PRODUCT-MARKET FIT OF INNOVATIONS
German companies are among the top R&D spenders worldwide. In doing so, they contribute significantly to the achievement of the UN sustainability goals ( SDGs ) ( The 2020 EU Industrial R&D Investment Scoreboard ).
While German researchers occupy top positions in an international comparison, economic success falls short of expectations ( Innovations in the German economy). Great potential for commercialization thus remain untapped ( EFI report 2021 ).
This is where UScale comes in. We determine the product-market fit of innovations and provide approaches to improve their market potential.
BARRIERS TO COMMERCIALIZATION
Reasons for Failure of Innovative Products, Services and Business Models
A Post mortem analysis of the High-Tech Gründerfonds has investigated the reasons for their failed investments. The most common reason for failure was the lack of a product-market fit.
A study by the Tech Market Intelligence Platform CB Insights comes to a similar conclusion. Under the “Top 20 Reasons Why Startups Fail” “No Market Need”, i.e. the lack of product-market fit of innovations, is in first place.
FOUR SUCCESS FACTORS FOR PRODUCT-MARKET FIT
Net Added Value for Users
Most frameworks for business model development assume that a new product will be successful if it solves a pain point. It is often overlooked that new products always create new pain.
The decisive factor for success is not the resolved pain point, but the “net added value”, i.e. the relationship between resolved pain (gain) and new pain.
Focus on Reasons for Non-Use
Companies mostly work with KPIs that describe the behavior of their users who have already been won over. Examples are downloads, daily and monthly active users, churn rates and other key figures from the analytics kit.
In the early phase of diffusion, however, the knowledge about the (few) already acquired customers counts less. It is crucial to understand the barriers of the non-users and of the next accessible customer segment. Their barriers have to be overcome.
Accurate Segmentation of Customers
Start-ups and investors deal intensively with the size of the target markets that can be reached. Common indicators are Total Addressable Market (TAM), Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM). Mostly, the assumptions about the size of the serviceable market are based on the company’s limited resources.
This view overestimates the market’s acceptance and willingness to use. That is why UScale’s approach takes the perspective of users. The focus is on the likelihood of adoption of different target groups: Which customer segment can be won over the fastest? Which one after? And how?
Define USPs from the Customer’s Point of View
The early users from the segment of Innovators or Early Adopters differ greatly in their drivers for use from customers in later phases, e.g. the Early or Late Majority.
For a successful customer approach and marketing of innovations, it is important to know the USPs of the respective customer segments and to address the segments one after the other in a targeted manner.
1. SCALE THE USER
We quantify the product-market fit.
PAIN GAIN TEST
On the basis of the PAIN GAIN customer construct, we have developed an agile test procedure that can be used across all industries. The PAIN GAIN TEST measures the GAINS and the new PAINs of an innovative product among the target group and shows levers for improvement.
PAIN GAIN INDEX (PGI)
From the ratio of GAIN to new PAIN we derive a key performance indicator (KPI), the PAIN GAIN INDEX (PGI), which correlates with the customer acceptance and use of an innovative product by the target group.
PRIORIZING IDEAS, TARGET GROUPS AND MARKETS
The PAIN-GAIN test is ideal when different product ideas are to be compared and prioritized. Alternatively, an innovation can be tested for acceptance by different target groups or different target markets.
2. SCALE THE BUSINESS
We manage the Product Market Fit in all phases of the product life cycle.
1. THE EARLY PHASE
Typically, there are more ideas than money and time for implementation. The PAIN GAIN TEST takes over the prioritization and shows which idea has the highest potential for success and which ones not. This helps innovators and investors to direct the scarce funds into the best ideas with the greatest future market success.
Requirements definitions are more than a list of functions to be implemented. The results of our PAIN-GAIN test show developers and product owners which features have the greatest potential from the customer’s point of view and what is important.
3. MARKET LAUNCH
Innovative products often have many advantages and solve several problems. The PAIN GAIN TEST identifies the USPs that are most relevant to the target group’s purchase and usage decisions. Thus, marketing ascertains which messages resonate best with customers and users.
4. MARKET PHASE: DIFFUSION AND CONVERSION
Innovative products are only successful if diffusion is fast. The PAIN GAIN TEST provides the levers for successful diffusion and higher conversion in the field.
You can find examples and case studies in our WHITE PAPER for product market fit.
Together with test users from the target group, we prioritize innovation ideas, target segments and target markets according to product-market fit.
ENGINEERING / IT
We support the requirements definition of projects and backlogs so that developers can focus on the functions that really count from the users’ perspective.
We take over the due diligence from the customer’s point of view and thus provide the decisive information for the validation of the business case of planned investments.
We show the decisive drivers and barriers to commercialization. This gives marketing the perfect basis for the agency briefing.
We show sales how they can address new target segments most successfully. Diffusion and conversion proceed faster.