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Start-Up School | Chapter 3: Find Product-Market Fit

Matching a great product to a big market can only happen through continual experimentation, iteration and incorporation of customer feedback.
Illustration by Elin Svensson
By
  • Victoria Berezhna

This article is published in tandem with Start-Up School, BoF’s new resource comprised of a practical guide and supplementary tools, templates and frameworks to fuel your journey to successful entrepreneurship. Become a member to access.

Before founding Lyst, Chris Morton lived with three fashion-obsessed flatmates. At times, he observed them as they opened dozens of browser tabs to compare styles and prices from different retailers, just to buy one pair of heels. His idea — fashion consumers needed a website that aggregated this information in one place, much like travel sites do for hotels.

Rather than write a business plan and call investors, Morton wanted to test his hypothesis that people would prefer to shop this way. In 2010, he created a minimum viable product — or MVP — a website listing just one product: a Mulberry Bayswater bag. He showed a few friends, and based on their feedback, began building what eventually became Lyst.

“You must understand the customer need, how to solve that problem, and then build a prototype,” Morton said.

Open any entrepreneurship textbook, and the instructions for launching a new business will be straightforward: create a business plan, secure some initial funding, assemble a team, create a polished product and then push it in the market.

Plenty of start-ups still follow this path. But in the fashion industry, it’s increasingly seen as outdated, involving long lead times and higher costs better suited to a previous era, when new brands’ biggest concern was negotiating with wholesalers.

In recent years, some of the most successful new brands have taken a different route, launching their products as soon as possible, then honing and tweaking them until they hit on their “product-market fit.”

This term, coined by Benchmark Capital co-founder Andy Rachleff, boils down to matching a great product to a big market, something that can only be found through continual experimentation, iteration and incorporation of customer feedback.

You must understand the customer need, how to solve that problem.

Founders who embrace this concept often follow the “lean start-up” model, credited to entrepreneur Steve Blank in the mid-2000s, then transformed into a methodology in 2011 by Silicon Valley entrepreneur Eric Ries.

Here’s how to find your product-market fit:

Test Your Hypothesis

All an entrepreneur has on day one is a guess, or instinct, about consumer behaviour. Founders can test their hypotheses by going out and surveying potential users with a minimum viable product.

Tom Horne and his business partner Will Green, co-founders of menswear label L'Estrange, believed a gap in the market existed for men's hoodies that could be worn on both formal and casual occasions. "We made a couple of samples, it was super lean. We had a Shopify website and spent about £1,200 on it," Horne said.

To test their hypothesis, they launched a survey, opened a small pop-up and invited the customers involved to give feedback. “The question was: ‘are you willing to pay full price for this item?’” he said. They sold out of hoods on day-one of the first pop-up, both confirming that demand existed, and gathering feedback on design elements, including which colours and sizes to produce. Crucially, some customers said the hoodie looked unfinished because of the lining, so they changed it.

L’Estrange continues to build its business using a small community of “Insiders” who are involved from the conceptualisation of a product all the way to testing the fit, providing a valuable feedback loop. “The end of the process means you have products that you know are going to be a hit,” said Horne.

The traditional metric for product-market fit is the 40 percent rule: if at least 40 percent of customers in a survey respond they would be “very disappointed” should they no longer have access to a service, then you have a product-market fit. Another common measure to use is the Net Promoter Score (NPS). A NPS of 60 or above is a sign of achieving product-market fit.

The question was: 'are you willing to pay full price for this item?'

Alternatively, tracking a group of customers over at least six months to see what percentage are still using a given product indicate the retention and churn rates. This is particularly useful for online businesses.

Integrate the Build-Measure-Learn Loop

One of the keys to the lean start-up methodology is that start-ups should not act like small versions of the large companies they hope to one day become. The flexible approach taken with regard to the product also needs to apply to the whole operation, so the underlying business remains nimble enough to continue iterating.

Tim Brown, co-founder of Allbirds, the Silicon Valley start-up behind the widely popular wool sneaker, which has a reported $1.4 billion valuation and $77.5 million in funding, said launching as a direct-to-consumer business was crucial to staying nimble, as the company wasn’t locked into wholesale arrangements in its early, experimental stages.

“Our first shoe looked awful,” said Brown. “We went through hundreds of iterations, testing with consumers, and ultimately arrived at our minimum viable product — the simplest thing we could make to solve the problem.”

Hims founder, Andrew Dudum, built a mobile app where consumers could request different bundles of products through a series of medical questions, and launched it to a small number of customers. The response was overwhelming — $1 million in revenue in just five weeks — but the company soon abandoned the app once its purpose had been served.

“We stopped it and went to work on building the true brand we later brought to market,” Dudum said. From then onward product has constantly been evolving with small tweaks to design, marketing or market positioning, running on a constant feedback loop. Some of the most recent products launched were a direct request from consumers.

Don’t Be Afraid to Pivot

The build-measure-learn model allows for product iterations, but at times founders may be forced to pivot, or make a correction to test an entirely new hypothesis about the product, strategy or growth engine.

Our first shoe looked awful ... We went through hundreds of iterations.

When Allbirds heard from customers that their signature wool sneakers were too warm for summer, they were able to quickly pivot some of their production to a more breathable material, eucalyptus tree fibre, and start selling it online immediately. “That may not have been so easy as a wholesale brand,” co-founder Joey Zwillinger said.

Morton faced his own dilemma in 2011, when social commerce was a buzzword and Lyst believed its customers would like to make curated lists of items and share them.

“We tried a few times and we just couldn’t get that to work,” Morton said. “During consumer testing, it became obvious they only liked sharing on a one-to-one basis. It seems obvious now with hindsight but at the time it seemed like a trend about to take off. So we pivoted.”

Having only rolled out the feature to a small set of consumers, keeping the business model agile meant Lyst was easily able to continue on its feedback loop.

L’Estrange pivoted, too — in 2016, the brand was sold through over 40 different stockists, ranging from Colette to Saks Fifth Avenue, producing seasonal collections that weren’t finished to the optimal quality, and producing clothes based on a buyer’s opinion, rather than hard data.

Thinking about the brand’s original ethos, which was a timeless capsule wardrobe for men, meant “we got back to what we first started doing, which was the build and learn loop — everyone involved at that stage knew a whole new business model was going to happen.” The pivot was going direct-to-consumer in 2017, and direct sales increased by over 250 percent year-on-year.

Once a founder gets the product-market fit right, iterations continue for every product and category launched. In a market where customer tastes are ever-changing, engaging in frequent market analysis and going out there to ask consumers what they want, repeatedly, until finding the right fit, will increase your chances of success.

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