Have a startup idea? Here are four proven ways to determine and measure product market fit early

Microsoft for Startups

Have a great startup idea that's keeping you up at night? We thought so. After you've validated your idea and developed your user persona, now it's time to check for early indicators of product market fit.

Studies show that a lack of market need is the leading cause of startup failures, but you can avoid this fate by investing time and effort early to find out if there's a real monetary demand for your product. In other words, don't wait to find out if your target customer is willing to pay you or if your solution or is just a 'nice to have.'

You can validate product market fit early by focusing on these four principles:

1. Get clear on your value proposition

The first step is to determine your customer needs and how your product address that. Having clarity about your key value proposition will make it easier to communicate what you bring to the table when customers ask you, "What's in it for me?" An accurate representation of what you offer will provide accurate response of willingness to pay.

Fidel Ion, founder of SWEN, a news platform for journalists powered by AI, knew early on that he was going to create a value-driven business with a clear mission.

"We want to empower humanity with information by making the news searchable, personalized, and transparent. That means creating a world where every human on planet Earth has access to high-quality, accurate information," Ion said.

Having deep clarity about his value proposition gave Ion an edge to secure SWEN 50 beta users who identified strongly with the values he laid out.

2. Determine KPIs to measure product market fit

Identifying key performance indicators (KPIs) can help measure and track your performance even when you are in initial customer conversations. The Pirate Metrics framework is a popular framework that consists of five measurable components that are handy for founders:

  1. Acquisition: Are you able to get customers to your website or test landing pages?
  2. Activation: Are customers signing up when testing your product?
  3. Retention: How often are customers returning?
  4. Revenue: Are they paying for your product? Will they in the future?
  5. Referral: Are they telling friends and associates about your product?

3. Get customers to commit early

In the previous blog post on customer personas, Ryan Lee, who founded Kurvv, shared how he was able to secure paying customers while conducting research. Based on his success, he advises early founders to pitch their product early to potential users and get them to sign and commit to contracts on the spot, even before the product is ready. This builds momentum and attracts other customers and investors who are willing to fund the building of your product.

Another founder, Nadim Habr of Designhubz, a web-based 3D try-on AR for e-commerce, backs Lee's statement. "It's always a good idea to get signatures to make sure people are committed," he said. "You'll know they aren't bluffing about their interest."

4. Be willing to adapt based on what you find

Even if you validated your idea and crafted a persona, you might still need to pivot based on what you find when testing for product market fit. This is what happened to Habr, who initially targeted the construction and real estate industry for his product and soon realize he couldn't get these customers to pay for his product.

"It was hard to change the minds of real estate customers. They're not adapting to digital transformation as other industries are," he said. "That's what pushed us to pivot to another industry—we needed something fast, scalable, and where there's a huge opportunity for actual investment."

Habr found his market in the field of e-commerce, which he considers more advanced and open to new technologies, like the one his company was offering.

Lee agrees that the strongest indicator of product market fit is that people are willing to give you money to solve their problem, and they follow through with it.

"We initially got a lot of yeses, but that wasn't enough," he said. "The strongest signal is when they say, 'Hey, I see the solution. Here's my money. Here's a check and give me access now.'"

When this started happening more often, Lee knew he had the indicator to move forward with product development at scale.