD). LSD focuses on MVP improvement related to the product-market fit. 

This iterative process will help you find product-market fit fast while avoiding the following two primary sources that deplete your budget: 

1. Eliminate unnecessary code development and keep our software engineers bare bones because they can take a considerable chunk of your startup budget.
2. Identify your true early adopters as quickly as possible to avoid userless users or hijackers from sucking your budget and derailing your success.

The process consists of the following series of steps that you repeat, tweaking and improving your MVP with each cycle :

1. Product-market fit metrics   
2. MVP development
3. Customer validation
4. Customer data analysis
5. Go to step 1

Turning MVP to product-market fit is considerably more involved than just finding your customers. It is about seeking the true early adopters and a suitable business model for your long-term success.

Why is it crucial for you to identify your true adopters? Two reasons:

1. Save money and time on MVP programming
2. Their feedback will accelerate your product-market fit.

Product-Market Fit Metrics

What’s measured improves.”

― Peter Drucker

To measure if you are making progress towards product-market fit, you must create metrics.

Which are the most popular metrics?

Churn Rate

The churn rate shows you the percentage of customers who stopped using your product/service. This indicator shows how much your customers want your product and should decrease as you iterate your MVP more and more. The benchmark annual churn rate is between 5 and 7 %, and you need constantly check it in the pre-product-market fit.

Product-market Fit Assessment

What is the product-market fit definition?

“A company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability.”   

There are three standard assessments for determining product-market fit:  Product-Market Fit from Marc Andreessen, Sean Ellis Product Market Fit, and Brian Balfour Product-Market Fit.

We will use Sean Ellis Product-Market Fit because it takes a quantitative analysis approach and easy to use.

When do you run a product-market fit assessment?

You have between 40 and 50 customers, according to the Buffer test.

How to do it?

You will send a customer feedback survey email containing the following question to all your customers:

How would you feel if you could no longer use product?

1. Very disappointed
2. Somewhat disappointed
3. Not disappointed (it isn’t that useful)
4. N/A – I no longer use product

You reach the product-market fit if over 40% of your users say they would be “very disappointed” without your product.  

MVP Development

Initial MVP

What is the purpose of your initial MVP?

It will make your customers WOW feel.

Founders usually focus on MVP features, but your customers care about how your product’s unique value proposition will make a dramatic difference in their lives. i.e., increasing pleasure or decreasing pain.

How do you do that?

The first question you would ask yourself is how my MVP will show your product’s unique value proposition.

To answer this question, think through the following questions

1. What solutions have your customers tried to solve the problem, and why those solutions failed?
2. How will your unique value proposition be different from the existing ones?
3. Why will your unique value proposition be appealing to them?

The above questions will help you select the features that reflect your value proposition.

For example, you plan to launch an Amazon-like platform. Your unique value proposition is low price and high quality for farm products that are much cheaper than other farm markets, supermarkets, and convenience stores.

What should your initial MVP show? Show low prices and high-quality farm products.

What will be a possible MVP?

First, you talk to your potential farmers:

1. find out the top two best-selling products in this season
2. negotiate the lowest prices you can get from farmers
3. you figure out your selling prices,i.e.,costs+your desired profits

Secondly, you reach out to your potential customers

1. show them the pictures of your two products along with the prices
2. tell them no payment until the goods are delivered, and they are satisfied with the goods
3. collect customers info, including email address, name, which product, and quantity, and home address

Lastly, you buy the products from the farmers, deliver to customers and ask your customers to pay you through PayPal if they are happy.

MVP Best Practices

As you see from our initial MVP example, we use the “concierge MVP” that doesn’t involve any coding. There are other types of MVP:

1. A video like Dropbox MVP
2. MVP landing page like Airbnb MVP
3. Minimal code MVP like Uber MVP

The best MVP practice is to use as much manual customer interaction labor as possible, and the general rule of thumb is that an MVP shouldn’t take more than a month.

Sequential MVP

You will continue to improve your initial MVP until you reach product-market fit.

How do you prioritize the MVP improvement?

Before finding your true early adopters, you prioritize the MVP improvement based on the trade-off between your customer’s priority and how fast you can build.

Once you identify your true adopters, you prioritize improvement based on the number of requests for a specific feature.

The general rule is to implement one new feature per iteration to get quick feedback from your adopters.

Customer Validation 

Pricing

Before putting your MVP in your customer’s hands, you need to decide one crucial component of your business model, i.e., whether you should charge your customers. 

If you decide to get revenue from advertising, you offer your product to your customers for free. Otherwise, your need to charge your customers.

Why?

People buy your product/service because of its values, and price is your touchstone to test whether your product offers value to your customers.

 How do you decide the price?

The general rule is to provide a deep discount to encourage them to try your imperfect MVP. You can also provide a free trial.

Customer Validation

Your customer validation should divide into two phrases: 

1. From 0 to 10 customers, you need to collect feedback from every customer.
2. Once you have more than ten customers, you only collect feedback from your early adopters.

What will you include in customer validation? The following three types of customer feedback:

1. Confirm you are on target: to check if they are enthusiastic about your product/service. If yes, find out what problem your MVP address (to ensure that you and your customers solve the same problem). Otherwise, you may find why you missed the target.
2. Collect feedback for your MVP improvement: Information includes features required or not with priorities and reasons.
3. Price model and service offering:  check if you have a suitable price.

When do you stop Customer Validation? When you find a product-market fit.

Customer Data Analysis

Now you have all feedback, should you implement new features according to the customer’s priority? Of course not.

Data Analysis Before Identifying Early Adopters

You probably heard that getting your first customer and making them feel like a king. But be careful! Since not all customers are created equal, you need to focus on the true adopters to save money and eliminate unnecessary coding.

Conventional wisdom says, ” ‘Don’t listen to what people say, watch what they do.” According to a Harvard study, 95% of the time, people use the unconscious mind to make purchasing decisions.

How do you find how your customers act? Their input data in your database.  

But from a statistics point of view, you need to have at least ten users to determine your actual adopters.

Generally, you will have three types of customers:

1. True adopters: they are active users and urgently provide you feedback to improve your product 
2. Useless adopters: they don’t care about your product because they only occasionally used it.
3. Hijackers: they use your product in the wrong way (e.g., use your product for money laundry)

Data Analysis After Identifying Early Adopters

You focus on early adopters’ data only. What do you need to analyze?

1. Analyze if you need to add new features to entice them to use more of your product.
2. Which feature do they use the most? Suppose they use it differently from what you initially assumed. In that case, you need to check why and determine if you need to pivot your business. For example, Yelp originally started as a city search product, but they found that the user’s review attracted many users. As a result, they changed their product to a review-based search.

Conclusion

You will continue the process until you have a product-market fit. Then what should you do in post-product-market fit?

Unfortunately, the product-market fit will not automatically keep your startup on track with self-growth. 

Why?

1. Because startups are on the journey of “searching a repeatable and scalable business model.” You continue examining and adjusting all three business model components: price, packaging, and distribution channel. 
2. To grow, you need to integrate your startup into the ecosystem. For example, Airbnb’s ecosystem consists of all services that directly generate revenues for Airbnb. Besides, it needs to work with the city, state governments, travel industry leaders for creating or changing regulations. Without the ecosystem, your startup is like a tree with no roots.

If you seek subject-matter experts to help your startup fast-track the journey of finding product-market fit, reach out to us at info@zettasher.com.