Product-Market Match

Is there a Product-market Match (PMM)?
Without a product-market match, an idea or product/service is NOT the basis for a business. Instead, product (or service) without a market is the basis for either a research project or a charity.

This does not discount the value of research projects or charities. In fact, society is better off with these institutions. The problem occurs when an enterprise tries to continue without a match in the market for its product; when it insists that it be represented as a "business."

The critical test of a PMM is often quite simple. It begins with the question: Where is the purchase order?

A purchase order shows something important. It shows that someone in the "real" marketplace values your product/service more than they value their money (more on this in the next section). If you cannot show a purchase order, you do not have a business.

Now, the number of reasons, justifications, and excuses that novice venturers can concoct to avoid answering this question is almost infinite. But the point remains -- unless someone is willing to place an order for a product/service at an asking price, the product or service is not the basis for a business.

Therefore, be honest with yourself. A highly realistic assessment of product-market match minimizes the cost of unproductive new venture failure. If you answer this sub-question wisely and objectively, you can save yourself from emotional and financial anguish that results from venture failure. Resources can be conserved. Money and enthusiasm can be saved for the day when they can create wealth, instead of waste. And, if an entrepreneurial discovery is still in the research project stage -- then it can be funded as such, without the broken promises and disappointments that come from treating a research project as a business.

How does one go about determining whether there is a product-market match? The answers are as varied as the number of product and service ideas that are generated. There are, however, two or three standards to use you can conduct a "smell test." They are as follows:

If you wouldn't buy it yourself--there probably isn't a product-market match.
If a focus group of potential customers from the target market wouldn't buy it--there probably isn't a product-market match.
If customers in a test-market won't buy it, or if the purchasing agent of a distributor won't issue a purchase order--there probably isn't a product market match.

This is not to say that counter-examples (exceptions that prove these three tests wrong) don't exist. They do. But are you willing to bet at 100:1 odds (or worse) that you will get lucky despite the evidence -- or do you want to have your efforts and capital count for something?

If the answer to the product-market match sub-question is not yes, then don't go on. STOP. Fix the problem. And if the problem can't be fixed, then walk away (because you don't have a business anyway), or operate the effort as the research project or charity that it truly is. If you want a business, then find a product or service where there is a match with the market.

Yes, it is possible that someone else will take "your idea" and strike it rich. But the reality, if this happens, is that their situation and yours were not the same.

Ventures work because opportunities and entrepreneurs somehow fit each other. Realistically, in a lifetime each of us has several such "opportunity fits" presented to us.

So our job is not to pry ourselves into a deal in a "forced-fit" mode. The force-fit approach is a lot like trying to force the "ugly step-sister's foot" into Cinderella's glass slipper. It still doesn't fit despite all the effort and embarrassment. Instead, our job as venturers is to prepare for the time where the fit is right . . . and the key leading indicator is that the answer to the product-market match question is YES! If you have a product-market match you can go on and assess the other elements of the venture in logical order, confident that your further efforts will not be wasted.

The second sub-question (Remember, the first was: Is it a new-combination?) under Innovation is: Is there a product-market match? If the answer is not YES! (and your venture is a start-up) DON'T GO ON! Fix the problem or cut your losses.

However, if you have an ongoing business and the PMM rating is low, then how much of a business do you really have? Could you better spend your time on something else? Is this really a research project? Is it a charity, or is it a hobby? If so, then consider reorienting your efforts.

If time is better spent elsewhere, then cut your losses on this venture, and begin a new venture "search."

If you really do have a research project, then apply for the grants and acquire the assets needed to answer the research question(s).

If your project is a charity (i.e. it generates some revenue, but needs public support to keep going) then redirect your efforts to obtain tax-exempt status, and seek public support.

If your project is a hobby, then enjoy it as such--reap the "psychological income," and enjoy your achievements with other interested hobbyists.

But, if you don't want to reorient, and you want to build a better business venture than the one that is presently operating, then START WORK to find a better PMM. Examine each of the other questions in the New Venture Template I, to see where ideas that enhance PMM can be found. Can you add more value? more scarcity? etc.

But also, remember the risks. Lack of purchase orders (lack of PMM) means that the business is in trouble. There are too many stories of venturers who "cashed it in" (had to quit) because they spent too much time and energy on a no-win PMM problem. So if in doubt -- cut your losses now, and build a better venture on a sound PMM foundation.