December 19, 2022

How to Use the Product Discovery Loop to Find Product-Market Fit

At Lean Startup Berlin, Holly shared the Product Discovery Loop, a tool used in Product Science to focus research iteratively on market segments, user pains, user outcomes, and solutions.

How to Use the Product Discovery Loop to Find Product-Market Fit

Some time ago, I had the opportunity to speak at the Lean Startup Summit in Berlin about how to use the product discovery loop to build high-growth products, from finding your first product-market fit to iterations and strategy development later in a product’s life. I want to lay out those ideas here by describing product-market fit and breaking down the process of attaining it.

What Most People Get Wrong About Product-Market Fit

The term “product-market fit” was coined by Marc Andreessen, founder of the venture capital firm Andreesen Horowitz as well as some of the greatest hits of 90’s tech companies, like Netscape and Opsware. Andreessen famously said “And you can always feel product/market fit when it’s happening…Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.”

Yet people often get confused, thinking that product-market fit is a binary thing. It’s easy to think of it as something that you get and then have forever. That’s not the case.

Product-market fit isn’t a “big bang” event. It’s a series of events that happen as you grow the number of market segments, the number of problems addressed, and the value of outcomes reached as your product develops over time.

As a product developer, product leader, product manager, or product-minded founder, you care if the product you’re building is the best for the market. You want to build a product that people love using, and you need that to build a business.

But that’s not so easy to identify. Lots of people say there’s no way to know that until you build and release a version of your product.

Building and releasing often is critical, to be sure. But I also believe that you can get critical information to guide your path to product-market fit even before you build any version of your product, let alone bring it to market. I use a tool I call the Product Discovery Loop to break down product-market fit into components you can more easily identify and test along the way.

What Is the Product Discovery Loop?

The product discovery loop includes market segment, customer pains, desired outcomes, and solutions. Going through discovery around these four components gives you a better understanding of who your business is trying to target, what they want, what gets in the way of that, and how you can help them.

Each successful pass through the Product Discovery Loop increases customer love for your product, growing the addressable market by covering additional customers, pains, or use cases.

Next, I’m going to share more detail about each component and show how focusing on one pass through the Product Discovery Loop with each build phase sets your team up for high-growth product development.

1. Market Segment

The first component of the Product Discovery Loop involves knowing which segment of the market you’re building for. Typically, a founder will have a vision for the business they’re going to build and the product that goes along with it. They’ll have an idea of what market it’s for, but many times they’ll describe a market in terms that are overly general for a new product.

We get so excited about all the uses of the product we’re building. We’re also encouraged to think this way to attract investors and motivate team members with a big problem worth solving.

For example, I recently heard a pitch for a new social media management tool that helps with scheduling. My first question was, “Why would I want to switch to this tool if I’ve already tried several tools that do this?” The language used to explain it was overly broad, so much so that it didn’t stand out as something that would be solving any specific problems given the existing tools on the market.

Market selection is important. Your market needs to be big enough to support a business and trending in the right direction — it needs to be growing, not stagnating.

It’s also important to have a sense of how much competition there is in that market — is it already saturated or not? Do you have a competitive advantage that can help you gain a foothold with some segment of that market?

More often than not, you can’t build for an overly broad market from the start. Your first phase of work should focus on a segment within the market, one that is most likely to love your first version. This first segment may not make your funders as excited, but it’s a critical step to building the flywheel for continuous discovery and delivery.

One of my own examples of this comes from when I was working at Shutterstock as the Group Product Owner for workflow tools. We were developing a new product, the Shutterstock Editor. The vision for the product was to create an easy-to-use tool for non-professional designers to create great designs with our stock images. Think things like social media images, website graphics, something for your mailing list, fliers, signage, menus, and more. So, for this product, the market was these non-professional designers.

But the first segment of the market that we worked with was smaller. We needed to find a subset of this market whose needs we could meet more easily. To do that, we turned to qualitative research to help us move to the next step in the product discovery loop.

2. User Pains

The next phase of the product discovery loop is user pains. Typically a founder or product leader has some idea of what problem they’re going to solve, but it’s often lacking in context and details.

For example, the problem we were told to solve for Shutterstock Editor was that our target users wanted to create better looking designs more easily. But we didn’t really know how unhappy with their current designs they were or how frustrated they were with the process and told they had.

If you’re trying to launch a new product, you’re trying to get people to change their behavior. You’re trying to get them to change however they solve those problems currently and solve them with your product.

The difficulty here is that people generally aren’t willing to change their behavior for something just a little bit better. For most people, there are way too many options out there already, which makes it hard to decide what’s right for them. Because of this friction, they don’t bother to change their behavior until it becomes glaringly obvious that something in their life will be solved by trying something new.

So you want to find a hair-on-fire problem that people are willing to change their behavior to solve.

