Product-Market Fit of Innovations


Why is a good product market fit so central to success?

In public discussions and also at start-up events, the ideal composition of start-up teams and technology development are usually given particular importance for success. The product-market fit of new products or services is seldom the focus, especially in German-speaking countries. At UScale, however, we consider this to be so central to business success.

How come?

One Post-mortem analysis of the High-Tech Gründerfonds (HTGF) shows that insufficient product market fit is the most common cause of their failed investments. Problems in the composition of the founding team or technological development, on the other hand, are comparably less significant.

AnAnalysis of the American Tech Market Intelligence Platform CB Insights supports these findings. Among the top 20 reasons why start-ups fail, “no market need” comes first.

The evaluation and improvement of the product-market fit helps start-ups on their way to success and convinces investors in the early seed phase. At the same time, it can serve investors as due diligence from the customer’s point of view.

Product-Market Fit 1
Reasons for the failure of HTGF investments
Source: HighTech-Gründerfonds

No Use – No Revenue

A critical aspect in the development of the product market fit is to evaluate the actual willingness for use and acceptance by the target customer group. Established methods such as the Value Proposition Canvas help to identify the extent to which the new product or service solves an existing customer problem. What is not adequately addressed, however, are the new barriers that arise for users, which go hand in hand with an adoption and which ultimately impact the decision to use it.

Perceived barriers vary individually and depend on the customer segment. For example, they can relate to the abandonment of a habit or the integration of the innovation into the existing (IT) ecosystem. In particular in the case of pay-per-use-based business models, the relationship between the value added (the advantages) and the perceived barriers is decisive for the use and thus for the success of the innovation.

We at UScale have developed a simple and universal test procedure that uses qualitative and quantitative methods to determine the target group’s actual willingness for use. At the core of our approach is a key figure that quantifies the product-market fit and makes it measurable.

UScale’s PMF Development Framework

Our approach consists of a multi-level development framework. The objective is to gain a profound understanding of the market, competitive and customer environment in order to recognize and fully exploit the potential of the product or service. We accompany our customers from the first idea to the after-launch process and are at their side as critical discussion partners.

Central components of our development framework include the determination …

… of own market positioning.

Determination of the (application) markets and regional delimitation (TAM, SAM, SOM).

Analysis of the competitive environment and products or services.

… of the target group .

Analysis and identification of user groups.

Creation of personas.

… of your own value proposition for each target group.

Evaluation of problem-solving skills.

Determination of central barriers from the user’s point of view.

… of the willingness to use of the target group.

Qualitative and quantitative survey of the target group.

Determination of the target “Product-Market Fit”.

Segmentation and periodization of customer segments.

… of further market potential.

Determination of further development potential (e.g. features, services or backlogs).

Identification of next customer segments.

Analysis of competitor activities.

Product-Market Fit 2

Product market fit achieved. And then?

The work on product market fit is not yet done with the market launch. In the growth phase, too, it is particularly important to check whether the value proposition is still being adequately fulfilled. After the first user groups, new customer segments come into the market or want to be conquered. Their gains and pains are different. So working on product-market fit is a continuous task.

From our point of view, the Product-Market Fit is a KPI, a central target that has to be measured, checked and adjusted on a regular basis. For this, measurands and measurement methods are required. We offer the relevant instruments for this with our consulting and market research approach. You can find more information about our approach in our Whitepaper Product-Market Fit von Innovations HERE.

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