It’s a story we often hear on the CEO Campfire Chat podcast. A founder faces a problem in their life. They search for a solution in the marketplace, and it just doesn’t exist. Instead of sitting idly back, they create a product or service to address their need and bring it to market to share with others.
The passion that drives an entrepreneur to start a venture can take a business pretty far. But at some point, founders need to identify the difference between why they started the business and why they continue to run it. Customers out in the marketplace are not carbon copies of your founder, and the reasons they patronize your business may differ from the reasons the founder started it.
Part of effectively scaling a business is acknowledging this gap between founder and market and taking steps to make sure you’re creating offerings that address the needs of your most profitable audience. What we’re really talking about here is finding your product-market fit.
The Importance of Product-Market Fit
Getting a startup off the ground is no small feat, and failure rates are high. Many things can tank a fledgling organization, but a lack of product-market fit is the most deadly. Poor product-market fit accounts for 34 percent of all startup failures.
How is it that so many startups miss the mark on product-market fit? Often, it’s an over-reliance on anecdotal evidence from the founder and a lack of letting the market speak for itself. You can’t cling to your original ideas when the market tells you it’s time to change your approach.
To find the correct product-market fit, we need to explore another concept: jobs-to-be-done.
Clayton Christensen first introduced the concept of jobs-to-be-done. The idea is that, no matter what product or service you sell, customers are purchasing it to do a job. It’s up to you to understand that job and optimize your product to serve that need.
To illustrate the principle, Christensen shared the story of a fast-food restaurant that wanted to boost sales of its milkshakes.
The restaurant interviewed some of their segments, inquiring about the characteristics they most desired in a milkshake. Despite trying new recipes and flavors to address the results of these surveys, sales remained flat.
It wasn’t until going to one of the restaurants himself to observe customers “in the wild” that Christensen noticed something unexpected. Forty percent of milkshake sales were happening in the morning.
The restaurant had approached the milkshake as a dessert, and their messaging and recipes had reflected that. But it turns out that’s not what real customers were “hiring” the milkshake to do at all.
Instead, they were ordering milkshakes as breakfast. The treats were ideal for enjoying on a commute since they didn’t require two hands to eat. And because they were thick, they lasted for the whole ride and provided a welcome distraction to the tedium of morning traffic.
Once the restaurant understood the job the milkshakes were being hired to do, they made some targeted tweaks. They made the shakes thicker, so they’d last longer and be even more entertaining during the drive. And they added fruit to make them more of a breakfast item than a dessert.
When the restaurant chain moved beyond thinking about why they’d created the milkshake (to be enjoyed as a dessert) and instead moved to address the real needs of the market (providing a non-messy, long-lasting breakfast), everything changed.
Where Segmentation Fits In
So, where does segmentation come in where we’re thinking about product-market fit? Part of understanding the job your market “hires” your offering to do is understanding the different segments of your audience.
In the example from Christensen, he also found another segment of milkshake buyers: parents purchasing the shakes as a treat for little kids. This segment differs significantly from the breakfast commute milkshake drinkers.
Adults having a shake for breakfast want thick shakes with chunks of fruit, but that’s no good for little kids. Children struggled to get the extra-thick shakes through a straw. And have you ever met a kid who likes mystery chunks of healthy fruit in their dessert? The fast-food chain created a different milkshake recipe for this segment—it was thinner and fruit chunk-free.
Understanding the motivations behind why each segment of your audience buys allows you to cater to each of their individual needs. This may mean creating variations of your original product or introducing a new solution altogether.
The best solution will reveal itself when you go beyond averages and assumptions about your customer segments and get to the heart of the job-to-be-done.
Finding your product-market fit is an essential component of organic growth. It’s how you open yourself up to a broader market, address new customer needs, and scale beyond the original scope of your business.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, two daughters, and black lab.