How to find the perfect product market fit

by | Jan 5, 2015

How to find the perfect product market fit

In the previous blog post ‘Why product innovation is dead’ we talked about the imperative for business model innovation. But how do you carry out fast business model innovation and which tools should you use?

The impetus for business model innovation is provided by a rapidly changing global market space that is characterized by shorter product life cycles and omnipresent competition.

In this new world making strategic business decisions is more complex and difficult. Alex Osterwalder, creator of the Business Model Canvas, argued in 2004 in his PhD research on Business Model Onthology that it’s surprising that ‘the concepts and software tools that help managers facilitate strategic business decisions in this difficult environment are still scarce.’

Fast forward 2014 the management book that ensued from this PhD research, Business Model Generation, hit the 1 million sold copies mark last November. The Business Model Canvas is now an intrinsic part of the lean startup methodology. The BMC works perfectly as a tool to understand how all the 9 key components of a business model relate to each other. Read here our article on how to use the business model canvas more effectively.

But how do you know if you’re on the right track with regard to the most important elements of your business model? How do your value propositions relate to your customer segments? Or in other words how do you reach product/market fit?

The new book of Osterwalder, released this fall, Value Proposition Design provides an answer. It’s Osterwalder’s book on the application of the value proposition canvas (VPC). The VPC consists of the customer discovery side and the value proposition side.

“How do you know if you’re on the right track with regard to the most important elements of your business model? ”

Customer Segmentation

The customer (segmentation) discovery part identifies three areas to serve customers.

The concrete tasks or ‘jobs’ customers want to get done as conceptualized by Clayton Christensen.

The associated pains in getting these josb done.

The benefits customers would appreciate, if they could wish for more, by a product or service that would enable them to get the jobs done.

This dissection of the real needs and wishes of customer’s is the most valuable part of the VPC and it’s foundation. If done diligently it provides the solid backbone for a great product market fit. The quote of Russel L. Ackoff, a pioneer in the field of operations research, systems thinking and management science, on solving the right problem comes to mind.

“Successful problem solving requires finding the right solution to the right problem. We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem.”

Breaking down the value proposition in jobs, pains and gains enables us to find the right problem to solve. The next step is to find the right solution or value proposition for the right problem. Osterwalder dissects the value proposition again in three parts.

Value proposition

Products and services
Products and services have to solve the jobs to be done such that customers are willing to pay for them. After all revenue is the best indicator for a valid value proposition.

Pain Relievers
The same products and services have also to be pain relievers: they must eliminate customers pains.

Gain Creators
But that’s not enough. If you want to outpace competition you have to go the extra mile for customers and provide something on top of these improvements. Your products should enable the customer to gain something more from buying your products or services than the jobs they solve and pains they relieve.

Are you having a strategic problem that needs solving? Contact Samir!

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