You know you’ve hit PMF when your customers acknowledge that your idea and business provide value to their lives. From there, they keep returning to buy from you, and begin to spread the word. It’s a virtuous cycle, and will boost the confidence of even the most experienced founders.
But, what does a founder need to do in order to reach PMF?
Our second Atoms cohort sat (virtually) with Raghav Chandra, co-founder of Urban Company to discuss his approach to product-market fit. The key takeaway? The absolute minimum that a startup must do to achieve PMF is to provide “differentiated value” to its customers.
There are two approach to think about how to provide this differentiated value:
Identify and solve a core problem area for your consumers. Ask yourself, what do consumers in your industry find painful. The more pain, the bigger opportunity you have to create value. Start by talking to your users to identify the pain points and gaps within the system. Then, start solving them.
Before Uber, finding a cab was a problem. Uber found a billion-dollar solution.
What if there isn't an apparent problem in your chosen market? Can you still create value even if all the core pain points have already been addressed? Yes, you can, by driving a shift in consumer behavior. Spoil your customers by offering a truly delightful experience which becomes a new normal for the industry.
Most of Apple’s products aren’t strictly targeted towards core problems. Instead, they are optimized to create extreme delight for their users.
Pick your bet. Are you offering a need-to-have, or a good-to-have solution? Founders typically choose the former, as it's easier to size the market opportunity when you’re solving a tangible problem for a larger market.
Delight is harder to achieve, as you’re trying to change consumer habits and creating new ones to replace them. Sizing the market might be harder as the true opportunity can only be clear in hindsight. Usually, founders wanting to enter an extremely competitive market take this route - where ‘delight’ becomes the biggest differentiator.
Finding PMF is a crucial aspect when starting up, but it cannot be your end goal. Market conditions change, your competition catches up or most crucially, your customers evolve. You need to keep chasing this aim of differentiated value even after you’ve hit PMF. Raghav summed it up best:
“A basic PMF can only rope in your early adopters. A startup can win a market by improving on PMF to create 10x differentiated value.” - Raghav Chandra, co-founder and CEO at Urban Company
Your product should be differentiated enough to unlock a larger audience when the basic PMF exhausts its initial user base. Customer retention cannot be taken for granted. Raghav follows an intuitive yet profound framework to think of value.
As a business, there are 4 levers that you can push to create differentiated value. These levers are:
Providing value via price doesn’t mean you need to be cheapest in the market. Reducing price at the cost of revenue will not sustain your company in the long run. Rather, if you want to differentiate on pricing keeping the problem space, product and its quality benchmark similar to your competition; you can brainstorm along these lines:
Companies like GroupOn and LivingSocial differentiated successfully on price. They used bulk orders to get better pricing which they then passed on to the consumers.
Differentiating on pricing is tricky because it usually comes at the cost of revenue, unless you're doing it structurally. You must bear in mind that, as a company, the end game is to optimize your revenue.
Consumer friction points exist in every industry. Solving for them can unlock huge opportunities, sometimes giving birth to new industries. The ecommerce companies successfully optimized for convenience and as a result, shifted the buying behavior of users from offline to online. As the core problem space got competitive, companies have shifted to delight mode offering “instant” deliveries.
So how can you play on the convenience lever as a differentiating factor while building PMF? Try to answer the following questions:
Urban Company began its journey with convenience tactics. The at-home beauty services of UC allowed users to save time that they would otherwise spend to visit a parlor.
A good way to think about selection is to ask yourself: “Given the same problem and price point, can I offer my customers a better alternative?
Electric cars are a great example of selection in play. Given the consumer need for personalized affordable transportation, electric cars offer an environmentally friendly alternative to fossil-fuel cars.
To go about building PMF using this lever, these are the areas to think on:
Amazon has been built on levers of selection and convenience. As opposed to traditional retailers, ecommerce introduced a plethora of better choices and substitutes to the consumers. In some parts, food tech companies like Swiggy are also a selection play with a lot more options that consumers can choose from.
You could also create differentiation on quality when pricing, product, or even convenience is at par with your target market. This works best in fragmented industries with weak quality standards. Consumers gauge quality in terms of consistency of positive experience they get when they buy from someone. It is a critical lever as once you get consumers to trust you, it can lead to them doing business with you for a long time.
In order to differentiate on quality, think:
Quality is a key driver in the service sector. Urban Company ensures superior quality to consumers by investing heavily in training their professionals. On top of that, they use the best equipment for service delivery.
You will need to experiment on a few or all of the levers mentioned above and closely monitor the results. It’s crucial to always keep your eyes & ears open for any consumer feedback that comes along. It might hold the key to your next iteration that will move you closer to your PMF.