To do this, think about your product in terms of pain. You can better understand customer pain through interviews, which allow you to assess pain points from the customer’s point of view, rather than your perception of their pain points.

The problem your product addresses should be a problem that they notice, ideally one they’re actively trying to solve, and, hopefully, something they’re already spending money trying to solve. Finding this out lets you know if there’s potential for a business there.

At the time that we launched Shutterstock Editor, non-professional designers would often get their work done using a word processor or presentation program. At the other end of the spectrum, they might use a tool way more complex than what they needed, like Adobe Photoshop, when all they really wanted was a cropped version of the image for a post. So the pain points that resonated were that the process was difficult and it took too long.

3. User Outcomes

The next step of the product discovery loop is the outcome. Here, you want to make sure you understand what outcome your target customer desires. How will they know if they’ve been successful?

Why is this separate from customer pains? Because this is the joy — the part where they feel great about what you’ve accomplished with them.

Keep in mind that there’s more than one outcome for a given problem. A customer could make their problem go away by overcoming it and achieving a goal. Or they could make the problem go away by having someone else solve the problem for them, for example.

There are many different ways to solve a problem. We often lose sight of this when we get caught up in making incremental improvements to solutions that are already out there.

So we need to understand which outcome our users care about and would pay for. How do they define and measure a successful outcome to their challenge?

If we go back to our Shutterstock example, the outcomes these users wanted were pretty simple: quick, great-looking images for their business. The problem was that, with the digital tools available at the time, many companies were no longer willing to give them the resources they needed to have an expert do it for them. The users tasked with making these images almost always had some other job they’d prefer to be doing over navigating these finicky, complicated tools. So, more precisely, the outcome our market wanted was to create images that looked like they were done by a professional but took as little time as possible to create.

But we were able to go deeper than that. We saw that different types of nonprofessional designers needed images with different challenges around them. Small business owners needed print media and digital media. Communications staff needed great presentation materials.

But social media managers only needed cropped images, often with a bit of text. That was the easiest outcome for us to deliver, so we started with that.

We built an outcome roadmap, showing leadership that we were going to start with social media managers, then expand to social marketers, and then expand further to include communications staff and small business owners.

4. Solutions

The final step of the product discovery loop is the solutions. This is where your business comes in, helping your target customers overcome their pains and get the outcomes they want.

There might be more than one way to solve the problem and get your customer to the outcome they want. In fact, the best teams make sure they are thinking of and evaluating multiple options. Evaluate those potential solutions based on what’s doable for your business, and then validate them by putting them in front of customers to see what works and what doesn’t.

With Shutterstock Editor, we wanted to launch a feature that would let users add text to their images. We wanted to do it as lightly as possible, but at the same time, many felt like we needed a full text editing bar with font sizes, styles, weight, alignment, etc.

As the product manager, I had to remind our team that we were trying to make something easy to use, not complicated, and give people only the options they needed. They might not be able to align the text, but they could move the text box around, for example.

So we tested the most minimal version of this with users and asked them to use the tool to prepare a social media post with an image and text. From our perspective, we were trying to learn more about how to get to the outcome we were supporting with this release.

When we put it in front of some customers before we launched it, we discovered that we needed something more. What we found was that because our customers were using the tool to put text on top of images, they had a lot of readability issues, and they needed something to make sure text could be readable no matter what was in the background of an image.

Even more importantly, we understood why we needed this feature. If we hadn’t tested with users regularly, we would have been arguing over opinions.

Instead, we pointed to the evidence and launched the version with only the elements that were absolutely needed. We could see how and in what ways text was important to our users before deciding whether we should add more advanced text features or move on to a different area, like shapes.

Once your minimal prototype, or beta, shows the users getting their desired outcome, you are ready to release the product to your targeted market segment. Depending on how representative this set of target market segment, user problem, desired outcome, and solution are, determine the appropriate amount of marketing support.

In some cases, this first version will be a private, invite-only beta. In other cases, it will be a public beta. It might be a soft launch, or you might put some marketing behind it.

Whatever you choose, you are bringing that solution to market and closing the first iteration of the product discovery loop. The next step is to watch the data and feedback and, most importantly, how customers use it, to make sure it is achieving the outcomes you wanted for it. When it does, you have some small slice of product-market fit.

Now your job is to expand it. Begin your next pass through the loop.

You add something. Maybe it’s the same segment, but an additional outcome. Maybe it’s an additional segment.

Wherever you go next, you are adding to the total your product delivers. On each pass through the loop, you do research, talk to users, and explore multiple options. You build the continuous discovery practice of your organization, looking at product-in-market and talking to customers regularly while checking in with data and constantly shipping new versions.

Over time, this cycle will lead you towards product-market fit — not in a “big bang” event with a splashy and successful launch, but a methodical, continuous process that grows value for your users and your company over time. Eventually you’ll arrive at the point where, if a person from the outside looks in, they’ll see that you’ve found product-market fit.

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